Just as we are finally able to turn our thoughts away from the global pandemic and the transition of power in Washington, we appear to have a new threat looming on our doorstep, inflation. Consider that:
- Actual demand for manufactured products has really never slowed down during the pandemic, as evidenced by the many companies experiencing great difficulty fully staffing their operations to meet record levels of customer demand.
- Raw lumber, a key infrastructure commodity here in the USA, has increased in price by more than 200% over the past 12 months driving significant price increases on new construction homes.
- Fuel costs have increased in excess of 113% just since April 2020, and companies with fuel surcharge clauses built into their supply agreements are already feeling that pain.
These elements are already igniting the flames of inflation that we have not seen in our economy for several years. Think of it as a pending storm. At first, you feel a few drops that are easy to ignore and continue on with whatever you are doing. But, if you don’t act quickly, the downpour will be upon you and it will be far too late to find your umbrella. Inflation doesn’t just happen one day; it starts as a trickle and builds to an unstoppable flood without a lot a fanfare or media coverage to alert you of the danger looming at your doorstep.
A few starting points:
- Examine your current supply agreements for material cost escalation clauses.
- Ensure that the terms of your purchase agreements are in alignment with your sell side pricing policies (including freight surcharges). Avoid getting squeezed in the middle during inflationary periods.
- Pre-buying raw material can also be used as a tool to delay the impact of inflation, but it increases the risk of obsolescence, consumes free cash flow, and takes up valuable floor space.
The ProAction Group offers a “9-Box” inventory analysis process that can quickly help you decide if that is an effective option for your business.
Just like the impending storm example, the time to take action is now. The ProAction Group stands ready to help you examine your supply chain and address any areas of inflation risk BEFORE they negatively impact your EBITDA performance.
Call us at 312.726.6111 X313 or visit us www.proactiongroup.com to learn more about how we can help.