How Businesses Can Thrive During Inflation
By Lisa Anderson
According to the Wall Street Journal, consumer prices are the highest in 40 years. It certainly doesn’t seem to be letting up. In fact, with the Russia-Ukraine war, there will be continued inflationary pressure on products related to oil, gas, commodities and food at a minimum. Clients and colleagues are seeing record increases in the costs of raw materials, components and supplies. Strong companies are prepared to thrive during these inflationary times. They are resilient and willing to take action as conditions change.
There are several strategies to create resiliency to thrive during inflationary times. Several of these strategies are better supported with a SIOP/S&OP (sales, inventory and operations planning) process to stay on top of the information required to keep your demand and supply plans aligned. For example, a building products manufacturing client was concerned about inflation and so they initiated a deep dive into their customers’ forecasts. Their objective was to answer the question: If prices continue to rise, would their customers’ demand continue to be robust, or would escalating prices curb their demand? They found that their customers expected continued increases in purchases. Thus, they made slight adjustments to their forecast based on customer input and re-ran their capacity figures across their network to determine where to prioritize resources. They also reassessed their materials requirement plans and got in touch with key suppliers to secure the appropriate level of supplier capacity and transportation resource commitments.
No client has been able to procure the optimum number of raw materials or hire the desired number of people to fully ramp up production and support resources to keep up with customer demand and in preparation for the future during these inflationary times. Thus, the most successful clients have utilized their SIOP process to quickly reassess customers and products, both from a strategic point of view as well as from a profitability standpoint. As has been commonplace across the board, the smart clients are taking the opportunity to set pricing in alignment with their objectives, and they are rationalizing SKUs and pivoting to a product portfolio that will weather inflationary times. Additionally, the strong are choosing which customers to prioritize and serve based on their business objectives. Similarly, they are taking the opportunity to ensure financial strength and strong operating cash flow.
For example, a consumer products client couldn’t serve all customers with high service levels/on-time-in-full (OTIF) and margins. Because they couldn’t hire enough resources for production, they had to increase overtime, utilize higher-cost resources and ramp up more expensive outside suppliers to supplement their business. Before taking these actions across the board, they completed a profitability analysis and discovered that they were losing money on their bottom-end customers. Thus, they quickly pivoted to prioritize their most profitable customers and implemented extended lead times and price increases for the bottom-end customers. Additionally, they utilized their SIOP to reevaluate inventory targets and align inventory priorities with customer and product priorities.
During inflationary and volatile times, it is essential to have the capabilities, capacities and cash flow to pivot quickly with changing conditions and to respond rapidly to key customer needs. Creating resiliency in decision-making abilities with a solid S&OP process will allow you to take advantage of opportunities that arise while giving you the heads up required to take a sharp left turn as needed to shed the strategies that aren’t working. During these volatile times, the strong and resilient will get stronger, and the weak and stodgy will get weaker. Opportunities will abound for the resilient.
Lisa Anderson is the founder and president of LMA Consulting Group Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released a new “Thriving in 2022” eBook download that offers insights from 22 experts in manufacturing, supply chain and technology to thrive amid the current challenges facing businesses. To download the ebook, visit:
www.lma-consultinggroup.com/thriving-in-2022.
