Local Government Procurement

Dealing with Inflation

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Dealing with Inflation

I’ve faced various economic environments during my career in procurement. The 1980’s stand out in my mind as a period of high inflation and a strange form of opulence in some ways. Sales representatives were driving around in quite upmarket vehicles, businesses seemed willing to spend big, inflation was rife and supply chain issues common.

The early 1990’s seemed so different. Prices kept dropping over a number of years. Buyers could do great deals, wages were pinned and jobs were trimmed. The pressure was on.

In later years we have seen somewhat steady economic conditions, but economists keep warning us that interest rate increases are around the corner. For those of us in procurement, some strategies need to come into play to get the best deals for our councils. I suspect that we won’t see uncharacteristically high inflation for some years, but there’s still a need to think ahead. Some simple strategies you might like to employ include:

• Period orders with fixed prices regardless of quantity e.g. for one year
• Fixed quantity orders (bulk quantity) at fixed prices with multiple partial deliveries on request e.g. one year’s stock
• Allocated stock agreement with suppliers to hold a certain quantity of stock kept solely for you, then delivered and invoiced as you need it (also known as consignment stock depending on where the goods are located)
• Forward orders, where you schedule out deliveries over a set period for an upfront agreed price
• Annual rebates based on actual off-take over the year
• Grouping products in common categories and seeking bids to supply each category rather individual products
• Buying direct from overseas instead of local (This may not be so feasible for most councils but for the astute, can lead to substantial price advantage)
• Use of aggregated buying agreements already available e.g. LGP, ROCs, etc
• Spending your time where it gets you the most strategic benefits e.g. your high cost and high-risk purchases

Other options also exist, but these last two, when combined, can lead to significant cost reduction. Have you really thought about it? If you have any questions or need more help in understanding the approach, contact your LGP Business Development Manager.

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