There is nothing quite like inflation to whet the appetite of serious procurement professionals.

Pandemic-related mismatches of supply and demand in addition to transportation and labor constraints have created an extremely high-cost environment for suppliers. Add in policy changes and interest rate hikes by the Federal Reserve to slow the inflationary spiral, and you have a recipe for prices increases across the board.

It’s unreasonable for buyers to put their heads in the sand and announce they will not accept any price hikes from suppliers. Instead, supply pricing pressures provide a golden opportunity to separate price from cost.

The current inflationary environment is also a chance for buyers and sellers to take a fresh look at how they conduct business. Here are five ways to take advantage of potential price increases to leverage other savings and actually reduce supplier-related costs. 

1. Check your company’s business strategy

You cannot create a procurement strategy in a vacuum, making it critical to gather information about how other aspects of the business are weathering higher costs.

Ask the following questions: How are our sales and marketing team managing pricing pressures with our customers? Are we using a pass-through strategy for higher prices, eating some margin to keep our customers happy, or losing market share to competitors who are managing their costs better? What is the long-term outlook for our business?

2. Identify critical suppliers and commodities

We all deal with suppliers who have an outsized impact on our business, be it a supplier of raw materials, a sole source technology company, a specialized IT service, or a renowned regulatory and compliance consultant.

Take a broad-based approach in this supplier identification exercise to determine the scope and impact of the potential price increase.

And, by the way, this should not be a new effort, but part of your ongoing supply chain risk mitigation strategy.

3. Be proactive

Suppliers don’t like to have the price increase conversation. It is awkward and risky. And while buyers don’t want to have those conversations either, it's important to have the discussion to build deeper relationships with your suppliers.

Strong relationships are give and take. You may be able to reduce or mitigate an increase by acknowledging and being sensitive to the economic pressures your suppliers face. A passive negotiator may not have much of a choice on increases, but an active one just might. Suppliers look at their business and margins in the aggregate. The price increase you don’t need to take may just be loaded onto another less focused, more difficult customer.

4. Get creative to offset price increases

I worked for a company that took pride in paying its bills to terms and took the prompt payment discount whenever it could. I was able to offset many price increases by negotiating improved payment terms.

There are other ways to creatively offset a price increase. Consider an extended warranty on products, improved service response times, free or low costs supplies, advanced product training, free design services, consigned inventory programs, discounted or free shipping, or any other non-price list item that will help offset a purchase order price increase. In some cases, the value of these additional offerings may actually be cost savings.

5. Don’t contaminate pricing

Pricing during an inflationary period can be volatile. Be careful not to lock in any long term contracts during this time because you will be trapped when the prices eventually normalize.

Opt instead for a surcharge or another fee that will not contaminate your standard costs. And create a review process that will allow for reductions or increases in these surcharges. Keep your suppliers whole while protecting your own business.

Throughout it all, just remember to pick your battles. Prices from one-off commodity suppliers are market driven and you may not have much choice in what you pay. Competition may help to keep prices in line, but don’t waste too much time in negotiations. Focus instead on long term critical suppliers who have a major impact on your business and customers.