Inflation in procurement terms refers to the general increase in the prices of goods and services over time. When inflation occurs, the purchasing power of the local currency decreases, meaning that the same amount of money can buy fewer goods or services than before.

In the context of procurement, inflation can have a significant impact on the cost of goods and services that organizations need to acquire, and hence, the flow-down effect to our Clients is adversely impacted. 

RL-001 Ver 1.0 (Jan 24)

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What is Inflation ?

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Mitigating Inflation

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The need to control Inflation

Inflation impacts both CBRE and the Client. It is a lever adopted by business to pas over costs rather than improve their processes and operations. Adopting the correct sourcing models and strategies, optimizing procurement processes and mitigating risk controls and manages the impact of inflation on procurement and, our Client.

Companies often employ strategies such as hedging exchange rates, forward contracts, or long-term agreements with suppliers to lock in prices. We may also explore alternative sourcing options, negotiating better terms, or implement cost-saving measures to offset the effects of inflation.  This ensures that both our cost inputs and those to our Client remain competitive.

Recommendations for Mitigating Inflation

 When negotiating long-term contracts, include clauses that specify pricing terms for the duration of the contract. This can provide stability and protection against sudden price increases due to inflation. It is essential to carefully consider the length of the contract to balance the benefits of price stability with the need for flexibility.

Long Term

Contracts

Working with multiple Suppliers helps mitigate the risk of relying on a single Supplier that may increase prices due to inflation. By diversifying the Supplier base you maintain negotiating power and have an advantage to play one Supplier over another. However, it is essential to consider the trade-offs in terms of quality, consistency, and logistics when diversifying Suppliers. 

Supplier

Diversification

Including price indexing clauses in contracts ensures Supplier prices are adjusted based on specific inflation indicators. Common indices used include the CPI, Consumer Price Index (PPI), or commodity price indices. This mechanism aligns Supplier prices with market inflation rates and reduces the need for constant renegotiations. 

Price Indexing

Conducting comprehensive market analysis and sourcing activities identifies Suppliers with stable pricing trends or those less susceptible to inflationary pressures. Focus on building relationships with Suppliers that have efficient cost structures, strong market positions, and sustainable pricing strategies.  This is building "Partnerships".

Strategic

Sourcing

Collaborating with Suppliers to develop cost-sharing agreements helps distribute the impact of inflation between CBRE and the Supplier. This can involve sharing the burden of price increases by negotiating fixed increases based on specific inflation indicators or developing mutually agreed formulas for price adjustments. 

Cost Sharing

Where CBRE is involved in international procurement, currency fluctuations can significantly impact costs. Implementing currency hedging strategies, such as forward contracts or options, helps mitigate the risks associated with currency fluctuations and inflation in foreign markets. These strategies can help stabilize costs by fixing exchange rates for future transactions. 

Currency Hedging

 Regularly engaging in negotiations with Suppliers establishes favorable pricing terms and adjust contracts in response to inflationary pressures. This is particularly important if our demand for services or products increases dramatically over time. Build strong relationships with the Supplier based on trust and open communication. This will facilitate early discussions about potential price increases and finding mutually beneficial solutions.

Negotiation &

Re-Negotiation

 Staying informed on market trends, economic indicators, and inflation forecasts is crucial. to good Procurement practice. Regularly monitor inflation rates, commodity prices, and other relevant factors to adapt our procurement strategies. This can involve identifying alternative Suppliers, renegotiating contracts, or adjusting sourcing strategies to mitigate any impact.

Regular Monitoring

 Building strong and collaborative relationships with Suppliers fosters a proactive approach to managing inflation risks. Establishing open lines of communication enables early discussions of potential price increases, allowing both parties to explore solutions to mitigate inflationary impacts. Working together, CBRE and our Suppliers can find mutually beneficial strategies to manage costs effectively during inflationary periods.

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