3 Ways Contract Intelligence Can Help Retailers and CPGs Manage Rising Inflation
The latest Consumer Price Index confirmed that inflation is up 7.9 percent year-over-year (YoY), proving again that the United States is experiencing the highest inflation levels in 40 years. While those in the retail and CPG industry expect price fluctuations, sustained cost increases across the board, from wheat to packaging, are putting severe strains on already razor-thin margins. As inflation continues to impact these sectors, commodity pricing is emerging as a critical strategy to remain profitable.
The good news is that retail and CPG companies have accounted for severe price swings. Because commodity prices typically rise when inflation is accelerating, commodity-based pricing provisions on items such as coffee beans and sugar offer protection from the effects of inflation and allow retailers and CPG companies to reduce risks involved with the rising inflation and volatile markets. However, there remain some barriers to taking advantage of commodity pricing benefits. For instance, category managers or brand managers may not have the bandwidth to manually track each contract against commodity price changes.
The lack of digitization and a centralized system prevents category managers from quickly finding relevant information within contracts. This builds a pressing need for contract lifecycle management (CLM) software. Leaders in retail and CPG looking for relief can use CLM software that leverages contract intelligence to capitalize on the changing market, increase profit, and reduce risk, all in real time. Following are three ways that contract intelligence can help organizations stay ahead of rising inflation.
1. Use the power of AI.
A robust and advanced CLM system that uses the power of artificial intelligence (AI) can be a game-changing advantage for retailers and CPG companies seeking to turn profits amid rising inflation. AI can be extremely valuable when digitizing and centralizing access to supplier contracts. Trained on specific contract language, AI can identify and tag commodity-based clauses, and natural language search can help category managers easily find relevant information fast.
Additionally, AI can automate notifications and obligations, making it easier to keep contracts up-to-date and on track. Being prompted to re-examine contract terms can lead to better management of obligations, growth incentives, and more. Advanced CLM systems with built-in intelligence technology can now integrate with public data sources like mercantile exchanges to monitor price fluctuations against contracted terms. With this configuration, managers get notifications when they're entitled to price adjustment, helping to ensure they take advantage of these hard-won provisions.
2. Shore up contract management practices.
Here’s a startling fact: Organizations lose 9 percent of revenue every year due to poor contract management practices. As inflation continues eating at already razor-thin margins, savings are imperative. An effective and efficient contract management system will do just that. However, the CLM system must adhere to best practices and ensure that each process is repeatable and consistently applied. Retail and CPG organizations should review their processes to ensure that a systematic approach is being applied at every step, from authoring new agreements to reviewing terms and amending and renewing existing contracts. To ensure all relevant departments have access, it’s essential to centralize all the company’s contracts, including those generated by the corporate and HR, sales, legal and procurement teams. An intelligent CLM system will use automation to shore up all these areas of contract management, boosting the bottom line.
3. Centralize access to supplier contracts.
Digitizing supplier contracts and centralizing access for employees helps with dynamic pricing and supply chain management. A centralized CLM solution streamlines contracts and processes and connects the dots across departments. As such, employees are empowered to leverage automated systems as a self-service tool to manage contracts, which means that no time is spent waiting for legal teams to start the contract process. Accelerating the process means faster results.
For retailers and CPG firms specifically, centralized access helps to ensure that they're taking advantage of all their rebates at year-end, staying agile amid supply chain disruptions, and meeting growing expectations around sustainable operations. Additionally, advanced, centralized CLM systems that integrate with public data sources are crucial to staying on top of events or adjustments to ward off the negative impact of rising inflation.
High and rising Inflation is just one of the countless external variables that have impacted the retail and CPG sector over the last few years. Contract intelligence, which promotes the structuring and connecting of contract data for actionable insights, significantly helps retailers protect themselves against this and other unforeseen challenges that may occur in the future. Organizations can stay agile amid disruptions and meet evolving consumer and industry expectations while staying on course for long-term growth and success with the right CLM solution, technologies and processes.
Phil Barry is senior director, retail and consumer goods at Icertis, a contract intelligence company that pushes the boundaries of what’s possible with contract lifecycle management.
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Phil is the Senior Director Retail and Consumer Goods at Icertis, a contract intelligence company that pushes the boundaries of what’s possible with contract lifecycle management.