Inflation continues to soar in 2022, reaching levels not seen in 40 years, as consumer prices are up 9.1% compared to mid-2021, per the U.S. Department of Labor. The rise of inflation comes from many causes, including the leftover effects of a two-year pandemic, a surge in oil prices due to Russia’s invasion of Ukraine, and people seeking higher wages from jobs followed by companies raising labor costs to try to recruit top talent.
A multifaceted problem of inflation requires a strategic, multi-pronged approach to solving problems exacerbated by current economic forces. CNBC states that 40% of business owners have raised prices, while 31% are taking on debt to try to prevent raising prices, even though 91% of businesses have had to pay more for materials.
What kind of risk management strategy do you have in place for inflation? The Whitlock Co. discusses some small business risk management tips when your company faces inflation across the board.
Examine Your Supply Chain Risks
The COVID pandemic taught us that supply chain management is crucial for businesses weathering the storms of economic turmoil. Those with agile plans in place learned that the faster they navigated issues, the stronger their business models were.
Look at these signs of high-risk suppliers:
- Long lead times
- JIT supply chain models
- Items that are expensive to store, like hazardous, temperature-sensitive, or very heavy materials
- Products with only one supplier
- One raw material costing over 10% of your COGS
Solving these issues comes from having a good procurement process and strategy in place. A full procurement platform helps your teams automate mundane tasks while giving you data analysis to do strategic planning.
Consider stockpiling certain products to mitigate possible shortages later, particularly if you have low storage costs for these items.
Most definitely have alternate supply chains, not just alternate suppliers. Diversifying is the key to survival in the animal kingdom and the business world.
Plan for How You Attract and Retain Talent
The labor market continues to be tight as workers are demanding higher pay and better work. Develop a strategy for attracting and retaining talent. There are pay raises, of course, which are important when employees feel the pinch of inflation, too. But non-monetary benefits are also vital to retaining and attracting prospects to your team. Career development lets employees have a way to earn a promotion and raise while upskilling.
Other top benefits for workers in 2022 include:
- Having a strong connection with the company, knowing that their work makes a difference.
- Technology investments to make employees’ jobs easier.
- Paid family leave is a huge deal, particularly since the pandemic forced parents to be flexible with their children’s school schedules.
- Mental and emotional health programs for employees, especially those battling stress, anxiety, and burnout.
- Flexible work arrangements, both in terms of location and work shifts.
Most crucially, discuss what benefits are important to your employees. They will tell you what they want.
Understand Your Pricing Model
Fully understand what goes into your pricing models. Can you make internal efficiencies to keep prices competitive? Can you reduce the amount of work you do while keeping prices the same?
If you do increase prices, think about improving the marketing message to go along with price hikes.
Determine what differentiates you from your competitors. Do you offer service after the sale? Market that as an added value.
Improve the uniqueness of your brand that sets you apart from others providing similar products or services. For example, bundle service or product packages together for a discount.
Invest in customer service through better CRM tools or improved selling processes.
Offer subscriptions or warranties on your products or services to foster customer loyalty. Consider bulk discounts for already-existing customers to entice them to purchase more.
Improve Your Forecasting
There are plenty of data analytics tools available that can help you organize your cash flow data to see where you can improve. AI-based and machine learning software is everywhere, and there are plenty of options out there.
Integrate your chosen platform with the other digital tools you already have in place. Every data point from customers, procurement processes, and internal processes helps, and an ERP can help bring it all together.
Beyond the data analysis, think about having a business planning expert on your side to help you make relevant decisions for the future of your company. Some analytics tools can forecast a few months in advance. However, platforms always recommend having experts examine the data to make sure you employ sound decision-making to move forward.
The Whitlock Co. can help your company through good times and rough seas. We help privately owned companies with their business planning, so they are in the best possible position to succeed.
Contact us or call (417) 881-0145 to request a consultation with our team. We’ll show you the optimal way forward for your business model.