Procurement tips are relevant tools businesses in Africa can use to combat inflation. When most people think about inflation, they only think about the people impacted; seldom will they think about the businesses.
This has left a lot of businesses in a dilemma. Raise prices, and customers will flee, keep the current prices and lose a ton of money. However, this is where the procurement arm of the business comes in handy.
In this article, we discuss ten ways the procurement team of any supply chain or business in Africa can help combat the inflation crisis.
1. Consolidate
Before inflation began flexing on businesses, the golden rule of procurement was to have as many suppliers as possible. Well, maybe NOT the golden rule, but it was definitely up there. It is a good rule, but it’s time to set it aside gently. Why?
You need to consolidate to take advantage of the economics of scale. Get in bed with suppliers who offer multiple products that fit your business or supply chain need, and use that opportunity to negotiate a reduced cost for the overall transaction.
This helps keep costs down, and you may not have to increase the final selling price just yet.
2. Simplify the Procurement Process
As far as procurement tips go, this seems like a crazy option, but did you know that most businesses in Africa tend to overwhelm their procurement team? This leads to a lot of missed opportunities. Simplifying your procurement process reduces the risks of errors and fraudulent activities.
Your business might really need that in a time like this. So how do you simplify the procurement process? The short answer is digitization. The key is to look at this as a long-term investment that helps you analyze the procurement process, automate it, and fast-track supplier payment.
It really is a no-brainer, and with inflation being what it is, it could save you a lot of lost revenue. There are systems such as ERP for supply chains that you can invest in.
3. Invest in Supplier Relationships
Did you know that investing in your supplier relationship can save you from a world of trouble with them? Yes, your procurement team can collaborate with each supplier to identify mutually beneficial strategies, helping each party achieve their common goal.
The ideal approach here is to find areas where your suppliers can reduce their costs, thereby helping you reduce yours. It is a give-and-take situation.
For example, Walmart shares its sales data with suppliers, which is a pretty strong forecasting tool for them and enables these suppliers to plan production accordingly. This reduces the supplier’s overall cost, and in turn, Walmart can save money on holding less inventory.
You can read all about managing supplier relationships here.
4. Review Contract Language
Make out time to review contract language with suppliers and ensure these contracts favour you in areas such as price increases and hidden penalties. If these terms do not favour you, work on renegotiating these prices.
In the contract, ensure there are mechanisms that control price increases irrespective of the economic situation. You should also ensure transparency on billing details to avoid mischief on the part of suppliers when submitting invoices.
5. Prioritize
Opportunity cost is still a thing, and there is no better time to get back to it. Not every item is necessary for your business or supply chain to succeed. In an inflationary crisis like this, it is critical to have a priority rule in place.
With an opportunity cost template or a priority rule, you can itemize expenses according to their necessity while delaying or eliminating unnecessary costs from the supply chain process.
6. Market Research
This is one of the procurement tips that impact both ends of the supply chain – suppliers and customers.
Some suppliers will take any opportunity to hike prices even when the market hasn’t done so. Some may hike their prices beyond the market average. It is important to understand that many suppliers won’t do it, but some would.
Your procurement team must perform its due diligence by conducting periodic and extensive market research. This gives your team leverage and helps when dealing with suppliers. Ultimately it helps keep the business and supply chain costs low.
When it comes to customers, market research helps you develop a good demand forecasting system which helps the supply chain correctly estimate customer demand and plan accordingly. Market research contributes to the aggregate production planning of any supply chain.
7. Make or Buy Analysis
It is time to review your make or buy analysis. A supply chain is only as strong as its components, and during an inflationary crisis, it needs all the strength it can get. The make or buy analysis allows your supply chain to decide on parts to outsource or keep in-house.
Outsourcing has many benefits, such as price reduction and proper channelling of resources. If supply chain processes are bugging down the business, it may be time to let the experts deal with it while you focus on your core business.
However, expertise is not the only reason to outsource. Many businesses outsource to cut costs or exploit the economies of scale suppliers can offer. There are two types of outsourcing- offshoring and onshoring. Simply put, offshoring is international outsourcing, while onshoring is domestic outsourcing.
8. Review Recurring Expenses
Whether in business or personal finances, recurring expenses are a nuisance and tend to impact savings negatively. Recurring expenses also tend to present an opportunity for staff to defraud the business if they are motivated.
It is important for the business, in collaboration with the procurement team, to review these expenses, verify their authenticity and pricing. Reviewing recurring expenses can save a ton of money in your procurement process.
9. Think Long Term
This can be difficult to phantom, but it is probably one of this article’s most important procurement tips. The truth is, no matter the predictions, no one knows when inflation will end. After all, it has been going on since 2020.
Your best bet is to think strategically, which often means considering the future deeply. Many of the investments you will need to make might be expensive, but many will pay for themselves. Example implementing sustainable practices.
Deferring these investments for short-term benefits will only cost your business and supply chain.
Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
