As consumer prices and global energy costs edge ever higher, it’s become clear that inflation isn’t transitory. Economists and business leaders alike agree that supply-chain-driven hikes will persist through the majority of this year at least, with stickier increases around labor possibly becoming permanent.
Here is the summary of the inflation forecast of the top 5 regions that Hong Kong manufacturers and wholesalers work with most. *
Source: The Asian Development Bank.
Still, businesses can take action to bolster their financial health. We’ve assembled eight steps for leaders looking to not only weather this inflation surge, but set themselves up for success in the new normal of costs.
8 tips for Manufacturers, Wholesales and Ecommerce business to tackle inflation
1. Update Your FP&A Process and Cash Flow Projections With a Focus on Nimbleness.
Why? Agility to react quickly to any possible economic outcomes while staying ahead of the competition
Action: Identify the current trends that impact your sector, run “what-if” scenarios to test various potential impacts of inflation. Run longer-term scenario planning exercises.
Impact: More accurate cashflow and operating cost and profitability projection
Explore Financial Planning and Budgeting of Oracle NetSuite to support our cash flow projects with ease.
2. Diversify Supply Chains to the Extent Possible, Even If It Raises Costs in the Short Term.
Why? Create sustainable and resilient material and product availability
Action: Develop a lean and cost-effective supply chain through vertical partnership, vendor diversification, domestic alternatives and stockpiling
Impact: A modest technical or process improvement can pay huge competitive and cost-saving dividends
3. Spend in the Right Areas — That Is, Those That Feed Your Success.
Why? Broad, untargeted cuts could impede growth and usually prove to be unsustainable.
1. Sort through activities and avoid blanket, untargeted cut.
2. Renegotiate outdated contracts.
3. Eliminate free shipping, and up the cost of expedited delivery.
4. Maximize spend on existing contracts whose prices aren’t indexed for inflation.
5. Remove or reduce discounts and promotions.
Impact: expenses are justified one by one and budget owners must show how spending is aligned to strategy – zero-based budgeting.
4. Get Strategic About Pricing.
Why? Creative pricing strategies to lessen the perceived impact of an increase in stiff compeittion
Action: Analyse data on demand and market structure, as well as upstream and downstream costs for planning agile long-term pricing strategies such as introducing pricing tiers and premiums.
Impact: alleviating inflation impact on costs, raising price without losing customers
5. Clean Up Your Product and Service Portfolio With an Eye Toward What You Can Make, and Sell, Now.
Why? SKUs which may have had short runs or other factors which reduced operating efficiencies, as well as SKUs with lower margins
Action: Examine relevance and profitability of offerings. Streamline offerings.
Impact: Better in-stock position for those high-margin core products with the most consumer demand.
6. Use Your Inventory as a Physical Hedge.
Why? collecting materials that are important to the sales or movement of key products
Action: Use line of credit to order the inventory now and try to keep your finished goods prices
stable in comparison to your competition. Track metrics such as your average days in
inventory as well as your inventory turnover ratio
Impact: working capital leveraged for inventory spend
7. Implement Future Contracts Now, But Mind the Accounting Rules.
Why? Reduce business risk by hedging and better cost predictability
Action: Plan and budget your cost of goods. Implementing future contracts of commodities that your business use to provide stability.
Impact: Protect corporates against future commodities price spikes
8. Automate to Reduce Labor Costs
Why? Skills shortages and higher salary
Action: Reducing work through automation means that less labor will be needed to run operations. And,
it will free up workers to focus on strategic value-add activities, benefitting the business
and increasing retention.
Impact: Increase productivity and scrutinize the labor costs associated with the remaining products
given upward pressure on salaries