All of our clients are wrestling with this issue. Overall inflation in the UK is now falling (down from 4.4% in February to 4.0% in March, see chart) however this overall decline masks large swings in specific prices.
- Oil, energy and logistics costs are increasing
- Labour and people based costs are remaining stable
- Technology costs continue to decrease
- Costs of goods and services from ‘low cost’ countries are increasing
Overall the level of 4% is higher than at any time in the past 10 years. However, the current economic environment is making it difficult for organisations that sell services or manufactured products to raise their prices (last month manufactured food prices fell) making development and implement mitigation strategies critical.
We are working with a number of our clients to mitigate the impacts of this price volatility and inflation. For example
- Optimisation of the sales order process and associated logistics network to reduce the unit cost of deliveries. The change in prices has increased the relative cost of distribution relative to warehousing and made it economic to change the structure. Many organisations are also facing cost pressure on their driver staff, as this is now a group in high demand. It has also made it more important to ensure that all day-to-day optimisation tools are used to the maximum.
- Looking for additional sources of collaboration with other businesses. We have our own collaboration programme that identifies categories where collaboration can create significant savings. Typically these are in categories with a steep scale curve, where the client is at a relatively high point. We are working with a number of private equity groups to implement savings opportunities across their portfolio.
- Using strategic relationship management to drive out additional costs of the full supply chain. Our approach to SRM combines a focus on cost with innovation and quality. We have always found, especially now, a structured process of asking the suppliers for cost reduction ideas, then working to implement them provides significant savings