Many businesses are facing increased costs. This is not necessarily a new business challenge… but the COVID-19 pandemic is driving significant and unpredictable “price spikes”. Let’s look at what business leaders should be thinking about in this environment.
First, what is driving these changes?
Here are some of the important factors influencing the cost of goods and services:
This results in higher costs and limited supplies of production materials, which are expensive to transport.
What’s the outlook?
The outlook is uncertain. In some cases, we may return to pre-pandemic prices and, in other cases, there have been structural changes which will not be reversed. Business leaders have the tough job of navigating through this uncertainty!
What are our options as business leaders?
One option is to “wait and see”. This may be the most prudent choice in some circumstances but there is a risk that competitors will do a better job of managing their response to increased costs.
Another approach is to try and address some key questions… and then develop a strategy. The list of questions will vary by industry/business, but here’s a general approach:
1. What’s happening in our business exactly?
Which input prices are going up and by how much? Are these increases temporary or permanent? Are the price increases predictable or erratic? Are we near peak pricing? Clarity (or at least a theory) on these basic questions provides a foundation for strategy.
2. What is the (potential) impact on our business in different scenarios?
Whether we “wait and see” or raise prices, we should understand:
While your customers are critical in this analysis, consider also how employees are affected due to rising costs, e.g. higher energy bills.
3. What actions can we take?
There could be various options such as:
For those who pass on cost increases to customers:
4. Is our financial reporting frequent and accurate enough?
Management’s challenge is ongoing, not a one-time decision / event. We need:
An Opportunity?
Not surprisingly, seismic shifts in the business environment present opportunities as well as challenges. Your competitors are dealing with a similar situation, and you may capture additional business from existing or new customers who are disgruntled with other suppliers due to volume or price issues.
And the benefits from revisiting procurement practices to drive margins can be significant and long-term.
Conclusions
The challenge and impact of cost increases are specific to each business. And while things remain uncertain, management should expect the unexpected and make judgement calls, based on solid strategies, market insights, and a clear understanding of cost drivers.
Where necessary get advice from experts in this field.
Source: https://panalitix.com/
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