Authored By: SDI Plastic

Businesses have been through an enormously challenging few years. Over the last 2 years, the global pandemic presented an unprecedented amount of issues, with the majority of businesses experiencing major disruptions throughout their supply chain networks and product supplies. We are now going through and experiencing a number of economic uncertainties with unexpected setbacks, such as the rising cost of inflation, rising fuel and gas prices, interest rate rises and the increase in the overall cost of living.

Please note, at the time of writing this article, it is October 2022, and the contents are related to this time period.

How are businesses adapting due to rising inflation costs, fuel, shipping and materials?

There is often confusion and speculative thinking when there is talk about inflation. Everyone understands that inflation leads to higher prices. Although those “rising prices” are a national average, how inflation affects a specific business will be determined by its particular economic circumstances. Each business is very unique depending on the industry it belongs to, other factors relate to why and how the costs are rising, the productivity of its workforce, the structure of its supply chain, the amount and type of debt it has (if any), and so on. 

Making intelligent decisions may help a firm not only survive but also grow stronger as a result of inflation

The pandemic and the situation in Ukraine have contributed to global inflation and an economic slow down. Few C-level CEOs have steered their organisation under these combined inflationary pressures. Three imperatives are critical for success and long-term competitiveness in a high-inflation environment:

Do keep an eye out for industry specifics. 

• Inflation does not necessarily have sweeping effects. However, a thorough awareness of the industry context will impact which levers to pull and when.
• To build resilience, use technology to improve efficiency and agility as soon as possible. Be deliberate in resolving concerns with stakeholders such as customers, partners, and staff. This strengthens a company’s foundation.
• Economists, business executives, and policymakers agree that globalisation is under threat.

We have entered a period of rising inflation, fundamentally testing business executives and how businesses run. New quandaries occur daily, ranging from supply chain disruptions, industrial operations, and staff management to financial management and customer retention.

If the inflation rate goes too far below the norm, the economy risks stagnation; if the rate climbs too far beyond the target, inflation impacts can become unexpected as they ripple through the economy and influence consumers’ behaviour in both rational and emotional ways.

No matter how far reaching or complex the effects are, the simple principle of supply and demand is the starting point for all Company level inflation effects. At the most basic level, prices will rise if an economy’s money supply is excessive compared to the number of products and services available for sale.

When firms encounter inflationary consequences such as rising raw material costs, higher interest rates, and growing (or declining) unemployment — and evaluate how to raise their pricing – supply and demand concepts come into play.

Supply and demand principles might have unanticipated implications with the well known inflationary impacts. For instance, high inflation has the overall effect of reducing total demand in an economy since products and services become more expensive and the value of people’s earnings decreases. However, in times of rising inflation, demand for any given commodity, particularly critical items, may suddenly increase because customers are concerned that inflation will continue to climb and opt to stock up before their purchasing power falls further. In almost all circumstances, the long-term reaction to inflation effects will be an increase in cost, outgoings, labour, which all have an impact on continuous productivity.

Is inflation the same for all businesses?

Inflation affects not all businesses equally. Price increases will not affect demand as much as they would for an optional commodity when customers rely on a company and, by choice or circumstance, are less willing to shop around. As a result, many businesses, such as food stores, healthcare providers, daycare providers, and tax specialists, are thought to be recession-proof. However, with discretionary products, a purchase that can be postponed until next month or longer will likely be. The following situations have less inflationary influence.

Essential items are less likely to be affected

Prices do not affect demand for critical items. For example, many people require basic food items and health care products.  When prices rise, non-essential products have more demand elasticity as people prioritise essential requirements before depreciating purchasing power on leisure or holidays. As a result, inflation tends to damage less critical businesses.

Fewer suppliers are affected

If clients have few choices, a price increase may not make them shop elsewhere. For example, imagine a small town with one supermarket. Inflation may leave residents with few food options if fruit prices rise. They’re more likely to pay higher costs than go to another town to compare, significantly if gas and fruit prices grow together. On the supply side, firms that rely on one supplier may be compelled to pay higher costs for their goods unless they diversify their supply and locate rival suppliers who can beat the rising pricing.

Business by brand name is protected

Generally speaking, businesses with a loyal customer base  are less harmed by inflation. Brand loyalists are unlikely to switch brands significantly if competitive costs rise proportionally. The more committed customers are to a brand or product, the more likely they will stick around during price increases. As a result, every customer has a breaking point when alternatives become viable. If a price increase is unavoidable and supported by facts, options may be offered to reduce its impact. 

High inflation increases the importance of swiftly modifying prices, prioritising high-profit-margin products, and shifting input as relative prices change.

Planning ahead and building resilience

With all the continuous changes that are occurring in our current climate, it is important for businesses to strategise and plan ahead. Prioritising projects, and cutting back on costs that are not critical to the day to day operations of the business are key. Building in efficiencies throughout the business is also an important factor to consider, this is within processes, workflow and the workforce. 

For your customers, ensuring you have taken into account the increase in inflation and costs for the product or service you are providing, is reflected correctly in your pricing model. For your suppliers, re-negotiating contracts and potentially sourcing new suppliers to deliver at a lower cost can also be an important consideration when planning for an uncertain economy.

SDI Plastics are specialists within the injection moulding industry. Our service areas include product design and innovation, prototyping, toolmaking and injection moulding manufacturing. If you are looking for a reliable partner during this period of uncertainty, and one that will deliver your manufacturing requirements, please contact our talented team at SDI Plastics at (07) 3807 8666 for a confidential consultation.