Inflation today is hitting businesses globally harder than ever. Materials, energy, labor, and freight have become considerably more costly in recent years. These rising costs brutalize supply chains more than any other function in the company. Companies that previously depended on solid pricing projections are scrambling to balance their budgets.

The median worldwide inflation increased from around 1.9% to 8.7% from 2020 to 2022. Commodities like Cocoa and Palm Oil, amongst others, have seen multifold increases. So, what options do companies have in such an environment? One possible and practical solution is proactive supplier management.

The right strategic sourcing leads to the right buying decisions, which directly impacts the Gross Margins of the P&L and can be a question of survival for the company. Hence, companies that buy right sustain better for longer in uncertain times.

This article explains proactive supplier management and how it helps manufacturers manage cost pressures during inflation. We'll discuss key strategies, real-world examples, and innovative ways to work with suppliers to create win-win situations. But first, let's understand what proactive supplier management is.

What Is Proactive Supplier Management?

Proactive supplier management concentrates on nurturing long-term relationships with vendors rather than transactional, situational relationships that connect at the last second when something goes wrong.

Proactive supplier management focuses on risk prediction, ongoing and proactive communication, intelligent contracting, and technology-driven decision-making.

It is about avoiding problems before they cost you money.

Let us examine why this is so essential in inflation.

How Inflation Impacts Supply Chains?

When inflation rises, suppliers face higher input costs, which are driven by multiple factors like materials, wages, fuel, and more. Many have no choice but to pass these costs on to customers. If you're not prepared as a business, you'll pay more without warning. It is not just about costs; it also impacts the service. Inflation drives shipping rates and tightens supply, leading to longer lead times and more expensive materials. Hence, it is no wonder that 79% of supply chain executives say inflation is one of their biggest concerns.

In an inflationary economy, you can't rely on short-term fixes. You need a better plan in advance. Proactive supplier management gives you that plan.

Here are the 8 actionable ways to proactive supplier management.

8 actionable ways to proactive supplier management

1. Strengthen Supplier Relationships

Building strong supplier relationships is one of the best ways to reduce costs. When suppliers trust you and see you as a strategic partner, they're more likely to:

Give you early warnings about price hikes
Work with you to reduce costs
Offer better payment terms or discounts

Working with suppliers helps you think of creative solutions to inflation. For example, a strategic supplier might provide effective alternatives if raw materials prices increase or production times decrease to help save costs.

Tip: Schedule regular check-ins with your top suppliers. Discuss costs, risks, and opportunities to work smarter together.

2. Source Strategically and Diversify

Over-relying on a single supplier during inflation is risky. If they raise prices or run into trouble, your entire supply chain suffers. Proactive supplier management includes strategic sourcing and supplier diversification with Share-of-Business (SOB) Optimization.

Use dual-sourcing for key items—one local, one global
Regularly evaluate supplier performance and pricing
Look for regional suppliers who offer better freight or duty savings

Companies that apply strategic sourcing save 10–15% on procurement costs.

Multiple supplier options help ensure continuous service and give you more bargaining power, enabling you to negotiate better rates.

3. Monitor Supplier Risk Early

Minor issues can add up to big disruptions during inflation. Rising supplier costs could mean late deliveries or subpar materials. The key is identifying risk early.

Use simple tools like:

A risk scorecard for key suppliers
Financial health checks
Ongoing delivery performance reviews

If a supplier shows signs of stress, work with them early. Offer payment flexibility or plan temporary inventory buffers. These actions help prevent costly shutdowns.

Supply disruptions cost companies $82 million per year on average.

4. Negotiate Smart Contracts and Terms

Every penny counts in inflation. Rather than focusing just on price, negotiate creative contract terms:

Early payment discounts: Save 1-2% on your bill when you Pay sooner!
Shorter contract terms: Provide greater flexibility in price as markets shift.
Clauses of variable pricing: Tie increases to market indices with review points

Other value-added services provided by suppliers include free shipping or extended warranties if you commit to longer-term business.

More open conversations produce much better outcomes. Many suppliers are sensitive to inflationary pressure and, therefore, are prepared to compromise where they perceive long-term worth.

5. Use Technology for Spend Visibility

You can't manage what you can't see. Spend analytics platforms help companies understand where money is going and where savings are possible. For example:

Identify duplicate purchases
Highlight items being bought from multiple suppliers at different rates
Spot underperforming vendors

Companies using procurement tech save up to 15% on purchasing costs.

Tools like supplier performance dashboards and contract management systems help track KPIs and improve negotiations.

6. Plan Inventory Wisely

During inflation, inventory becomes more expensive. However, holding too little can result in stockouts and costly rush orders. A proactive supplier strategy includes smart inventory planning:

Use forecasting tools to plan accurately
Work with suppliers to align inventory goals
Identify items that are worth holding in larger quantities to avoid future price hikes

Some businesses hedge against inflation by pre-buying materials when prices are low. This only works if you have good demand forecasting and solid supplier support.

7. Focus on Total Cost of Ownership (TCO)

Many buyers look only at unit prices. However, inflation drives up other expenses—shipping, customs, returns, and downtime. In proactive supplier management, the total cost of ownership is considered.

Ask:

How reliable is this supplier?
Are they helping reduce defects or delays?
Can we reduce returns or quality checks with a better vendor?

A supplier with a slightly higher price may save you more in the long run through fewer issues and smoother operations.

8. Support Local and Regional Suppliers

Local sourcing can lower logistics and tariff costs. During inflation, these cost savings can make a big difference. Local suppliers:

Deliver faster
Offer more flexible terms
Allow for in-person relationship-building

While not all components can be sourced locally, partial localization gives you a cost and risk hedge. For this reason, nearly 64% of manufacturers are now shifting to regional suppliers.

Summary Table: Tactics for Cost Optimization

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Take Charge of Cost Optimization with Holocene

Controlling inflation in sourcing is a long-term, ongoing process that must be converted into proactive steps. Building strategic supplier relationships, tracking expenses, and using smart contracts lowers costs throughout your supply chain.

The great news? Not everybody needs to do it all at once. Begin by identifying your top suppliers, re-reviewing your contract terms, and starting discussions about everyday cost pressures. From here, build from there. Every step solidifies your position through inflation and beyond.

If your team responds to price hikes whenever they occur or changes suppliers at the last second, it is time to rethink the playbook. Start small: Audit your supplier base, identify your top risks, and more often connect finance, planning, and procurement. Are you prepared to reconsider your supplier strategy? This is the time to move quickly.

And in case you are stuck, Holocene has you covered. Whether you need visibility or structured supplier insights, our tools help you manage expenses and supplier risks confidently. Contact us today to discover what's best for your supply chain.