The buying power of the dollar is shrinking, leading to rising prices. While some increase in cost is normal in a growing economy, the past year has seen a dramatic spike in inflation with inflation rates increasing by 5%, which is the biggest surge in the past 13 years.
This stark rise in inflation can be a bad sign for both the economy and an organization’s supply chain, particularly as prices increase as well. In this blog post, we’ll get into the details surrounding this current rise in inflation, and how the bump in prices can impact your supply chain.
What is Inflation?
Economists define inflation as the declining purchasing power of a currency, and the overall cost of living or operating an organization. In an inflating economy, the power of currency decreases, which causes suppliers and manufacturers to start rising prices to make up for the monetary gap. Economic experts agree that consistent inflation can arise when the supply of currency surpasses the rate of economic growth which can cause a hike in the price of goods and services. The specific cause of inflation can vary depending on several different factors, but the recent spike in prices can be attributed to global disruptions as a result of the COVID-19 pandemic.
What Are the Causes of Inflation in 2021?
The COVID-19 pandemic imposed a sudden and dramatic shift on global supply chains as rolling lockdowns to mitigate the virus’s spread impacted the exchange of goods and materials on the world stage. Similarly, lockdowns on a national and local level led to a tremendous rise in unemployment, as businesses were forced to close as a result of viral countermeasures. This significant job loss forced the U.S. government to prop up the floundering economy via economic stimulus plans. These stimulus plans resulted in a large influx of money to the national economy, which in turn increased the currency supply and decreased its overall value.
Additionally, global lockdowns with some of the United States’ largest exporters, like China, caused a harsh economic downturn. Companies in the U.S. that could no longer import goods from large overseas suppliers had to turn to national suppliers who tend to charge higher prices than foreign exporters. At the same time, national lockdowns brought the global supply chain to a screeching halt, as port closures and delays clogged the flow of raw materials and internationally manufactured products, only adding to this economic strain. In response, companies then had to change prices, further weakening the buying power of the American dollar, and spurring greater inflation.
Inflation and Your Supply Chain
When prices go up, your organization’s supply chain bears the brunt of the burden. This increase in cost can be felt through your supply chain by incurring higher prices for supplies and services that your organization needs to operate. While unavoidable, there are steps you can take to mitigate the financial impact of this rise in prices.
Forecasting economic downturns, like rising inflation rates, can play a huge role in protecting your supply chain. Inflation rates can increase at a slow but steady clip and can dramatically impact your supply chain all at once. To avoid the harm of inflation, it can be incredibly useful to develop a process and strategy for how your organization can react to the reduced purchasing power of the dollar.
An effective countermeasure against inflation is to build up your capability to adapt to rising prices. There are many ways to go about doing this, and the specifics can change depending on your industry, however having alternative suppliers or sources of raw resources can help your organization avoid a sudden spike in costs.
Your organization can counteract the burden of inflation by optimizing your supply chain through the help of a group purchasing organization (GPO). A GPO is an organization that leverages the combined buying power of its members to offer substantial savings with affiliated manufacturers and companies. Purchasing organizations often specialize in contract management and will negotiate contracts to expand member access to reduced pricing from an ever-broadening list of suppliers. A GPO membership can also assist your organization in sourcing new and alternative suppliers, helping your supply chain more easily adapt to potential disruptions such as the COVID-19 pandemic. The collaborative effort between your business and a GPO can act as supplemental tool in bolstering your budget against changing prices.
Additionally, a GPO partnership can provide you with secure pricing so that your expenses can remain the same even as inflation rates rise. Some GPOs even give their members access to services such as advanced data, cost comparisons, and business analytics that can help reinforce supply chains and assist in adapting to the economic shifts caused by inflation.
For additional support, please contact CNECT GPO to see how we can help your business navigate managing costs in times of inflation.