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

En respuesta a la crisis que estamos viviendo, una de las metodologías incipientes más prometedoras es la digitalización de la cadena de suministros. A través de herramientas tecnológicas como Wherex, basada en uso de Inteligencia Artificial (IA) es posible conectar áreas de abastecimiento de empresas con toda la oferta de proveedores disponible para sus requerimientos. Esto genera mayor apertura, transparencia y competencia en los procesos. 

En promedio, un proceso de licitación tradicional recibe 2,2 ofertas, mientras que una compra realizada a través de la plataforma Wherex genera 5,8 ofertas. Es decir, existe mayor participación de proveedores, lo cual se traduce en una oportunidad de ahorro de un 2% por cada oferta adicional. Dado que a mayor competencia los precios disminuyen. 

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

Por otra parte, planificar y comprar en mayor volumen otorga oportunidades reales de ahorro a las organizaciones. Según el último estudio del área de Data Science de Wherex -que analiza miles de datos diariamente- respecto al el efecto que provocan las economías de escala en la adjudicación de bienes a través de la plataforma. En promedio las empresas pueden ahorrar un 9,1% cuando duplican la cantidad solicitada. Dicha cifra va variando según categoría, logrando oportunidades de ahorro de hasta un 30% en algunos casos. 

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.