Reacting to COVID-19: Protection against Surge Pricing

By – Amol Bhosle
(Product Marketing Manager | Digitate)

Most companies, and in fact, all the industries out there, have been caught off guard by the deadly pandemic outbreak. COVID-19 has affected millions of businesses and disrupted their supply chains. Right from the mom and pop sized businesses, to the multi-billion dollar conglomerates, all have taken a major setback in their businesses.

At a time like this, procurement professionals are facing the brunt of their management for getting the supply chains up and running, despite the lockdowns and disruptions in logistics.

These are probably the questions that keep on revolving in their heads:

  • Are our vendors still delivering to us?
  • Have any of our vendors ceased to deliver leading to a loss in the business?
  • Are the vendors taking advantage of the situation and making any impractical demands?
  • Have the vendors surged prices, in a way which affect our business?
  • Should we look out for some new vendors in the market?
  • What risks are involved while getting new vendors onboard?
  • Do we have existing local vendors who can still deliver to us?

All these questions are nothing but challenges for any procurement professional. While all challenges do have a solution to it, surge pricing is one of the most difficult challenges to tackle. Moreover, given the current situation of the demand being high and supply chains getting disrupted, vendors are bound to increase prices arbitrarily. Without any logic behind it, vendors who can still deliver can increase prices just with the motive to get better profit. Procurement professionals who do not analyze or sense this anomaly, may give in to the pressure and simply procure the required items without thinking twice!

For example, a vendor providing logistics and transportation services, or a vendor supplying medical utilities, may take advantage of this situation and surge their pricing. While this is a huge problem for procurement professionals, it can be resolved.

Technology is the answer to resolve this challenge of procurement professional and businesses to show them the right path.
An interesting article by EY Global states, “Procurement professionals should look to assess category strategies that balance cost and risk starting from new product model/platform planning to day-to-day procurement operations, leveraging technology to support rapid response.

An organization can protect itself from surge pricing by doing the following things:

  • Identify which are the items, for which the prices have increased arbitrarily and who is supplying them?
  • Identify what are the alternate options of vendors, with whom you can strike a deal and spend only the right amount?

While doing so, an organization needs to ensure that the data that is used to analyze, includes the data from the past few months so that any kind of price variance can be easily identified. Not just that, but you also need to zero in on an ideal price for a suspected price surged item, so that you negotiate better deals and contracts with the vendor.

This is where ignioTM Cognitive Procurement provides assistance. This solution offers you a robust maverick analysis feature, which can show you a detailed history of what different price points the items have been purchased at. From a business perspective, understanding the price variance for a purchased item helps in deriving an ideal price for it. And this is what this feature does. It shows you a single recommended price at which that item should ideally be purchased!

Furthermore, ignio Cognitive Procurement also allows you to key in live transaction data and understand if it is happening in real-time. You can select certain items for which prices have increased suddenly and put them on a watch list. With this, the solution can instantaneously catch price variances, and you can intercept a particular order before it is fulfilled.

With a comprehensive view of all your spends, our solution can help you put the sudden price hikes under the scanner and provide you with observations and tangible actions to influence your next steps. To ensure that you protect the organization from a price surge, this solution offers you with enough intelligence and insights, which allow you to have better negotiations or contracts with vendors.

With a major disruption this pandemic has caused, organizations need to find and use tactics which will help them assess their businesses better and find solutions to recover. Assuming the worst scenario of COVID-19 not ending soon, organizations need to leverage such technology to ensure they provide full support to the business.

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