Price volatility, unfortunately, isn’t going anywhere.
In 2024, the construction sector saw a 19% surge in steel product costs since August, impacting project budgets. Simultaneously, global shipping rates fluctuated due to pre-Lunar New Year demand and geopolitical disruptions, adding unpredictability to logistics expenses.
That said, staying ahead isn’t just about cutting costs, it’s about controlling the chaos and ensuring you don’t get crushed by the wave of price surge.
In this guide, we’re breaking down five proven strategies to help procurement teams stay resilient, anticipate market shifts, and protect their bottom line—no matter how unpredictable the market gets.
Understanding Price Volatility in Procurement
Price fluctuation is a persistent challenge in procurement. It’s driven by several factors including, supply chain disruptions, inflation, and geopolitical events. For instance, energy prices can be volatile because consumers cannot easily substitute their fuel uses with other fuels. Also when one link in the chain snaps, costs ripple through the entire system. And a single disruption like the Red Sea crisis can send shockwaves through logistics, manufacturing, and supplier pricing overnight.
The effect is always brutal, with companies bearing the brunt by squeezing margins instead of passing the costs on to consumers. Volatile pricing can also strain relationships with suppliers, especially if businesses rely on last-minute price negotiations or single-source supplier contracts that don’t account for sudden price changes.
That’s why proactive procurement strategies are no longer optional. Companies that prepare ahead, don’t just mitigate risk but turn volatility into an advantage.
Five Strategies to Manage Price Volatility
1. Diversify Your Supplier Base
Relying on a single supplier might seem convenient until one unexpected price hike, production delay, or geopolitical disruption leaves your procurement team scrambling. Case in point: during the 2021 global semiconductor shortage, businesses that relied on a single chip manufacturer faced months-long delays and rising costs.
A better approach would be to explore multi-sourcing. This way, when one supplier raises prices, you have alternatives, and if a key material runs low, you’re not left empty-handed. At International Supply Partners, we recommend this as a safeguard against cost spikes, shortages, and unexpected disruptions because no one can accurately predict what may happen tomorrow.
However, don’t just add suppliers for the sake of it. Use data-driven analysis to identify vendors with stable pricing, strong track records, and competitive terms. You can also leverage supplier scorecards and market intelligence tools to help you build a resilient, cost-effective supplier network.
2. Lock in Prices with Strategic Contracts
When prices fluctuate, fixed-price contracts are your best defense. By agreeing to a predetermined price for goods or services, businesses can reduce the risks tied to unpredictable cost changes.
Take the COVID-19 pandemic, for example: companies that secured fixed-price agreements for personal protective equipment (PPE) were able to stabilize expenses despite a surge in demand and prices. Similarly, in 2024, coffee prices spiked by 30% due to supply chain disruptions in Brazil, and companies that had long-term contracts in place before the increase won by avoiding the massive cost hikes.
In addition to fixed pricing, volume-based discounts and multi-year agreements give you more leverage. The reality is that suppliers want stability just as much as you do, which means that larger commitments often come with better rates.
Overall, make sure to do your due diligence before signing a contract. Use market data, assess supplier risks, and include clauses that allow for adjustments in case of extreme shifts. The goal is to hedge against inflation without locking yourself into a bad deal.
3. Leverage Market Intelligence & Forecasting
Because price volatility moves too fast, guesswork has no place in procurement, and real-time pricing data can be the thin-line between staying ahead or experiencing a budget blowout. For example between 2022 and 2024, wheat prices swung by over 40% due to extreme weather and export restrictions. Food manufacturers tracking these trends were able to secure alternative suppliers early. Those who didn’t? They paid the price in production delays and higher costs.
However, tracking these trends manually can be time-consuming. Smart procurement teams turn to AI tools to monitor commodity prices, currency shifts, and demand trends. Platforms like BLS, S&P Global, and predictive analytics software can flag cost spikes before they hit.
Machine learning models can even go further in spotting patterns humans miss, analyzing historical data, supplier risks, and recommend optimal buying windows. This way you stop reacting and start locking in costs before the market shifts against you.
4. Optimize Inventory & Demand Planning
While too much stock ties up cash, stocking too little might leave you susceptible to paying premium prices when demand spikes. The key is striking the right balance between just-in-time (JIT) and bulk purchasing depending on your industry and market factors.
Having buffer stocks is another optimization strategy. Take Toyota, for as a case study. According to Harvard Business Review, while most automakers relied on JIT inventory, Toyota maintained a buffer stock of semiconductors based on lessons from past disruptions. When the 2021 global chip shortage hit, companies like Ford and General Motors had to halt production, but not Toyota. The company avoided shutdowns—saving billions in potential losses.
However buffer stock should be carefully considered as it requires storage space and can tie up capital, potentially increasing costs. Also, situations where demand for the products reduces or inventory expires, buffer stocks can become obsolete leading to losses.
5. Strengthen Supplier Relationships
A successful supplier relationship is built on mastering the 4Cs: Collaboration, Communication, Coordination, and Competence. When prices swing unpredictably, these strong relationships extend beyond just cost-cutting, they give you a real competitive edge.
Companies that treat suppliers as strategic partners gain priority service, better pricing, and more flexibility during disruptions. In the same vein, when both sides openly share data on pricing trends, production capacity, and demand forecasts, they can plan ahead and minimize risks. Unilever, for example, works closely with its suppliers through digital collaboration platforms, ensuring smoother operations and fewer last-minute price shocks.
Also important is negotiating flexible payment terms. Rather than focusing solely on cost reductions, procurement teams should explore options like staggered payments, volume-based pricing, or contingency clauses that provide financial breathing room while maintaining supplier trust. When both parties share the risks and benefits, long-term stability becomes easier to achieve.
Does navigating price volatility in procurement make sense for your business?
Whew! We’ve covered a lot of ground. It’s clear that price fluctuations are an inevitable challenge for procurement teams, but by taking a proactive approach and implementing the strategies above, you can maintain stability.
We hope these insights will help you navigate procurement with confidence, protect your bottom line, and position your business for long-term success. If you’re looking for a reliable supplier to help you not just survive, but thrive in an unpredictable market, reach out to International Supply Partners today.