Boosting Procurement’s Bottom Line: The Inflation Reduction Act in Action

By: George Mathew

Inflation has become a major concern for companies in every link of the supply chain, as they are forced to increase their prices despite the risk of losing their market share. The global economy, supply chain disruptions, and labor shortages contribute to this problem. The US Inflation Reduction Act, signed into law in August 2022, aims to increase domestic manufacturing, encourage procurement of critical supplies from free-trade partners, and promote R&D of innovative technologies.

Inflation impacts the supply chain by raising input costs, straining supplier relationships, and potentially causing price hikes. This can disrupt the supply chain, affect profit margins, and lead to supply shortages if not managed effectively by businesses and their suppliers. When input costs increase, it can put pressure on suppliers and manufacturers to raise their prices. This can disrupt the supply chain by reducing profit margins and potentially leading to supply shortages if suppliers are unable to absorb these cost increases.

How does the bill encourage the adoption of clean technologies

Government Funding for Clean Energy:

Government funding for clean energy initiatives not only advances environmental sustainability but also contributes significantly to economic growth and energy security. By investing in research and development, governments foster innovation in clean technologies, making them more efficient and cost-effective. This innovation often translates into the creation of high-skilled jobs, promoting economic development and reducing unemployment rates. Additionally, reducing dependence on fossil fuels through clean energy initiatives enhances national energy security, making countries less vulnerable to energy supply disruptions and price fluctuations.     

Tax Credits:

Tax credits offer a multi-faceted approach to advancing clean energy adoption. Beyond cost reduction, they stimulate investment in clean technologies, fostering innovation and improving their overall efficiency. This, in turn, drives market competition and accelerates the development of even more sustainable solutions. Furthermore, tax credits often come with the added benefit of reducing the tax burden for individuals and businesses, allowing them to redirect those saved funds toward further sustainability efforts. This can include additional energy-efficient upgrades, research, or investments in cleaner transportation options, ultimately contributing to a more environmentally responsible and economically prosperous future.

Subsidies:

Government subsidies play a pivotal role in driving the transition to cleaner energy sources and mitigating the impacts of climate change. By reducing the financial barriers associated with renewable energy projects and electric vehicle adoption, subsidies make these sustainable choices more attractive and accessible to a wider population. These subsidies not only reduce greenhouse gas emissions but also help diversify energy sources, making the energy sector more resilient and less vulnerable to supply disruptions. Additionally, the improved air quality resulting from reduced reliance on fossil fuels can have significant public health benefits and enhance overall well-being.

Low-Income Loans:

Low-income loans are a cornerstone of promoting environmental and social equity. By providing access to affordable financing for clean energy projects, these loans ensure that marginalized and economically disadvantaged communities can reap the benefits of a cleaner and more sustainable future. In addition to addressing energy poverty, these loans empower individuals and communities to reduce their energy bills through efficiency improvements and generate their own renewable energy, potentially leading to energy independence. This not only eases financial burdens but also enhances resilience, reducing vulnerability to energy price fluctuations and supply disruptions.

How SpendEdge can help in procurement with its services

Supplier Diversification and Risk Management:

At SpendEdge, we excel in identifying and establishing alternative supply sources to enhance supply chain resilience. Our extensive network and market intelligence enables us to discover reliable, high-quality suppliers globally. We offer comprehensive solutions to reduce the impact of inflation on your supply chain. Our experts monitor commodity markets, develop hedging strategies, and negotiate long-term contracts to safeguard your procurement costs. SpendEdge’s data-driven approach and expertise in supplier negotiation enable you to negotiate better prices and terms. We provide in-depth cost analysis and leverage supplier performance metrics to optimize your procurement spending.

Digital Procurement Transformation and Optimization:

At SpendEdge we collaborate closely with clients to understand their specific technology requirements and align procurement strategies accordingly. Our industry expertise ensures that technology solutions are tailored to your unique needs. We specialize in digitizing procurement operations by implementing cutting-edge e-procurement systems and automation tools. Our solutions streamline operations, reduce errors, and enhance operational efficiency, ultimately reducing procurement costs. SpendEdge’s skilled professionals develop a robust application architecture to support your procurement operations. Our architecture integrates data, analytics, and e-sourcing tools, enabling data-driven decision-making and process optimization.

Sustainability Analysis and Consultation:

SpendEdge is committed to promoting and implementing modern sustainability practices in procurement. We evaluate suppliers for their environmental certifications, ethical sourcing practices, and adherence to sustainability standards. Our sustainability experts conduct thorough analyses to identify and address existing and potential sustainability gaps in supply chain. We provide actionable strategies to enhance sustainability, reduce waste, and promote circular economy principles. SpendEdge facilitates engagement with local communities, NGOs, and other stakeholders to ensure that sustainability practices have a positive impact on both the environment and society. We support your efforts to make a meaningful difference and align with sustainability goals.

The success story of SpendEdge helping a pharmaceutical company with procurement

A pharmaceutical company based in the US was experiencing rising costs due to inflation, which was causing budget constraints and could potentially disrupt its supply chain. In order to tackle these challenges, the company took a multifaceted approach to improve its procurement strategies, reduce costs, and enhance its sustainability efforts.

Our team of experts at SpendEdge assisted a client in understanding the Inflation Reduction Act. This act provided tax incentives and subsidies to companies that adopted sustainable practices and innovative procurement methods. Our specialist advisors helped the client achieve this by using advanced analytics and market intelligence to identify cost-effective suppliers, negotiate favorable contracts, and streamline procurement workflows. Additionally, our experts conducted a thorough analysis and helped the client establish strategic partnerships with suppliers from different geographical locations. They also explored partnerships with smaller, local suppliers to mitigate risks associated with inflation and supply chain disruptions.

By understanding the Inflation Reduction Act, focusing on supplier diversification, sourcing advisory solutions, and embracing modern sustainability practices, the client successfully navigated the challenges posed by inflation. The company not only safeguarded its supply chain but also enhanced its bottom line, demonstrating the importance of strategic procurement in adapting to dynamic market conditions and global sustainability demands.

Contact us now to solve your procurement problems!

Author’s Details

George Mathew

Associate Vice President, Sourcing and Procurement Intelligence

George is a procurement specialist at Infiniti Research and provides advisory services to clients across the pharmaceutical, CPG & FMCG, energy, and automotive sectors. He specializes in the procurement areas of industry benchmarking, cost modeling, rate card benchmarking, negotiation advisory, and supplier intelligence.