On Wednesday, May 23, the European Lab for Innovative Purchasing and Supply EL-IPS organised a regional meeting on how to deal with inflation.
Fabio Fontes, chief purchasing officer at a multinational company in Brazil and PhD candidate at the University of Twente, explained how his department deals with inflation. His presentation on applying robotic process automation to adjust prices based on different indexes was introduced by Prof. Dr. habil. Holger Schiele on the origin of inflation.
Inflation is a phenomenon that has existed for millennia, and there is no reason to assume that there will be no inflation. The origin of inflation can differ. In the past decades, the money volume was increased by central banks more than the GDP, causing monetary inflation. The war in Ukraine caused a shortage of goods, leading to price increases.
In Europe, purchasers must deal with price increases and be prepared to handle inflation. Interestingly, inflation is an opportunity for the purchasing function in organisations. It matters which prices were paid for raw materials that will be rewarded with specific fixed or non-fixed prices after being transformed into end products depending on the agreements within the supply chain.
Fábio Fontes explained that Brazil and other South American countries have a long experience with inflation and even hyperinflation. He showed that his department analysed how often price fluctuation had to be administered in the system and defined the category with the most price adjustments. That category consists mainly of raw materials for which price indexes are available. An RPA, a robotic process automation tool, was used to calculate the new prices that suppliers would pay based on a negotiated formula with those suppliers. The RPA tool then updates the contracts in SAP and the orders.
The downside is that suppliers have to show their cost breakdown. Not all suppliers have been willing to do so—however, the RPA tool works already since 2020 and local and global suppliers are included. The most suitable index has been chosen for different product categories: polystyrene, paper, sugar, etc. The conclusion is that inflation will affect businesses and can be manageable by taking out the volatility.
The next meeting will take place in Autumn 2023. Are you interested in visiting the regional EL-IPS and NEVI Oost seminars? Contact Esmee Peters (e.peters@utwente.nl) or Klaas Stek (klaas.stek@utwente.nl)
