Two major crises have characterized the international economic environment in recent years. First, there was the COVID-19 crisis, and then the war in Ukraine. This global crisis environment has caused inflation in a variety of sectors, which must be mitigated.
An International Price Spike
These crises have affected every country on the planet. Companies around the world are facing soaring raw material prices as a result of various shortages, along with rising energy and fuel costs. According to the IFO Institute, the inflation rate is expected to average 7.7 percent in 2022. This situation causes tensions in supply chains and forces businesses to review their supplies in order to limit the effects of this inflation. This is due to factors that neither businesses nor governments can measure, making the situation much more complicated. However, the situation is not yet dire; businesses can still get back on track. Here’s how:
Prioritize Long-Term Contracts
Companies that have business contracts with their suppliers may have the option of choosing between short-term and long-term supplies. A company, for example, can sign a contract for several hundred tons of raw materials to be delivered in several installments over the course of the year. Even if these contracts occasionally have the disadvantage of requiring the company to buy slightly above the market price, they have the significant advantage of guaranteeing a fixed price that is unaffected by the economic context, because the supplier is required to honor its commitment regardless of what happens.
Diversify Supply Sources without Lowering Product Quality
It is common knowledge that businesses should avoid putting all of their eggs in one basket. This means that they must have multiple strings to their bow, as well as multiple suppliers, so that they are not reliant on a single one. Companies have no choice but to turn to lower-cost suppliers in the current inflationary environment. Unfortunately, lower prices are often synonymous with poor quality. Companies must therefore ensure that, even as supply costs are reduced, the quality of materials purchased remains constant. Indeed, it has been observed in Europe, for example, that companies wishing to obtain supplies from certain Asian countries have been met with a much lower quality than they were accustomed to, resulting in several disputes and lawsuits.
Of course, it is not that easy to change a supplier or to find products when the whole world is impacted by the crisis. But it is not an impossible mission with the right technical resources.
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