Are we ready to wrestle with inflation? (courtesy of Alexis Foundation)
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” – Sam Ewing
Inflation. The sheer mention of the word brings forth shudders.An inevitable fact of urban life, inflationary pressures lead to higher living costs. To match the rising costs of living, wages need to increase. With land becoming increasingly scarce, rental rates continue to climb. Utility charges will also head north as fossil fuels run low.
In tandem with rising labour and fuel costs, transportation and storage charges will similarly increase. Meanwhile, erratic weather patterns and the growing scarcity of natural resources lead to upward spirals in the costs of commodities, raw materials and natural produce.
How then could businesses hedge themselves against the negative effects of inflation?
Save and not splurge
First, find ways to trim “luxurious” business expenses by adopting the principles of bootstrapping. Consider leasing instead of buying machinery and equipment. Buy second hand if necessary. Or bring from home.
Buy in bulk to save costs
Pool your resources with other small businesses to enjoy economies of scale and greater bargaining power. Leverage on each other’s areas of expertise and barter products and services. Undertake joint purchasing, marketing, utility purchases, training and other activities.
Share back-of-the-house services with others
Seek ways to share resources in back-of-the-house areas like office spaces, estates and security, admin, human resources, finance, IT and logistics. If feasible, tap on outsourced service providers to run your backroom, IT, administrative or secretarial functions.
Embrace strategic procurement practices
Embark on strategic sourcing and procurement practices. Constantly evaluate and re-evaluate your suppliers, and find ways to increase value while reducing costs. This includes considering non-traditional sources of goods and services from emerging markets, buying in bulk, or hedging your purchases for more volatile services.
Anticipate future demands closely
Forecast demand as accurately as possible so that you can keep inventory costs low. Depending on your nature of business, cater for seasonal peaks and troughs. Consider implementing a Just-In-Time (JIT) system to ensure that stock doesn’t build up unnecessarily during low seasons.
Reward customers and suppliers who help you save
Get your customers and suppliers into the act! Reward them if they DIY. For example, offer a good discount if they can pick up the goods themselves (instead of having it delivered).
Reduce, reuse and recycle
Reduce your running expenses and overheads by re-using, reducing and recycling. Stretch the lifespan of your office equipment, furniture and stationery. However, do not sting so much that working in your office becomes unbearable or customers end up having negative experiences.
Adopt “green” technologies
If your business is energy intensive, find ways to incorporate “green” technologies into your building design. These can be anything from air-con chiller systems that recycle heat or save water to tinted glass windows that reduce the greenhouse effect.
When all else fails…
Finally, when you really have no choice, go ahead to adjust your prices upwards. However, do be mindful of how your customers will feel.
If possible, introduce sweeteners to cushion the impact of higher prices. An example would be throwing in low cost but high value items into your package of products or services to provide greater value to your customers.
Are there other ways to beat the inflation blues? Share your thoughts in the box below.