Research reveals the hidden costs of inflation

Inflation continues to take a toll on the economy, and one of the newest victims in the corporate world is the sustainability movement. 

Companies are making slower progress toward their environmental goals as they prioritize cost-cutting strategies and take steps to deal with supply chain disruptions, according to a study from procurement software firm Ivalua. The company surveyed 850 procurement leaders across Europe and in the U.S. earlier this fall and found that most—64%—blame inflation and higher costs for hampering their efforts to improve the sustainability of their supply chains. The news comes despite an increasing focus on corporate environmental impact and risk management practices—measures that fall under the “environmental, social, and governance” or “ESG” umbrella. 

Among the findings, the researchers reported that: 

• **bullet** More than half of organizations (57%) said they have been working with cheaper, rather than greener, suppliers due to rising costs.
• **bullet** Many said they have responded to high inflation by increasing their focus on cost-cutting (50%) and operational efficiency (40%). 
• **bullet** And a majority said that in the past 12 months they have been disrupted by the rising cost of energy and fuel (86%) and raw materials (84%). 

These factors are putting companies at risk of missing those ESG goals we hear so much about these days—things like stated “net-zero targets” and emissions reduction strategies. They also make companies more vulnerable to “greenwashing”—a practice of misleading or misrepresenting your organization’s environmental sustainability efforts—and can put them behind the curve in meeting regulatory requirements, according to the survey. It’s a tough position to be in, especially for larger companies that have made big commitments to their “green” goals.

The issue is also contributing to a growing feeling of frustration in supply chain circles. The survey found that almost half (49%) of procurement leaders said their organization has been ill-equipped to deal with and react to uncertainty, for example, and more than two-thirds said they want more responsibility to help manage that uncertainty—but just 37% said they feel sufficiently empowered by their organization to do so.

The study argues that corporate leadership should take notice, because the purchasing department may be the key to solving many of these problems. Armed with technology tools that can improve visibility across their supply chains, procurement professionals can identify opportunities to work with suppliers on cost-saving measures while also preserving sustainability and risk mitigation efforts, according to the report. Those measures could include giving suppliers more flexibility in meeting selection requirements, as well as making early payments or bulk purchasing to curb the effects of inflation—all of which can foster stronger relationships so that the parties can collaborate on ways to meet other business objectives.

Other industry experts agree that sourcing and procurement will have a large role to play in this area, especially the sustainability piece. Earlier this year, I spoke with Karl Manrodt and Joe Tillman, who dug into ESG as part of their research for the annual DC Measures report, published this past spring by the Warehousing Education and Research Council (WERC). Manrodt is a professor of logistics and director of the Master of Logistics and Supply Chain Management online program at Georgia College & State University, and Tillman is founder of TSquared Logistics, an industry research, education, and training business. Both agree that most companies are in the early stages of their ESG journey, but they said sourcing will be on the front lines of meeting any goals and requirements that may be put in place—primarily because many sourcing departments already have sustainability elements baked into their processes.