How has inflation been affecting your business these days? Being a player in a global economy, your organization has to keep top of mind the potential effects that inflation may play in increasing the risks we face in the global supply chain.
With more awareness of inflation’s impact, you can better prepare your company to weather any storms. There are higher prices to deal with, along with more costs in terms of labor, materials, energy consumption, and the movement of goods from point A to point B (and beyond, depending on the complexity of the supply chains you are working with, of course).
Sensible Micro is the preferred partner for companies of all sizes that want to mitigate supply chain risks. Read on for details about how inflation is affecting the global supply chain, with an eye toward minimizing the exposure and risk your business must contend with.
High Prices
One of the more evident effects of inflation’s impact has been on consumers. As prices continue to rise, consumers find themselves with much less income at their disposal than before. This has led to a profound decrease in demand for electronic services and goods.
Spikes in gasoline prices, as well as increased costs for rent/mortgage and food, have been slamming consumers. As a result, “personal outlays decreased $39.2 billion in December,” as noted by a recent report from the U.S. Government’s Bureau of Economic Analysis.
Forbes explained that when people have less available in their wallets for non-essentials, companies have to address the reduction in demand. “Your company needs to get even better at demand planning, forecasting, and sensing consumer behavior, which in turn drives manufacturing, transportation, inventory management, and sourcing of raw materials,” according to Forbes.
Eventually, when consumer demand starts to increase again, as people have more disposable income to spend on the electronics you specialize in, you will want to be ready to meet this opportunity.
Increased Industry Costs
Consumers aren’t the only ones being hit hard by rising inflation. Businesses, large and small, are seeing a rise in the direct costs they must expend on key factors such as transportation, labor, energy, and raw materials. It becomes increasingly more expensive to build, warehouse, and transport electronic components.
Amid this uncertainty, many employees are participating in what has become known as the “Great Resignation,” preferring to leave jobs that didn’t compensate them at the level they expect. As so many workers benefited from work-from-home opportunities during the global coronavirus pandemic that caused COVID-19 to spread, they began to consider that business as usual at brick-and-mortar establishments was not worth the price of coming to work in person at the office.
To deal with this uncertainty, you can explore options for alternative suppliers and plan out different scenarios where your components cost more than anticipated, so you can refine the product line or work on adjusting consumer expectations.
Fed Boosts Interest Rates
No supply chain risk analysis would be complete without taking into account the actions of the Federal Reserve. Accordingly, Forbes pointed out that the Fed has already boosted insurance rates to help get a handle on the situation.
This means that the days of “cheap money” are no longer here. Companies have to pay more attention to their inventory levels as well as their current and projected working capital. Having an excess of unused inventory can soak up the cash you need for future projects, making it more difficult to respond nimbly to changes in the marketplace. It could mean the difference between having to borrow at onerous interest rates just when you need a cash infusion the most.
Let Sensible Micro Be a Part of Your Company’s Supply Chain Risk Management Plan
You want to work with a trusted partner with years of experience in the industry regarding developing and using a modern supply chain risk management plan. With higher prices driving down consumer spending and an increase in costs for manufacturing and transportation, it’s more critical than ever to anticipate and have a process to manage risk to help you curtail the associated higher costs of doing business in the microelectronics sector.
The team at Sensible Micro is here to help you with managing the impact of global supply chain risks on your business operations. For example, we offer quality assurance tests, which are particularly crucial when delivery times are tighter, and there is less margin for error. To learn more about our approach to supply chain risk assessment or to consult with us about your ongoing microelectronics sourcing requirements, get in touch with us today.
