How rising inflation costs are impacting the supply chain

Burgeoning inflation costs have put pressure on many businesses throughout the world and with no end in sight, it has left supply chains faced with mounting pressure. Reducing the negative impact on service and maintaining the throughput of products while struggling to keep costs down has created substantial disruption to networks across the globe.

With an interconnection between large suppliers and the far-reaching scope of supply chain activities, interdependency creates a ripple effect, with rising costs being felt by all corners of the industry.

Challenges are arising from inflation and the higher expense of items like raw materials, fuel, and labour expenses, operating costs have risen dramatically over the past year. This is compounded by price increases in technology, machinery, and storage prices.

An upward movement in energy costs and transportation has been driven largely by the cost of gas and oil prices. Increases starting during COVID continued through the subsequent years and continued rising with heavy demand and events like the Russia-Ukraine conflict. 

Scarcity of materials

Supply chains are struggling to fulfill orders and meet shipment loads as the availability of raw materials becomes scarcer. More hours are spent sourcing and negotiating the supply of materials and reduced availability means that the good which can be purchased take longer and cost more to ship to warehouses and distribution centers. 

Balancing cost and services has become a complicated juggling act as networks and operators try to account for multiple variables and forecast with accuracy. With an exodus of manual labour, the availability of qualified warehouse and operational staff put an added slant on an already precarious situation. 

Cost planning and resource management is being placed in sharp focus as supply chains attempt to make the best use of limited supplies. 

Limited spending

Inflation is as high as it has been in the past 40 years which has put a sizable dent in the pockets of consumers. Once accustomed to an abundance of reasonably priced goods, consumers have been forced to rethink their budget, and not without cause. The producer price index (PPI) rose 24.0% in the past year which is a large increase in the cost of goods production.

As spending slows to preserve funds for needed commodities like food and fuel, the amount of cash filtering through to other areas of the economy has reduced if not stalled completely. Public spending will shift towards needs rather than wants, and money is more likely to be channeled into local and sustainable economies. 

This is partially driven by the young and upcoming Generation Z who will happily pay more for goods that are perceived as environmentally responsible and this may shift even more money away from larger, mass-produced goods, as buyer behavior becomes more heavily focused on supporting local communities.

High-interest rates

In an attempt to manage inflation, interest rates have risen several times in the past year. As the base rate sees incremental increases the costs of borrowing become more expensive. While this places constraints on consumer borrowing and stems markets such as real estate, supply chains will also feel the pinch. 

As money costs more companies will be less inclined to invest in expansion, growth or localised enhancements like state-of-the-art machinery. Supply chain management and financial budgeting will likely be more tightly monitored and analysis and planning more heavily depended on. 

Forecasting, modeling, and scenario planning to develop agile and swift responses to multiple possible events will support coordinated efforts as supply chain leaders look to reduce costs and maintain profit margins. Inventory will be reduced to decrease tied-up capital and supply and demand variables closely monitored. 

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