Defend, Attack, And Optimise: Cost Inflation Outlook November 2025

How should Procurement teams improve and sustain results in today's turbulent supply market?

01 Defend

• Protect against external shocks by anticipating raw material and services shortages.
• Build transparency across the supply chain to strengthen supplier resilience through sub-tier supplier mapping.
• Proactively secure critical materials and components through dual sourcing, diversification and supplier partnerships.

02 Attack

• Reset strategic sourcing and supplier negotiations capitalising on partially deflationary markets and shifting supplier dynamics.
• Turbo-charge negotiations with advanced should-cost modelling, specification complexity reduction, and technical cost reduction analytics.

03 Optimise

• Reset procurement operating model to rigorously and relentlessly deploy data insights, AI decision prompts and end to end workflow efficiency.
• Connect real time supply market triggers with resilience, commercial and operational action prompts
• Adopt AI to automate and fast-track workflow bottlenecks including contract redlining, P2P workflow orchestration and alternative supplier identification and onboarding

Disruption persists...

Multiple forces are simultaneously challenging traditional procurement approaches, demanding new strategies for cost management, risk mitigation, and competitive advantage

Tariffs and trade barriers

Trade tariffs and changing policies are disrupting manufacturing and supply chains – sudden cost hikes and unpredictable rules that make compliance more complicated. These changes don't just raise costs – they also cause delays, force companies to rethink supplier relationships, and increase the need for better supply chain oversight. To handle these challenges, companies are using advanced risk management, looking for new suppliers closer to home, reshaping their supply chains, and integrating operations vertically. This helps them reduce risks from future trade policy changes and stay competitive in a world where global trade is becoming fragmented.

Deflation outlook in Food & Beverage

After a long period of rising food and drink prices in the U.K. (5.1% inflation as of August 2025) some deflationary trends are now emerging. The situation reflects supply chains returning to normal, better crop yields, falling energy costs, and changing consumer habits that favour value over premium products. This creates new opportunities and challenges for procurement leaders who should act to renegotiate supplier deals and re-think cover strategies, while continuing to plan for cost pressures still present in the system.

China Plus One

Companies are no longer just trying to reduce risks by moving manufacturing away from China – they are fundamentally changing how they operate. While China offers unmatched manufacturing scale, deep supply chains, and huge market access, companies are now investing heavily in alternative locations like Southeast Asia, India, and Mexico. Foreign investments in Southeast Asia jumped to $236B in 2023 from $190B in previous years.

This shift requires major investments in facilities, skills, suppliers, and technology, all while keeping quality high and costs competitive. The key to success is balancing continued access to China's large market and supply networks by building a more resilient, geographically spread manufacturing base.

Persistent labour cost pressure

Labour costs keep rising even in uncertain economic conditions. Minimum wage hikes and fierce competition for skilled workers are driving steady cost inflation that doesn't follow normal economic slowdowns.

Global salaries are expected to rise by an average of 4.5% in 2025, with manufacturing pay staying strong. Across OECD countries, real wages rose 2.5% in the first quarter of 2025.

Companies are responding by using AI to boost automation, improve workforce productivity, and shift work to lower-cost regions. They are also redesigning pay and reward structures to align with new regulations that expand worker protections and pay requirements..

Strategic shortening of critical raw materials

The global supply of key raw materials – rare earths, semiconductor-grade silicon, germanium, lithium, and high performance alloys – is tightening sharply. Geopolitical tensions, export controls, environmental rules, and highly concentrated production are creating serious vulnerabilities for industries that depend on advanced technologies.

China dominates the market, controlling about 90% of rare earth processing and nearly 70% of total production. Prices are surging: germanium rose 115% from £945/kg in early 2023 to £2,050/kg in mid-2024, while dysprosium is expected to climb 340% to $1,100/kg by 2034.

These pressures go beyond short-term supply gaps. Companies must now lock in multi-year supply contracts, invest in substitute materials, build vertically integrated operations, and form partnerships with both suppliers and governments to secure access. The problem is intensified by long lead times for new mines, refineries, and supply chains, even as demand accelerates with electric vehicles, renewable energy, high-tech manufacturing, and defence needs – all stretching existing capacity and logistics to their limits

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