ResourcesBlogThe impact of inflation on procurement and payment ...

June 22, 2023

The impact of inflation on procurement and payment strategies: Best practices for mitigating risk

Greg Tennyson
Global Leader: Procurement, Sourcing, Shared Services & Operations

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Macroeconomic conditions continue to push Procure-to-Pay (P2P) functions to the brink underscoring the need for the right technology investments. Factors such as economic fluctuations, market volatility, and global events are creating significant challenges for businesses in managing their procurement and payment processes effectively.

These challenges emphasize the importance of making the right technology investments in the P2P space. Organizations need to adopt advanced technological solutions that can provide efficiency, accuracy, and agility in their procurement and payment operations.

Some of the benefits of adopting the right procuretech solutions include:

  1. Greater cost savings (cost takeout)
  2. Reduced cycle times (efficiency | scale)
  3. Mitigating supply chain risk (visibility)
  4. Advancement of social programs (diversity | sustainability)

While adoption is on the rise, most organizations haven’t yet been exposed to the value procurement brings when adequately resourced. Now is the perfect time to explore the effects that P2P solutions have on organizations in the current economic climate.

Inflationary pressures

Inflation is at historical highs and impacting all aspects of an organization’s operations, from direct to indirect goods and services as illustrated below:


‍In terms of direct goods, organizations are facing increased costs for raw materials, components, and other inputs necessary for their production processes. These rising costs can directly impact the profitability of businesses, as they have to absorb higher expenses or pass them on to customers through price adjustments.

Indirect goods and services, such as utilities, transportation, and office supplies, are also subject to inflationary pressures. Higher costs in these areas can further strain the financial resources of organizations, as they need to allocate additional funds to maintain their operations.

Procuretech as a differentiator

Given these circumstances, organizations need to closely monitor and assess the impact of inflation on their operations. This involves implementing strategies to mitigate cost increases, exploring alternative sourcing options, renegotiating contracts, and implementing efficient procurement and spend management practices and technologies.

Procuretech, a crucial component in addressing the challenges posed by inflation, encompasses a robust foundational layer known as a procure-to-pay (P2P) solution. This comprehensive solution is designed to enhance the stakeholder experience and alleviate the burden on procurement teams by streamlining and automating various processes.

The P2P solution within procuretech incorporates a range of capabilities to optimize procurement operations. It simplifies and automates key functions such as purchase requisition management, workflow approvals, catalog management, purchase order generation, invoice matching and reconciliation, and payment processing. By leveraging these capabilities, organizations can achieve greater efficiency, accuracy, and transparency throughout the procurement lifecycle.

While a P2P solution’s primary objective is not directly battling inflation, a well-implemented solution can contribute to cost containment, process efficiency and data-driven decision-making. When combined with effective financial planning and risk management strategies, these technologies can help organizations combat inflationary impacts.

It is pertinent for organizations to invest in procuretech to establish systemic controls and gain actionable insights. The status quo won’t and cannot yield the desired results to fight inflation in this economy. IRising labor costs, material expenses, and overall operational expenditures alone are not sustainable strategies when organizations are expected by their C-suite to exercise expense control and make positive contributions to the bottom line. To meet these expectations and effectively navigate inflationary challenges, organizations need to embrace procuretech solutions.

Why procuretech?

Modern procurement teams have evolved beyond their traditional transactional roles within organizations. Nowadays they are expected to take on additional responsibilities, including risk mitigation, ensuring the resilience of goods and services, and addressing macroeconomic factors like inflation and the potential for a recession. The last several years have elevated the expectations placed on procurement as these pursuits are now being transformed by procuretech advancements such as connected, amplified intelligence.

When advocating for the adoption of procuretech, procurement professionals need to emphasize the tangible value it brings to the organization. Implementing a well-designed P2P solution offers several key benefits, including (but not limited to):

  • Spend visibility and control: A robust solution provides transparency into procurement spend, enabling organizations to track and analyze expenses. This visibility allows for better control over costs, identification of savings opportunities, and effective budget management.
  • Centralization of procurement function: By implementing a P2P solution, organizations can streamline and centralize their procurement processes. This centralization improves efficiency, standardizes workflows, and enhances collaboration among stakeholders. It also facilitates better supplier management and contract compliance.
  • Consolidation of buying power: With a P2P solution in place, organizations can consolidate their buying power by leveraging supplier relationships, negotiating favorable terms, and implementing strategic sourcing practices. This consolidation leads to cost savings, improved pricing, and enhanced supplier performance.
  • Risk mitigation through structured processes: Adopting a P2P solution ensures that the procurement process follows defined workflows and approval mechanisms. This structured approach mitigates the risk of unauthorized spending, fraud, and non-compliance and enables organizations to enforce procurement policies and adhere to regulatory requirements.

Procuretech’s value contribution

A P2P solution provides organizations with better visibility and control over their procurement spend. By centralizing purchasing activities and consolidating their buying power in a P2P solution, the procurement team can negotiate better contracts with suppliers, leverage economies of scale, and secure more favorable pricing terms. The P2P solution in this sense provides the insights to help mitigate the impact of price increases caused by inflation, as organizations can actively seek alternative suppliers, compare prices, and find better deals.

In addition, an effective P2P solution enables better supplier relationship management by providing a single source of truth to oversee performance data, such as:

  • on-time deliveries
  • quality
  • first-time invoice match
  • purchase price variances

P2P solutions level the playing field by strengthening supplier relationships, enhancing transparency and streamlining processes by building trust.

Automation and process efficiency

Another benefit of P2P solutions is the ability to automate manual tasks and streamline the procurement workflow. Looking ahead, we can expect AI to accelerate automation exponentially. Automating the procurement processes helps organizations to reduce cycle times and increase time to value. When systems communicate with each other through application protocol interfaces, the occurrence of human errors significantly decreases. This reduction in errors leads to fewer rework requirements, improved efficiency, and the generation of cleaner and more comprehensive data. Consequently, businesses can obtain actionable insights from this data, enabling them to respond swiftly to market changes, such as price fluctuations resulting from inflation.

Leveraging the capabilities of a P2P solution and implementing strategic procurement practices can help organizations effectively battle inflation by optimizing costs, improving efficiency, mitigating risks, and maintaining financial stability. These efforts, coupled with sound financial planning and a proactive approach to supply chain management, aid businesses in navigating the challenges posed by inflationary environments.

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