How safe is your supply chain from inflation? Use these 3 easy ways to stay protected.

As the world emerges from the pandemic, businesses are facing a new challenge: inflation. At a 40-year high according to Forbes, banks aren’t expecting the costs of goods and services to drop anytime soon. This can eat into profits and make it harder for smaller businesses to compete in the marketplace.

Inflation doesn't affect only consumers but also company profits. How can your business mitigate it's effects through supply chain optimization?

We share 3 simple strategies businesses can utilize today to make your supply chain leaner and more efficient.

A key strategy for managing inflation is to build and maintain strong partnerships with suppliers. Here are a few ways to do this:

• Define relationships through establishing clear supplier relationship management (SRM). Leverage the criteria to understand the right supplier relationship. Examples of SRM criteria are annual spend, on-time delivery, quality performance, & commercial clauses.

• Develop relationships through sharing of information on business status and market intel over a regular cadence. Conduct monthly or quarterly supplier reviews as needed to facilitate this conversation.

• Deepen relationships by engaging in mutually beneficial contracts. Include clauses on temporary price reductions, price change mechanisms and volume rebates to help offset rising costs.

Method 1: Leverage Strategic Relationships

Method 2: Explore the Use of Alternatives

Manage inflation by sourcing for lower cost alternative products that can be used in place of incumbent materials.

Here’s how to start:

• Conduct a spend analysis: This process of analyzing your organization’s spending data to identify areas where cost savings can be achieved. This step is important to help prioritize the areas where cost reduction efforts will have the most impact.

• Rank the categories: Once you’ve ranked your spending, prioritize areas of improvement. This can be done by identifying the areas where improvements will have the most impact on your customer, or where the biggest opportunities for cost savings exist. Prioritizing areas of improvement allows the organization to focus on the areas that will have the greatest impact on the bottom line.

• Collaborate with a cross-functional group: Collaboration with Technology and Product Management is important in order to brainstorm and identify alternative materials for cost reduction. They can provide valuable insights and expertise on potential materials and their suitability for your products.

• Conduct a sourcing event: Identify suitable suppliers with favorable pricing by inviting suppliers to submit quotes for materials required, or conducting a reverse auction where suppliers bid for the business. This step is important in order to secure the best possible prices for the materials required.

• Evaluate performance of alternative material: Once alternative materials have been identified, run tests on your final product and Quality Control. It is important to evaluate their performance to ensure they meet the required specifications and perform as well as, or better than, the original materials.

• Commercialize!

  You can read here about how SPARKD Partners worked with tech to find suitable alternatives to help improve profitability of a chemical compound.

Method 3: Diversify Sources

Another strategy for managing inflation is to diversify your supply base. Diversifying your supply base may seem counter to the first method of leveraging strategic relationships, but it can actually complement it. Having multiple suppliers can provide bargaining power and increase resilience to market disruptions.Reach out to new suppliers for raw materials and keep competition healthy.

• Risk Mitigation:

  • It doesn’t matter how big or small your company is, diversifying reduces risk. Diversifying sources in the supply chain helps maintain a balanced supply base and reduce risk of supply disruptions.

  • Having multiple suppliers for the same product ensures that you have backup options in case one supplier experiences issues or raises prices, which will minimize the impact on your business.

  • Even tech giant Apple who have long sourced up to 82% of their display panels from Samsung are moving to reduce reliance and produce their own in-house panels in 2024.

• Cost Savings:

  • Diversifying sources for your supply chain also provides an opportunity to consider smaller and lesser-known companies, as they may be able to offer more competitive prices and better customer service. This can help to reduce costs and improve the overall efficiency of the supply chain.

  • NIKE, utilizes an efficient supply chain strategy that outsources manufacturing to third-party factories. This allows them to take advantage of lower costs and maintain flexibility in their production. In turn the factories source the raw materials needed for manufacturing within the host country, minimizing lead time, costs, and risks associated with importing materials.

• Quality and Customization:

  • When considering suppliers to optimize your supply chain, evaluate them based on more than just their prices. Consider the quality of their products, the reliability of their deliveries, and their ability to meet your specific needs, ensure you are getting the best value for your money and that your supply chain’s needs and requirements are met.

Conclusion

Inflation is a challenge that businesses around the world have been facing since the pandemic, but with the right strategies and approaches, it can be managed. Leveraging strategic relationships, exploring the use of alternatives, and diversifying sources, businesses can minimize and mitigate the effects of inflation and maintain market competitiveness.

By taking action now, you can position your business for a stronger and more successful future.