The past few months, raw materials prices have increased significantly. With some materials even almost doubling in price in less than a years’ time. Below you can find a summary of this extreme evolution as well as its impact on supply chains, companies and the final customer.
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Trend, business impact and root causes
- The past few years, a general trend of increasing prices can be observed for many raw materials (such as for oil, copper, commodity metals, …).
- However, the opposite trend (significant price decreases) can also be observed. Additionally, this trend is not as frequently discussed.
- Therefore, it is incredibly important to understand, analyze and predict the expenses of your suppliers. This will help you in creating a better negotiation position.
- Most companies expect to face supply risk in the short term (63%) as well as in the long term (75%). Furthermore, these companies expect the impact of such supply risk to be high, however they also observe opportunities.
- The root causes of the current price inflations derive from long ongoing problems on the one hand and the COVID pandemic on the other hand.
- Five main causes can be identified, namely: lower supply, higher demand, sustainability related, strong price inflation in transport and trade & additional tax warriors.
Potential responses and how can KPMG help
- Only few companies have a proper, comprehensive strategy in place. The majority of companies neglect to respond or limit themselves to individual responses, which are not sufficient.
- Companies need to develop one comprehensive strategy, developed by a cross-department thinking exercise.
- The goal is to minimize the impact by building a resilient supply chain.
- KPMG can support doing this with our experience and knowledge, (third party) risk management expertise, procurement transformation ability and legal advice.
