Post-pandemic cost spike and its effect on business sourcing

The global Covid-19 crisis and the rebound in demand in the post-pandemic era has put prices in the eye of the hurricane in all markets. This has greatly affected areas of corporate sourcing. Among the major contributors to higher global inflation have been intermittent supply chain disruptions, commodity, food and housing price spikes.

Although the inflationary context is different in each country, no one has been spared from this complicated scenario. Markets such as Argentina and Turkey have been hit hard, with increases of 51% and 19%, respectively. In the US, the Consumer Price Index ("US CPI") rose 5.4% in the 12-month period ended June 2021. Meanwhile, in Europe, inflation in May exceeded the 2% target set by the European Central Bank. In Chile, meanwhile, it increased by 4.5%, the highest since March 2016.

Rising prices

The rapid rise in prices largely reflects the impact of the pandemic on the business world. In response to abrupt changes in consumer demand and a rebound in economic activity, some commodities have reached all-time high prices. Lumber, for example, doubled in value at the beginning of 2021. While the price of steel (hot-rolled) grew by more than 150% in the same period as a result of a combination of strong demand and insufficient supply.

In the last year, commodities have seen significant jumps; 47.8% in the price of copper, 59% in iron ore, 60.4% in WTI oil and 56.1% in Brent oil.

In August, the FAO (Food and Agriculture Organization of the United Nations) food price index reached 127.4 points, 32.9% higher than in the same period last year. This statistic is based on 5 food groups: cereals, dairy products, meats, oils and sugar.

With rising input prices, many companies reported higher costs in the first quarter of 2021 and expressed fears of continued inflation. The urgency to identify and implement methodologies to minimize exposure and protect margins has risen to the top of many executives' agendas.

Technology in corporate sourcing to reach more suppliers

In response to the crisis we are experiencing, one of the most promising emerging methodologies is the digitization of the supply chain. Through technological tools such as wherEX, based on the use of Artificial Intelligence (AI), it is possible to connect supply areas of companies with the entire supply of suppliers available for their requirements. This generates greater openness, transparency and competition in the processes. 

On average, a traditional bidding process receives 2.2 offers, while a purchase made through the wherEX platform generates 5.8 offers. In other words, there is greater participation of suppliers, which translates into a 2% savings opportunity for each additional bid. The more competition, the lower the prices. 

The use of technology and AI comes to boost the digitization processes of companies, performing the entire process of migration, extraction and classification of data quickly and efficiently. Through the use of classification algorithms (classifiers based on word vector networks), it catalogs products and services in different categories. This makes it possible to optimally connect the buyer's requirements with the supplier. This considerably increases the number of bids in tenders by reaching the right suppliers. 

Planned purchases to generate savings

On the other hand, planning and buying in greater volume provides organizations with real savings opportunities. According to the latest study by wherEX's Data Science area -which analyzes thousands of data daily- regarding the effect of economies of scale in the awarding of goods through the platform, companies can save an average of 9.1% when they double the quantity ordered. On average, companies can save 9.1% when they double the amount requested. This figure varies by category, with savings opportunities of up to 30% in some cases. 

The uncertainty currently shaking markets around the world has forced businesses to plan their industrial purchases and inventories. The changes brought about by the pandemic are creating new financial and operational risks, and many companies have been driven into uncharted territory. To meet these new challenges, it is necessary to have the right tools in place.