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Analysts’ Corner: With rising inflation, procurement teams need to pay attention

07/01/2021 By

Editor’s note: Spend Matters’ analysts write about what they’re thinking in the Analysts’ Corner feature for our weekly email updates, like this post on inflation and procurement. On occasion, we will publish these insights for our wider audience. To read future Analysts’ Corner posts, sign up for our weekly email update.

For many years, economists have generally dismissed the coupling of commodity price inflation to overall economic inflation, especially consumer prices.

But according to a recent WSJ article, “over the past three months consumer prices, excluding volatile food and energy, have risen 2%, equivalent to a shockingly high annual rate of 8.2%.”

From a consumer perspective, inflation is a rather curious thing (and it’s not something millennials have ever had to consider before). Inflation, in short, makes us all poorer — it reduces our purchasing power, unless wages keep pace with inflation, which they typically never do, which in turn can result in stagflation, damaging the overall economy as consumers and businesses spend less in absolute terms, harming economic output.

In a procurement setting, managing through an inflationary environment is a double whammy, as it requires navigating the potential for reduced demand from end-consumers (and other businesses) while ensuring continuity of supply, maintaining supplier relationships and, of course, managing costs effectively (i.e., beating the market).

Our MetalMiner team (a sister company to Spend Matters) likes to say that “nothing kills high prices like high prices.” There’s truth to this, in most cases. And even in recent days, lumber prices, which doubled and tripled in certain cases this year, faced a major price correction.

But if real inflation is here to stay, procurement teams will have to worry about far more than the ups and downs of volatile spending categories and finished parts.

Now more than ever, access to good internal and market information is key to navigate in the late Q2 and Q3 inflationary environment — not to mention working closely with supply chain and operations functions to balance demand and supply signals to align with procurement.

Where to begin?

As I’ve said before, I read The Economist even before Spend Matters each day. Perhaps we all should be, in this environment! And, don’t forget to get smart on best practices and technology to support direct materials procurement and supply chain intersections.

—   Jason Busch,

Spend Matters Founder

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