Supply Chain Inflation Highest in Decades
We all know that inflation in the United States is at its highest in decades–jumping from 1.4 percent in 2020 to 8.3 percent in 2022. Most experts cite supply chain disruptions, along with a post-lockdown rebound in consumer activity and Russia’s invasion of Ukraine. Some economists expand the inflation narrative to include loose monetary policy driven by the central bank. Whatever the origins, the cost of doing business—including supply chain inflation—isn’t going away anytime soon.
Sean Ashcroft, the editor of Supply Chain Digital, posted “Top 10 inflation-busting cost controls in the supply chain.” Ashcroft calls his recommendations “strategies that organizations might explore to offset the ever-increasing production and supply costs.”
Here is the Cliffs Notes version of Ashcroft’s supply chain inflation “busting” tips:
- Create a supply chain “nerve center” where all stakeholders communicate and share data and resources.
- Negotiate with suppliers, especially those that are geographically close, to reduce supplier’s transportation costs.
- Collaborate across functions, especially procurement departments, with a “broad set of levers capable of creating value.”
- Analyze costs to shed light on what is driving prices.
- Invest in efficiencies like IT and automation, especially if labor is tight.
- Design savings into how products are engineered. For instance, might 3-D printing be a more cost-effective way to build parts?
- Be strategic about contracts, and look for opportunities to maximize spend on contracts that don’t reflect current inflation rates.
- Explore new markets, including those in new regions and territories you might have previously overlooked.
- Reshore production. While admittedly “not a quick fix,” reshoring opens the door to lower transportation costs.
- Rethink packaging to avoid soaring prices for cardboard and to reduce printing.
Navigating the Perfect Storm
Negotiating with suppliers, collaborating across functions, and analyzing costs are especially resonant to G.H. Swaleh, Vice President of Procurement for PRIDE Industries. Additionally, he cites the importance of adjusting ordering habits to account for longer lead times, adjusting quantity ordered to include safety stock-on-hand, and requesting RFPs to gauge market conditions.
“Supply chain inflation is the perfect storm,” said Swaleh. “It’s going to get worse before it gets better. But with persistence and the right strategy, it can be navigated.”