Suppliers renew deals faster as prices soar

NEW DELHI: Suppliers are staying away from long-term contracts as inflation percolates through the economy. Organisations ranging from paper cup makers and dairy cooperatives to steel and cement makers are holding out from committing to a steady supply of raw materials at a fixed cost, putting companies in a fix even as they hike prices.

“One-year contracts were the norm earlier but now suppliers want to commit to only two or three months at a time,” said

Nitin Saluja

, founder of tea cafe chain,

Chaayos

.

Extended commitments from suppliers help companies plan procurement in advance and beat inflation by planning price hikes and adjusting for input cost pressures. But with global commodity prices on fire, especially after the Ukraine war, suppliers are unwilling to commit to long-term contracts. For wheat flour millers, several traders were providing supplies for three days and then revising prices. “While some have stopped supplies, others are charging exorbitantly to enter into long-term contracts,” said

Anjan Chatterjee

, hotelier and founder of

Speciality Restaurants

.

It’s a similar situation in sectors such as steel, cement and power, where suppliers have been found walking out of deals if not paid in advance or their demands of inflated prices not met.

“We have seen this in gold in silver, but not in coal and steel,” said

Ravi Sehgal

, MD at Carnation Industries and former chairman of Engineering Export Promotion Council (EEPC) of India. “Customers’ prices are fixed and they don’t want to budge and suppliers want full advance. The steel crisis has softened a bit in May but it’s temporary. ”

Historically, while companies have been able to weather inflation by raising prices of raw materials, factors such as labour and freight are pushing back recovery this time.

“Prices of raw materials have shot up by 100-115% but working capital for MSMEs is in short supply,” said K E Raghunathan, convener, Consortium of Indian Associations. “There is a looming labour crisis too. ”
In the dairy sector, for instance, companies complained of migrant workers, who travelled to their hometowns during the pandemic-induced lockdowns, and settled down.

“Apart from high input costs, we are facing labour shortage,” said Radhey Shy- am Dixit, CMD at Ananda Dairy. And the blame game continued in other sectors too, such as paper. “Ask reputed Indian brands why they stopped taking paper cups from us,” said Jackson Mathew, director at Leetha Group of Industries. “If you have to adhere to a certain quality standard, you have to hike prices. ”