New year, new challenges for procurement professionals

Natural disasters, high oil prices and continued global economic uncertainty are set to make 2011 a challenging year for purchasers, with procurement professionals struggling to keep costs down.

Developed nations have seen the oil price, which underpins the cost of many goods and services, rise by around 30% in the past year, according to the International Energy Agency.

Despite this, it seems that mother nature has been the main culprit. Floods in Queensland have held back supply of coal and mined metal ore, and grain prices continue to see the impact of last year’s fires in Russia.

Chris Williamson, chief economist at Markit, says there has been some interruption in supply caused by poor weather.

“Alongside that you’ve got stronger demand globally. A lot of commodities are priced globally because there is such a synchronisation of supply chains,” Williamson said.

When supply is interrupted and demand is high, buyers will try to protect themselves by buying safety stock which can drive prices even higher, he said.

Mike Flanagan, equipment procurement manager at supermarket chain Safeway, says buyers have been struggling for some time to avoid passing on these increased costs to customers.

“Pressure has been growing since mid-2010. We have been fiercely fighting and pushing back on all fronts. With mostly wins so far,” Flanagan said.

Now is the time for buyers to start educating the CFO and others, with demands on procurement about how they are measuring success, before the worst of inflation starts to hit prices.

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