A Recession is Coming: Save Costs Through Procurement
Inflation is hitting a 50-year high
If you are feeling worried about inflation rates and how they will likely affect your business, it's not surprising. With Covid restrictions lifted in a post-pandemic climate, many of us thought that the greatest of our financial worries were being left behind. Yet, this year’s bottlenecks coupled with an ongoing supply chain crisis have resulted in unprecedented levels of inflation. The adverse geopolitical situation in Ukraine has further compounded this issue contributing, both directly and indirectly, to the exponential increase in oil and gas prices. August and September this year saw the highest level of inflation in Germany in 50 years totalling a staggering 8.8% (Hagstrom, 2022). It’s clear, then: the decade of ultra-low inflation is over and has been replaced by eye-watering price growth.
Will inflation affect your company?
With a decrease in global demand, support for the Euro is expected to rapidly decline this year. Whilst the impact of inflation is inevitably most acutely felt by the most vulnerable in society, it seems, however large your business is, few companies are in a position of great financial stability. As Fratzscher puts it “many companies will go bankrupt” because “recession is unavoidable, we are already in a downturn” (Eyk, 2022). Recovery, too, is predicted to be a slow affair, with lasting impacts into 2023 and ’24 (Eyk, 2022). Seeing as procurement teams control a vast amount of company spend, a large task falls to them in order to increase financial security by keeping costs down.
Read on to find out about the steps your company can take to combat inflation…
Cost Saving: The Solution
What can be done?
What solutions can be found for large corporations in this economic climate? Seeing as companies spend more than 70% of their revenue on procurement (Nome, 2022), this seems like a good place to start. Wax Digital’s recent survey certainly supports this - they found that participants who used online procurement options rather than relying on their old manual processes saved a whopping 380% on supplier costs (Ismail, 2020). If your company is on a quest to become more financially secure, cost savings will prove crucial. An added benefit: unlike income capital, taxes don’t apply to cost savings!
What are cost savings?
Whereas “cost savings” as a term is pretty straightforward, it’s important to differentiate with related terms in order to better understand how company costs can be reduced while simultaneously encouraging growth – an endeavour that should ultimately be the aim of every corporation!
Cost-cutting refers to a “last-ditch attempt to save money” (Verma, 2022) and usually occurs on account of financial difficulty in a company. Examples of cost-cutting include making employees redundant or reducing their pay. Crucially, it often hinders growth. Cost saving, however, is a voluntary process that can increase productivity and, unlike its sibling term, aids in the growth of your company.
Steps to Effective Cost Saving
Step Number 1: Centralise your Data
Centralising your data allows your company to gain full visibility of spending. You can even increase this transparency by categorising data by cost category or business process.
The advantages of centralising your data are plenty…
- It ensures that everyone in your organisation is given the correct level of accountability, regarding their spending.
- It increases the accuracy and effective analysis of your spending.
- It allows your company to create a complete picture of your data. This means that you will be able to access crucial information at the click of a button! You would be able to see whether sales and inventory square up or whether it would be beneficial to change suppliers in a mere few seconds.
Step Number 2: Differentiate Between your Types of Spending
Differentiating between your strategic, non-strategic, and Maverick buying is crucial for optimising cost savings at your company. In doing so, better decisions can be made to maximise increasingly scarce resources. All in all: it allows you to do more with less! Yet, there are also added benefits - differentiating between different types of spending allows your company to show how costs align with strategy. [Maverick buying] (https://www.lhotse.de/en/blog/5-types-of-maverick-spend) will also be reduced as a result which will increase your overall contract coverage and help to bring down costs.
Read on to find out how Lhotse can reduce your indirect spending and help your organisation to eliminate Maverick buying entirely…
Step Number 3: Re-evaluate your Suppliers
Evaluating your suppliers can come in many forms… This can simply relate to negotiating better terms with your existing suppliers so that you reduce delivery time, and costs or improve your existing payment plans - all of which financially benefit your company!
