The Connection Between Inflation and The Supply Chain

inflation and supply chain

 

As a business owner, inflation and supply chain problems are two unavoidable factors that severely impact your business. Currently, businesses all over the world are being affected by these issues and the problems are continuing to grow. 

To combat inflation and supply chain issues, two forces that work together hand-in-hand, business owners, like yourself, need to know how they interact with each other to prepare for the ongoing challenges. If you don’t, your business could suffer.

The Correlation Between Inflation and The Supply Chain

Inflation plays a role in the supply chain just as the supply chain plays a role in inflation. While it’s expected for inflation to rise and the supply chain to shift, they are currently doing it at an unprecedented speed, making it difficult for businesses to keep up. 

As inflation increases, the value of the dollar decreases. This means the costs of goods now are much greater than before. As a result, businesses are struggling to make purchases they were previously able to make. Additionally, because there is more money in circulation, customers are buying more products (especially from e-commerce sites) leaving businesses with low inventory levels. 

As demand for products rise, and supply issues grow, businesses are forced to charge more for their products, which hurts the consumer. 

Demands Affect on Inflation

Demand is high across the board. However, as mentioned, e-commerce retailers are experiencing the effects more than other industries. Worldwide stay-at-home orders forced consumers to buy products online, which left businesses unable to keep up.

To meet the rising demand, businesses will have no choice but to raise operational costs. This will come in the form of: 

  • Hiring more workers
  • Upgrading their current delivery processes
  • Storing additional inventory

You then have to raise your prices, which impacts the consumer and how much they have to pay for products. 

Reduced Supply’s Impact on Inflation

Because demand is so high, there simply isn’t enough supply to keep up. Shortages are plaguing nearly every industry. 

As businesses are working to even out the supply and demand discrepancies, they are also sifting through a labor shortage. Because of this, even when there is enough supply to meet consumer demands, businesses are lacking the labor to get products to customers. 

If your business has been faced with this situation, it’s likely you’ve had to raise your prices to keep revenue at a sustainable level. 

What It Means For Our Economy and Your Business

With inflation and an uneasy supply chain, your business and your customers will both experience higher prices. Because of the nature of these economic influences, it will take years for this disrupted cycle to correct itself. 

While this isn’t the news you were hoping for, you can use it to your advantage. It’s important your business continues to adjust and prepare for rising prices, high demand, and supply shortages. Here are a few things you can do to work through inflation and supply chain issues: 

Keep a close eye on your stock. Because of shortages and delays, you need to stay on top of this. If it’s possible, keep extra stock on hand.

Be honest with your customers. They know the economy is not in a good place, your transparency will be appreciated. 

Re-evaluate your prices. As costs of goods rise, your prices will likely need to rise as well. If you don’t take the time to ensure your products are priced correctly, your revenue could suffer. 

Be patient. Eventually, inflation and the supply chain will even themselves out, in the meantime, be patient and diligent through the process. 

Work Through Inflation and Supply Chain Issues With an Experienced Accountant

Navigating through this economy can be difficult. An experienced accountant will guide your business through inflation by helping you set the right prices and provide cost-lowering strategies. They will also be able to provide forecasts to allow you to see different scenarios of how inflation and supply chain problems could affect your business.

If you are concerned about the implications of inflation and the supply chain on your business, contact an expert at U-nique right away to get the help you need.

Matt C

By MATT CIANCIARULO

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