Home Economy Procurement key to mitigating post-Brexit price increases
Importance of understanding spend and being on the front-foot in supplier negotiations paramount
Latest figures released by the Office for National Statistics (ONS) make worrying reading for industry professionals responsible for protecting profit margins and controlling costs, according to UK business solutions specialist Ivo, which is urging firms to have a well-structured and coherent procurement activity plan in place.
The price of goods bought and sold by UK manufacturers, as estimated by the Producer Price Index (PPI), rose in the year to July 2016 following two years of decline.
The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) rose 4.3% in the year to July 2016, compared with a fall of 0.5% in the year to June 2016.
Perhaps this should be no great surprise given the current position of sterling, impacting those companies who rely on importing materials, says Ivo.
Against the dollar, the pound is some 13% below its level in the run-up to the EU referendum and 10% lower against the euro.
Mike Prestwood, head of prices at the ONS, said: “The Producer Prices Index suggests the fall in the exchange rate is beginning to push up import prices faced by manufacturers.”
Meanwhile, output prices have also jumped since the Brexit vote, with factory gate inflation rising by 0.3% in the year to July 2016, compared with a fall of 0.2% in the year to June 2016 – the first annual increase since June 2014. The factory gate price (output price) is the price of goods sold by UK manufacturers and is the actual cost of manufacturing goods before any additional charges are added.
Wherever your business sits within the supply chain, this upward pressure on pricing is likely to impact on costs and potentially erode your profit margins.
According to Ivo, the minimum any company can do in the face of such economic headwinds is to have a well-structured and coherent programme of procurement activity.
It says that, now more than ever, the importance of understanding spend and being on the front-foot in supplier negotiations is paramount.
Ivo is currently working with clients to help them identify, plan and implement cost reduction activity – helping to mitigate the risk of price rises and inflation.