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Inflation Plus Resignations Make for Contract Chaos in Retail

By Phil Barry

Inflation is hitting levels not seen since the 1980s, and retail, CPG, and distribution companies are on the front lines of this worrying trend.

Price fluctuations are a part of life for those in the industry. Still, the sustained cost increases in everything from commodities to packaging to transportation are putting a severe strain on operational margins.

The good news is that, in many cases, retail and CPG companies have accounted for serious price swings via commodity-based pricing provisions built into their contracts.

These contractual provisions are designed to make transactions between suppliers and buyers fairer. For example, a consumer coffee brand may agree with their distributor to renegotiate terms if commodity coffee prices fluctuate more than 5% in a month. This makes sure there are no big winners and losers when prices swing.

So that's the good news. The bad news is that, for many companies, there are numerous barriers to taking advantage of these negotiated benefits.

First, since each contract may have been negotiated differently, category managers or brand managers may not have the bandwidth to track each contract against commodity price changes—especially in a situation like we're seeing now, where prices are spiking across the board.

Second, for many organizations, the very act of finding the contract can be a challenge. Is it sitting in an Outlook inbox? A SharePoint folder? An actual filing cabinet in an office that's been closed since the pandemic started?

Both of these challenges are exacerbated by the "Great Resignation" that companies are facing because of record-breaking employee attrition. For many companies, critical contract intelligence sits within personnel, not systems. When that personnel leaves the business, so does the intelligence.

All of this builds to a pressing need for contract management software that can deliver proactive, actionable insights into commodity-based pricing provisions.

A robust Contract Lifecycle Management (CLM) system helps retail, CPG, and distribution companies stay ahead of inflation by digitizing supplier contracts and centralizing access. AI trained on contract language can identify and tag commodity-based clauses, and natural language search can help category managers find relevant information fast.

Furthermore, advanced CLM systems 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 are entitled to a price adjustment, helping to ensure they take advantage of these hard-won provisions.

And because all this information is built into a centralized system, institutional knowledge is fully captured and won't be impacted by managers leaving the business. According to PwC, 48% of companies plan to change processes to become less dependent on institutional knowledge and contracting processes should be at the top of the list.

At Icertis, we call this contract intelligence–structuring and connecting contract data for real-time, actionable insights—and inflation is just one of innumerable use cases where it's making an impact in the retail, CPG, and distribution space. Contract intelligence is also helping companies ensure they are taking advantage of all their rebates at year-end, staying agile amid supply chain disruptions, and meeting growing expectations around sustainable operations.

Icertis has a dedicated practice built to meet the unique needs of retail, CPG, and distribution. To learn more, please visit our solutions page.

Phil Barry is Icertis' Consumer Goods industry vertical lead. Phil has spent the last 25 years at Fortune 100 Retailers in roles ranging from Category Management, Product Management, Business Development, Global Sourcing and Retail Consulting.