How CEOs can respond to rising prices

In a recent study conducted by McKinsey & Company, they looked at how CEOs and company executives can respond to rising prices. According to the study, there are two traditional approaches to battle rising prices: pricing itself and Procurement strategy. Pricing doesn’t provide an answer because the increases do not always cover all the additional costs – as a result, businesses face thinner margins, lower sales volumes, or both. Procurement can support their organizations as a response mechanism to defend profitability, but there are limits to that as well, and Procurement can only achieve as much on its own. The suggested way forward in these cases is for the organizations to build a ‘resilience playbook’ around three building blocks:

• 𝗦𝗵𝗼𝗿𝘁-𝘁𝗲𝗿𝗺 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 to understand the actual underlying costs, conduct fact-based negotiations, or identify opportunities to rapidly reduce costs through quick changes to product design or specification
• 𝗠𝗲𝗱𝗶𝘂𝗺-𝘁𝗲𝗿𝗺 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 focusing on improving efficiency, quality, and productivity in business operations
• 𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 might require companies to pursue structural changes to their value chains and business models

  The takeaway for Procurement here is to think more broadly about how to deliver value to their respective organizations. The cost element remains significant these days. However, Procurement can also show its relevance by working on the broader agenda:

• Digitizing its operation
• Looking into the organization’s supply base
• Working closely with critical/key suppliers
• Identifying ways to bring innovative solutions to support top-line growth and many more

  How much are rising prices affecting your work, and how are you responding to them?