Procurement in an inflationary market: Public sector professionals must lead the charge

Simon Payne, Client Director at Proxima, discusses the challenges that inflation presents to procurement professionals in the public sector and how they can act
Flickr, Kenny Cole https://www.flickr.com/photos/kennycole/4843044297/

By Proxima

27 Aug 2021

Inflation is the word on everybody’s lips, and procurement teams in the public sector are not the exception. Across the UK, we are seeing a sustained period of supply shortages and price volatility of the kind that most professionals will not have experienced before in their working lives. The public sector, much like the business world, is experiencing the impact.

We are seeing a perfect storm of COVID, Brexit, and climate impacts on the availability of raw materials, people, and infrastructure coupled with compounding factors such as the Suez blockage and rapid shifts in demand for glass, plastics, and corrugate. All of these contribute to a drop in availability and increased prices.

This is a concern for public sector procurement professionals who are already grappling with the search for value for money. So how can public sector procurement teams approach an inflationary market? It’s time to think differently.

We have outlined three behavioural changes that public sector professionals can instil in their procurement teams to continue to deliver value.

  1. Changing mindset

Facing up to inflation is the first step. This enables you to act decisively, make improvements and deliver outcomes. An inflationary market is different and requires the ability to be pragmatic in the way in which value is delivered – for example, considering the positive benefits of Social Value offerings from suppliers rather than seeking to achieve ever-decreasing prices.  Teams will be faced with a range of issues from higher prices and worsening services levels through to slow lead times and simply no supply. Given the breadth of the challenge, the ability to shift mindset is vital.

Commercial functions across the civil service have already demonstrated the ability to flexibly respond to challenges such as COVID, remote working, and a move towards a more ethical supply chain. Harnessing this broader way of working and applying it in an inflationary market is the key to getting the best results for your organisation and ultimately delivering the most impact for the communities which you serve.

  1. Focussing on your organisation

When it comes to tackling inflation to stabilize, reduce or eliminate demand, the procurement team must put their organisation under a microscope. It goes without saying that public sector procurement teams should always have efficiency front of mind but in an inflationary environment you need to go one step further. Questions must be asked: How robust is your data? How connected are you to the communities and people that use your services? How connected are your teams internally?

Undertaking a risk assessment is a great step to take in considering your buying, current contracts, and any forecasts. With limited resource in the public sector and focus on efficiency it is vital that teams focus on critical goods and services. This overarching view of your organisations situation internally allows you more quickly identify ways in which to reduce exposure to price increases or supply shortages. Further, where price and availability issues do occur, other operational contingencies can be enacted to reduce waste, risk, and cost exposure.

With limited resource in the public sector and focus on efficiency it is vital that teams focus on critical goods and services.

Ultimately, this is an exercise in learn and adapt. Shortages and inflation pose major challenges to the public sector. Understanding of your organisation coupled with collaboration across it can still deliver value and impact.

  1. Assessing market conditions

Looking beyond your behaviours and processes internally, it’s also important to be able to navigate market data. This allows you to ensure that the public expenditure you are deploying is based on informed decisions and delivering the value for money that remains so important. For instance, do you know if you’re absorbing market-wide inflationary costs or if you’re paying more because you’re working with a certain supplier? What is the market rate and how is it trending? Finding the answers to these questions allows you to get ahead and avoid being at the mercy of a sellers’ market.

Ways of doing this include:

  • Finding sources of market prices and indexing
  • Identifying primary, secondary suppliers
  • Utilising alternate buying strategies and finding additional value internally for deals
  • Collaborating with suppliers on development and coming up with innovative ideas

Public sector organisations are ultimately about addressing the issues in society, and the procurement teams must reflect this problem-solving attitude. Combining your expertise on markets with your understanding of your organisation’s priorities to produce creative supply solutions is the name of the game in the public sector.

Looking ahead

Inflation and shortages are not going anywhere fast. In a normal market, we might be seeing a way through it by now, but the compounding factors keep coming, and the mitigating factors like automation which may spark deflation in 2023/24 are themselves either mid-term developments or suffering from delays, skill shortages and inflation.

Public sector procurement teams have a knack for pulling it out of the bag when facing a challenge - whether that be the shift away from EU rules in a post-Brexit world or a focus on ethical or SME-friendly supply chains. Experience in tackling these problems head on should give us hope for the future.


You can read more insights from Proxima here

Proxima's report, Social Value: Public and Private Sectors,  is also available to download here

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Commercial
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