CSCMP's Supply Chain Quarterly
October 19, 2018
Forward Thinking

Factor future inflation into purchasing now

Supply chain and procurement managers must change their expectations that input prices will continually fall, says one consultant.

Massive government spending to end the global economic downturn will drive up prices in the next 12 to 18 months, predicts a British purchasing consultant. "Inflation indicators currently remain subdued, but that doesn't mean inflation will remain asleep," warns Robin Jackson, the CEO of ADR International, a United Kingdom-based consulting firm that specializes in purchasing and procurement.

In an article in his company's electronic newsletter and posted on its Web site, Jackson says that prices for such key commodities as copper, steel, and oil are already rising. With inflation in the offing, he suggests, supply chain and procurement specialists must change their own and corporate executives' expectations that input prices will continually fall, as has generally been the case in recent years. Companies should brace themselves to "accept flat pricing at best," he writes.

Jackson also suggests being proactive and putting in place a process that will determine whether to accept price hikes, take steps to offset them, or change to other, lower-cost sources. Procurement managers can start discussing potential price hikes with their vendors now, with the aim of convincing them to focus on managing their own material costs rather than simply raising their selling prices, he adds.

Finally, companies need to set priorities for purchasing. "Forecast the potential financial impact of inflation category by category, including when you think it will take effect," Jackson advises. "It's no longer sensible —if it ever was —to wait for supplier to ask you for price increases and then to react."


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