Inflation is back – but are you prepared?

For CFOs who were just drawing breath after the unprecedented challenge of managing company finances throughout a two-year pandemic, the 5% average bump in prices is an unwelcome development.

All indications suggest that it isn't transitory either: resulting from the global supply chain disruption, pandemic-related economic disorder, and fiscal stimulus, the world witnessed highest inflation rates in decades. CFOs, while overcoming the unexpected challenges in the last few years are now facing persistent inflationary pressure. As they balance cost management and growth initiatives, they will have to do more to manage the impact.

Challenge

There's a perfect storm brewing

Challenges abound for organizations today. Soaring commodity prices, a shortage of skilled talent, and rises in manufacturing, packaging, and transportation costs are making it hard to plan, procure, make, and deliver products and services. Companies are already managing these difficulties in several ways – absorbing costs, altering price-pack architecture, raising prices, collaborating with suppliers, and cutting their revenue outlooks. But there is a problem: pricing actions have a built-in lag – they don't have an immediate effect on financial results. Additionally, they rarely cover input costs, and there's a real risk that customers will get fed up with price escalations and delays and switch their brand loyalty, causing lasting damage.

So, what can CFOs, procurement leaders, and chief supply chain officers do to steer their organizations past these obstacles and secure long-term, sustainable value creation?

Solution

Embrace predictive intelligence to look beyond inflation and toward long-term gains

Luckily, things have moved on since companies last went 10 rounds with inflation. Technology advancements have made it possible for companies to have access to solutions that are far more powerful in the fightback. To isolate and tackle high-risk inflation factors at their source and discover new paths to growth, leaders are looking to integrate and connect systems, streamline processes, and accelerate decision-making powered by data-led predictive insights. Genpact's multipronged solution to tackle inflation delivers on all these fronts – here's how:

• Intelligent sourcing: With inflation eroding purchasing power, leaders need to balance the cost of goods and services their business teams need with the benefits of running a lean operation. A focused approach to bringing down operating costs requires an audit of the assets, products, and services required to run the organization effectively, along with a review of your company's major supplier contracts. Our procurement experts can quickly identify and prioritize cost-deflating initiatives to strengthen your company's ability to mitigate the adverse impacts of inflation. We can review your key supplier contracts and category spends, build benchmarking-based should-cost models, and support you with accelerated negotiation and sourcing efforts. Our intelligent sourcing solution uses a comprehensive approach to manage supply risk while cutting costs. Inflation can rise faster than most companies can adapt. We can help you navigate market-driven cost factors ahead of your competition.

• Commodity price forecasting: The current volatility is such that CFOs are struggling to accurately predict what will happen in the near term, never mind the long term. Leaders need help forecasting comprehensively, accurately, and at speed to tighten costs and manage cash in response to market changes. Genpact's commodity price forecasting solution uses artificial intelligence and machine learning to analyze internal and external data to deliver short-, medium-, and long-term pricing insights that enable you to make better decisions. We help you combine price prediction intelligence with supply and inventory inputs and commodity requirements to optimize your overall spend. Our models consider requirements, timing, holding, and transportation costs, as well as price, macroeconomic factors, and commodity availability. And they can generate multiple scenarios and prescribe optimal purchasing decisions.

• Trade-promotion-as-a-service: As inflation bites, consumers are becoming cannier and changing their consumption patterns to fit their dwindling budgets. If companies do not pay attention to this trend, they risk facing a long-term loss of market share. Genpact can evaluate your company's end-to-end selling process and identify opportunities to optimize trade promotions. Our augmented-intelligence-powered solution can drive value and help you boost revenues, manage promotions centrally, guide performance management, and recommend short-term promotion tactics and plans.
• Supply-chain-planning-as-a-service: Supply chain management continues to be in a flux. With persistent inflationary pressure, it looks fragile. Leaders have to act immediately to strengthen supply chains and improve their transparency, resilience, and responsiveness. But few have the time or analytical knowledge to meet the challenge. Genpact offers a modular set of solutions focused on building a resilient and agile supply chain. We use a slew of advanced analytics capabilities guided by our supply chain expertise to transform forecasting, inventory management, supply management, and supply chain optimization tactics.

Impact

Thrive, not just survive

Our solutions have a wide range of impacts. We help you tackle inflation right across the operational realm, from commodity price forecasting to intelligent sourcing and procurement to interpreting consumer buying behavior to supply, demand, and promotions management. The key impacts of our solutions include:

• Procurement: 2–4% minimization of inflation impact on procurement spends, the ability to negotiate better using long-term spend forecasts, and a consolidated supply base through spend aggregation
• Commodity price forecasting: Accurate and predictive pricing for supply, demand, inventory cost, and materials requirements so that leaders know what to purchase when, from where, and at what price
• Trade promotions: Our Promo 360+ program increases the time salespeople spend on growth activities by over 30% and strengthens the intelligence that informs their actions
• Supply chain planning: Our solutions can improve forecasting accuracy by around 20%, reduce inventory levels by 30%, deliver up to 5% in logistics cost savings, and reduce losses in the supply chain by around 5%

Act now to reap long-term benefits

It is clear that inflation is not transitory, and leaders need to up their game if they want to limit its effects and continue to innovate and grow. They need to act across the organization's operations to manage inflation's pernicious effects and deploy intelligent, digitally enabled solutions to crunch data and deliver predictive insights that improve decision-making in real time. Times may continue to get turbulent, but there are solutions available to help you work around inflation and grasp scarce opportunities as they arise – with intelligence and agility – to deliver strategic value and competitive differentiation.