How Did We Get Here? Feeling the Inflationary Pressure

How Did We Get Here? Feeling the Inflationary Pressure

Inflationary pressures in the United States are affecting the supply chain, which, in turn, is affecting consumers and inventory levels. 

We’ve all felt the rising inflation. The Consumer Price Index (CPI) increased by 6.4% in the last 12 months alone, putting pressure on the supply chain (especially labor shortages) to meet production needs and pricey warehouse costs. Companies are struggling to manage inventory levels and meet demand as prices rise.

How Did We Get Here?

One of the main inflationary pressures affecting the supply chain is the cost of raw materials. The prices of essential raw materials such as steel, aluminum and copper have increased dramatically, and this has led to a rise in the cost of manufacturing goods. Additionally, supply chain disruptions caused by the pandemic have led to a shortage of some raw materials, further driving up prices.

Diminished consumer demand is another pressure point for the supply chain leading to lower transportation costs. While lower freight and shipping costs might sound appealing, it’s creating a negative ripple effect. Lower consumer demand is causing US shippers to witness a 20% drop in ocean freight orders – meaning shipping containers are frequently only filled at half capacity. Because of this, ocean carriers have canceled as much as 50% of their scheduled trips to rebalance the capacity of containers to meet demand.

Where Do We Go From Here?

Companies should take steps to prepare for and manage inflationary pressures in the supply chain. 

Monitor and analyze market trends: It is important to keep tabs on the news cycle, especially during times of economic uncertainty. Companies should keep an eye on market trends and anticipate any price increases, enabling companies to adjust their pricing and inventory levels accordingly.

Optimize inventory levels: Companies should maintain optimal inventory levels to ensure they can meet demand and avoid excess inventory costs. However, this is a lot easier said than done considering inflation and fluctuating consumer demand, and it requires accurate forecasting of demand and supply chain disruptions to be successful.

Supply chain mapping success: A great tool that helps optimize inventory levels is supply chain mapping. Supply chain mapping is a critical tool for managing inventory levels in any company. By visually representing the flow of goods and information from suppliers to customers, companies can identify potential bottlenecks and risks in their supply chain, and adjust inventory levels accordingly to optimize costs and improve customer satisfaction. Effective supply chain mapping requires a thorough understanding of all parties involved, including suppliers, transporters, distributors and retailers, as well as the different types of inventory, such as raw materials, work-in-progress and finished goods. Best practices for implementing supply chain mapping include using software tools to automate data collection and analysis, collaborating with key stakeholders to ensure accuracy and completeness, and continuously monitoring and updating the map to reflect changes in the supply chain. 

Companies should explore these strategies to help identify opportunities for improvement to further optimize inventory levels and overall supply chain performance. In times of uncertainty, it is always best to be prepared. If all else fails, map out a plan to keep your business moving forward with the help of Net Trade.

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