Does Shrinkflation Threaten Your Procurement Objectives?

Does Shrinkflation Threaten Your Procurement Objectives?

It’s a word that sends shivers down consumers’ spines. In some parts of the world it’s even led to outpourings of chocolate-based betrayal at the impact on beloved snacks. It is of course shrinkflation.

It’s an essential lever to balance the cost fluctuations of producing goods without passing on a price change to customers. From a strictly objective procurement point of view, we could argue it makes sense. But how do customers really feel about it, and does shrinkflation ultimately threaten your procurement objectives?

The consumer attitude to shrinkflation

The exaggerated despair noted by UK consumers in the example of Toberlone’s shrinkflation debacle might present an amusing anecdote, but it also highlights some of the crucial elements of the shrinkflation phenomenon. Firstly, that production costs can be highly susceptible to currency volatility, and secondly, that the court of public opinion is a terrifying place for any business to be judged.

Malaysia is no exception to the challenges of shrinkflation. Currency volatility and inflation rises saw shrinkflation becoming an increasingly important issue in 2017. That’s no laughing matter to the poorest consumers, nor indeed to Malaysia’s ambitious business community trying to deliver growth in the face of changing marketing conditions.

How shrinkflation impacts your business is largely influenced by the market you serve, with mass market goods and consumables particularly vulnerable to the challenges of public opinion. But shrinkflation is not just limited to consumer goods, and presents an equally difficult challenge in B2B markets. So what does it mean for your procurement?

How shrinkflation impacts procurement

As procurement professionals we understand the inherent relationship between cost of goods sold and the diverse input costs to produce those goods. As currency volatility and other price determiners fluctuate, so too do their impact on the cost of procurement. Shrinkflation is not unique to cost of goods, with services equally vulnerable to changing goal posts.

As procurement professionals there are ways we can ensure that we are not ourselves victims of shrinkflation. Positive supplier relationships are, as ever, the place to start. Ensuring that  relationships with your suppliers are robust should mean that any shrinkflation impacts are clearly communicated rather than ushered in the backdoor when nobody is looking.

There are some common shrinkflation tactics which less reliable suppliers might try and pass by you unnoticed of course. With many of these the key to reducing your risk is good record keeping and clear, transparent agreements with your suppliers. It can help helpful to ensure that you not only have a detailed understanding of the cost of goods or services, but a rigid definition of what is covered in that purchase price.

When it comes to delivering that transparency, e-procurement solutions like Procurehere offer a powerful tool for procurement professionals to utilise. The RFx features and auction events found on Procurehere ensure a clear, user-friendly and easily referenced assessment of the unit price for goods, and the relevant quantity of goods on offer. The ability to share documents as part of an event provide further opportunity to clarify agreement terms and reduce your exposure to risks of shrinkflation.

Shrinkflation is not necessarily a new challenge for procurement. The constant drive to deliver savings and ensure balanced costs has always been at the heart of what we do. If recent currency volatility and the emerging court of public opinion present more nuanced challenges to that goal, then it’s equally true that solutions such as e-procurement offer new tools by which we can meet them. Just whatever you do, for the sake of your reputation, don’t mess around with the chocolate bars.