Alternatively, if you find that your existing suppliers cannot provide competitive offers you should find new suppliers or bundle up spending by determining which suppliers offer the same product. Bundling up spend is a strategy that reduces the number of suppliers a company interacts with in order to merge requisitions into fewer contracts, reducing costs. This approach reduces your company’s number of suppliers which enhances your ability to reduce prices through negotiation.
Step Number 4: Automate your Processes
Automation can come in the form of stand-alone software or ‘add-ons’ like Lhotse which easily integrate into your existing systems. Using AI or machine learning to automate your processes stops your employees from having to perform repetitive manual tasks.
Taking away the pressure of unnecessary manual tasks from your employees frees up their time. This means that they can focus their attention on strategic activities, such as analysing data and generating insights – creating more value for your company!
The age-old phrase ‘time is money’ has never been more relevant than in the procurement industry. Automation can save up to 75% in the purchase order requisition, submittal, and approval processes.
Get involved and don’t miss out…
These cost-saving strategies are already being implemented by many organisations. In fact, a recent DC velocity survey suggested that as many as 50% of companies are now actively looking for new suppliers, with 44% renegotiating contracts with existing ones (Staff, 2022). But there is much more to be done, especially when it comes to innovation and digitalisation in the procurement field.
If you have read up until this point, we wish to leave you with a final procurement tool that will streamline your entire cost-saving process for you…
Introducing Lhotse
Who we are
Lhotse is a procurement solution that focuses on your company’s non-strategic spending. We enable a more effective relationship between organisations and suppliers, reducing processing and administrative costs in the process. The Lhotse app automatically identifies suppliers, requests offers, and provides a transparent overview of the best options. We also use suppliers' historic data to ensure that your company uncovers the largest savings potential.
Supercharge your procurement workflow
Our front-to-end process of communication with suppliers is entirely automated and we ensure that all of your data remains in one place. By automating anything in a procurement workflow that doesn’t require human judgment, we enable procurement teams to spend less time on manual work and divert their focus to strategic tasks, adding more value in the process. What’s more, the easy-to-use interface ensures that anyone in your company regardless of department and experience can use our app. Lhotse helps you do more with less and get 3x more competitive supplier offers with our in-app sourcing and negotiation features.
If you wish to find out more about how Lhotse can help you to improve your procurement processes, book a demo with us today!
Bibliography:
Eyk, H. (2022, September 10). Scholz Says Germany Prepared for Russia Gas Halt Over Ukraine. Bloomberg. Retrieved September 14, 2022, from https://www.bloomberg.com/news/articles/2022-09-10/german-chancellor-says-country-is-prepared-for-russia-gas-halt?leadSource=uverify%20wall
Hagstrom, A. (2022, September 4). Inflation in Germany hits near 50-year high amid energy crisis. Fox News. Retrieved September 14, 2022, from https://www.foxnews.com/world/inflation-in-germany-hits-near-50-year-high-amid-energy-crisis
Ismail, N. (2020, July 21). eProcurement produces 720% ROI – research reveals. Information Age. Retrieved September 14, 2022, from https://www.information-age.com/eprocurement-roi-research-123472994/
Nome, S. (2022, February 7). All You Need to Know About Spend Management. Retrieved September 14, 2022, from https://www.igniteprocurement.com/blog/all-you-need-to-know-about-spend-management#:%7E:text=According%20to%20the%20Chartered%20Institute,benefits%20to%20the%20bottom%20line.
Staff, V. D. C. (2022, August 11). Procurement pros say inflation is top concern. DC Velocity. Retrieved September 14, 2022, from https://Https://www.dcvelocity.com/articles/55259-procurement-pros-say-inflation-is-top-concern
Verma, P. (2022, August 18). How to Uncover Millions in Hidden Procurement Savings in 2022. Retrieved September 14, 2022, from https://www.igniteprocurement.com/blog/how-to-uncover-millions-in-hidden-procurement-savings?utm_campaign=uc-enable-savings&utm_content=218412040&utm_medium=social&utm_source=linkedin&hss_channel=lcp-10506387
