Cost Increase Survival Guide
Tips to get beyond the emotional drain of endless cost increases
Graham Leary – October 11, 2021 Reading time: 1 minute
For buyers managing in the current environment, dealing with the relentless flow of cost increases is exhausting and stressful. At times, one may even take it personally and ask, "am I doing a good job, am I failing, and does my company still believe in me." However, in this trying environment, it's important to remind yourself that you are not alone, and it's also essential to have a framework to work from and some processes that will help deliver better results.
Many years ago, when I was starting in procurement and working internationally, our subsidiary was visited by the company's Chief Procurement Officer. He bought with him a VHS (yes, it was a long time ago!) of a presentation by Michael Porter, a renowned Harvard professor. I've never forgotten one point Mr. Porter made. He said, "competition between firms would be governed by how well one firm's supply chain competes with another." In today's cost environment, nothing, I believe, could be more accurate.
Without much doubt, your competitor's supply chain is also highly challenged, but how is your supply chain competing? What are the strengths and the opportunities? For example, even though you are taking materials cost increases, you partnered with a supplier bringing them on-site to manufacture a critical component (near vertical integration), giving you an advantage. On the other hand, your competition appears to be ditching low-performing SKUs, freeing up materials for high-volume SKUs. Yet you've been reluctant to bite the bullet. Just a few examples that can help build a "framework" to prioritize resources and areas of focus.
Earlier this year, a colleague Dan Wooldridge and I co-authored an article providing our insights on "processes" and a "playbook" to help manage cost increases. "Getting hit with cost increases - be prepared more are coming." Read it here at the below link.
Since then, the environment has worsened, heightening the need for buying teams to be: knowledgeable about markets, understand cost drivers, have a cross-functional approach, and have a negotiation playbook.
Developing a framework that focuses on how your supply chain can maintain or grow its competitive advantage within this environment and utilizing the negotiation playbook will not only help today but also in the future when this tide inevitably turns.
Graham Leary is the founder of James Alistair LLC – a boutique procurement & supply chain consulting company.
Find us at: https://www.jamesalistair.com
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