The telecoms sector - known for its high capital expenditures and complex supply chains - is particularly vulnerable to inflation.
Rising costs of raw materials, labour, and energy directly impact operational budgets. UK inflation has fallen significantly since it hit 11.1 per cent in October 2022, which was the highest rate for 40 years. This spike led to higher costs for technology, network infrastructure and essential services.
Although headline inflation figures have dropped since this date – currently sitting at 2 per cent - the sector is alert to economic turbulence and is exploring every means of driving financial resilience and competitive advantage, especially as services sector inflation struggles to drop.
The sector occupies something of a unique position at the crossroads of technological innovation, geopolitical tensions, economic shifts and societal developments. This leads to a complex and rapidly changing risk environment, arguably more intricate than any other sector. Against this background, procurement has emerged as a critical strategic function.
Strategic procurement
Traditionally, procurement has been seen as a cost centre within organisations, primarily focused on controlling and minimising expenses rather than generating revenue or creating strategic value. However, procurement is positioned at a critical intersection for effective collaboration between buyers, suppliers, and both internal and external partners. By optimising supply chains, fostering innovation through supplier collaboration, managing risks and ensuring sustainability, procurement can significantly enhance business performance.
The technology-led transformation of the procurement function is being driven by digital, data-driven AI tools which enable a more proactive and strategic approach. The advantages are wide-reaching and numerous.
Cost efficiency
One of the primary goals of strategic procurement is cost efficiency. By leveraging economies of scale, telecom companies can negotiate better terms with suppliers. Bulk purchasing and long-term contracts can also lock in prices and protect against future inflation.
Supplier relationships
Building strong, collaborative relationships with suppliers is another cornerstone of strategic procurement. These relationships go beyond price negotiations, encompassing joint development efforts, shared risk management and long-term partnerships.
Risk management
Effective procurement strategies also have a laser-focus on risk management. Telecom companies must identify and mitigate risks across their supply chains, from geopolitical instability to supplier insolvencies. Diversifying the supplier base is a key tactic. By sourcing from multiple suppliers across different regions, telecom companies can reduce the risk of supply chain disruptions.
Sustainability and regulations
Additionally, sustainability has become a major consideration in procurement strategies. Telecom companies are increasingly prioritising suppliers that adhere to sustainable practices, driven by both regulatory requirements and consumer demand. Digitising and automating labour-intensive manual tasks allows the procurement team to focus on strategic decision-making and sourcing innovative materials and partnerships.
By aligning with sustainably-minded businesses, telecom companies can demonstrate commitment to government mandates on reducing carbon footprints and promoting social governance. Furthermore, regulations such as the UK's Telecoms Security Act and the EU's GDPR require robust data protection measures and secure network infrastructure. Strategic procurement automation can enable regulatory adherence by assessing market performance and sourcing from certified, reliable suppliers.
The road ahead
Advanced analytics and AI are enabling telecom companies to make data-driven procurement decisions. Predictive analytics can forecast price trends, demand fluctuations and supply chain disruptions, allowing for proactive measures. AI-powered procurement platforms automate routine tasks, enhance supplier selection processes and optimise procurement strategies.
Clearly, business requirements flex and adapt with time. Automation can easily scale to accommodate organisational growth and expansion, handling increased transaction volumes without the need for proportional increases in staffing. AI-based tools can quickly adapt to changes in market conditions, such as fluctuations in demand or supply chain disruptions, ensuring continuity and competitiveness.
Procurement solutions
At a time of global conflict, political instability and fluctuating inflation, all sectors of the economy have been asked to consider their role in limiting the impact. The pricing mechanism of telecoms operators in particular has come under the spotlight. Against this background, the role of strategic procurement will only become more critical.
Telecom companies must continue to innovate and adapt their procurement strategies to ensure cost efficiency, strengthen supplier relationships, manage risks and embrace sustainability.
Today, procurement has evolved from a back-office function to a strategic pillar in the telecom industry. By leveraging technology, fostering strong supplier partnerships and prioritising sustainability, telecom companies can not only mitigate the impacts of inflation, but also drive long-term growth and value creation.