Mitigating inflation to maximize EBITDA
We are dealing with a sustained period of inflation. The economic balance of supply and demand has shifted for many commodities, materials and transportation, tipping economies into a period of escalating costs.
We are dealing with a sustained period of inflation. The economic balance of supply and demand has shifted for many commodities, materials and transportation, tipping economies into a period of escalating costs.
For PE firms this has meant an erosion of margins in their portfolio companies, compounding escalating supplier price increases with manufacturing disruption, competition for supply and transportation premiums.
The focus has been on containment but now it is time to shift to mitigation and margin recovery.
Five steps to take control:
Segment the inflationary categories and understand the impact
Defend supplier increases – bases on cost driver analysis, facts and pain-share!
Mitigate from deflationary categories and opportunity supply markets
Drive step-change savings through a strategic procurement approach
Shift the risk where possible
To deliver the savings required to recover margins, a strategic approach to procurement is now needed, requiring the use of more complex, and more internally focused levers, such as specification change, process optimisation, value engineering, demand management and supply chain reconfiguration.
H&Z are supporting clients with profit-boost programs; augmenting under-equipped and over-stretched procurement teams and re-setting the cost base.
Success story
Rapid profit boost and procurement Value Creation Plan for Triton owned RENK Group
H&Z completed a Procurement Boost project for a global industrial manufacturer as part of the Triton portfolio. Working in close collaboration with both Triton leadership and across functions within the company, an expert procurement team from H&Z were able to bring deep sector knowledge, analytical insight, and proven value creation methodology quickly into play. The project delivered both immediate and sustainable midterm savings applying commercial- and technical levers. At the same time the procurement target operating model was optimized to improve the cooperation between the procurement function and the business units.
The New Purpose of Procurement focuses on Supply Chain Resilience, Sustainability and Value Creation and enables PE firms to support their portfolio companies with a complete range of levers, driving EBITDA not just through value creation but through sustainable valuation improvement.
If you would like to find out more about how we help clients, please get in touch with our dedicated Private Equity team.
Richard McIntosh
