Inflation is at an almost 40 year high. You’ve seen reports on the news and social media, it’s the biggest inflation surge since 1982. We’re all paying more for essentials— groceries, gas for your car, natural gas for your home— and Federal Reserve Chairman Jerome Powell just warned Congress that he doesn’t expect inflation to cool down anytime soon.
Procurement and supply chain leaders are closely evaluating inflationary and supply chain issues while the price volatility is applying pressure to businesses who buy products from companies feeling the same issues at the raw material level. You and your purchasing team might be able to mitigate some cost increases, but it’s becoming more challenging to continue to drive down cost and keep it down.
Have you thought about the strategic role that a group purchasing organization (GPO) can play as you navigate these challenges? There’s power in partnership. The GPO works as an extension of your team alleviating some of the stress associated with buying in an inflationary market.
Let’s take a look at how a GPO can help procurement teams mitigate inflation issues and elevate your impact at the organization.
GPO Buying Power vs. Inflation
To help lower your risk and protect against inflation, group purchasing can be a useful part of your procurement strategy. The GPO’s buying power is made up of combined spend of all the member organizations creating value-driven pricing and better terms and conditions. This strong buying power gives you leverage.
How does that leverage impact your company? In some cases instead of a fixed price for six months, the GPO’s buying power enables them to fix your price for a year. At a minimum, the GPO offers members added resources to determine if the price increase is warranted along with managing every aspect of the contract and pricing, giving procurement more time and resources for other pressing matters.
Purchasing during a seller’s market isn’t ideal, and you’re likely focusing on new ways to create value as you deal with low supply and high costs. The constant market analysis along with all your other projects can be overwhelming. This is also where your GPO partner can step in to assist.
The GPO has a daily read on market pricing as they’re continually running assessments. There’s an expectation of value at the GPO level, and if that value is trending in the wrong direction, the GPO can take appropriate action.
You can also tap into the higher-level relationship that a GPO has with supplier partners. The strengthened collaboration with suppliers ensures value, not just in price and speed to savings, but also in sourcing strategy, category research and analysis, ongoing contract management and more.
As leaders in procurement, you’re responsible for managing spend across several different categories and may be evaluating the categories associated with the most inflation risk for the company. You’re handling a large spend cube and at the same time working to protect against inflation, so this is where a trusted GPO advisor can step in to help manage the higher risk categories.
GPO contracts can also help you reduce total cost of ownership (TCO) while managing your spend categories to drive improvement in TCO. While price rises, there are other cost levers the GPO can pull to bring value, including demand management, optimization and alternatives.
Inflation into 2022
Experts are reporting inflation pressures projected well into 2022, and during this period of supply shortages and price volatility, procurement leaders can team up with their GPO to handle whatever the market throws at them.
“Inflation is always a concern, especially as we start a new year when most contracts allow for pricing adjustments,” says Scott Miller, SVP Supplier Relations, OMNIA Partners. “In today’s economy, with the threat of the market overheating, it’s an even bigger cause for concern. Rest assured that OMNIA Partners is focused on ensuring its members are continuing to see value against the market.”