It’s easy to get comfortable during periods of low inflation or deflation. Freight costs tend to go down, supply chains chug along without any major constraints, and companies’ profit margins get a healthy boost. So when inflation creeps back up again and those margins start to narrow, companies can find themselves scrambling to manage rising costs without a firm strategy in place.
This is the predicament faced by many firms today.
In October, the Prices Index from the Institute for Supply Management indicated that businesses were seeing higher raw materials prices for the 32nd consecutive month. Combined with steeper import tariffs and rising freight and warehousing costs, this constant uptick has an increasing ripple effect throughout today’s supply chains. If companies react by raising prices, they risk jeopardizing customer loyalty and satisfaction. But if they don’t pass the costs along, their profit margins will inevitably take a hit.
There is a third option.
It’s not only possible to bring costs down during periods of rising inflation, but admirable. The truth is, strategic and effective supply chain management can help tame inflation for everyone. As chief logistics officers fight to find incremental cost reductions along their supply chains each year, those savings are ultimately pushed upstream. In effect, keeping supply chains in check keeps inflation in check, too.
Back to basics: Familiar cost-cutting initiatives are worth revisiting to combat inflation
Seeking savings in procurement, warehousing, transportation, and other typically costly areas of a supply chain is a good idea even when a company’s financial outlook is rosy. But during periods of high inflation (and anxiety about where it will lead), uncovering these savings is downright essential.
The rising inflation rate is as good a sign as any that it’s time to dig out contracts, dust them off, and look for room to negotiate. But companies need to be careful about picking their battles. A small price increase that has a largely insignificant impact on profit margins may not be worth fighting tooth and nail over, especially if a key business relationship is on the line. Every penny counts, but focusing on large impact areas first is a better strategy.
Beyond resisting rising costs, companies can also look to improve the efficiency of their own operations to put money back in the bottom line. Exploring automation is one option; replacing time-consuming legacy processes with streamlined solutions is another.
Partnering for success: Outsourced supply chain management can reveal hidden areas for saving
Unfortunately, cost-cutting and optimization initiatives tend to come with diminishing returns. If a company has already been trimming the fat a little more each year, it may find itself striking bone at a time when it needs to cut costs the most.
This is where outsourced supply chain management can make all the difference. An experienced partner can help uncover more opportunities to cut costs, like finding optimal routes and reducing transportation spend. This will often involve leveraging established relationships with carriers to give companies access to rates they couldn’t get on their own.
Outsourcing parts or all of the supply chain also reduces the burden on on-site staff, particularly for companies that don’t have a dedicated logistics officer. That puts hours back in the day for team members, allowing them to focus their energies on other critical business areas that support the bottom line.
Inflation can force companies to tighten their belts, but it doesn’t have to leave them gasping.
To learn more about reliable and cost-effective supply chain management, contact CTSI-Global today.