The Effects of Inflation on The Supply Chain

The Effects of Inflation on The Supply Chain

The past few years have brought unprecedented circumstances that are culminating in some significant supply chain challenges. You can safeguard against many of the challenges by partnering with a 3PL.

Most organizations face more supply chain challenges now than they did a year ago, research shows.

Increases in costs incur higher fees for supplies and services, affecting entire supply chains. And inflation exacerbates problems with port congestion and import containers, along with labor availability. Fuel prices also drive up transportation and freight costs that were already rising.

Other impacts include capacity constraints along with general rate or price increases, supply chain instability, lengthier lead times, delayed orders, and more issues with shipping containers.

Furthermore, inflation has increased the chances of a large bankruptcy in the trucking industry this year. As large trucking operations go bankrupt, there will be substantial issues with moving freight. As these events occur, transportation issues are likely to get worse, potentially bringing about another spike in inflation.

On an even bigger scale, the effects of inflation on the supply chain cause a ripple effect on the price of consumer goods. This inflation situation becomes cyclical with inflation causing supply chain costs to rise, which just begets more inflation and increasing prices for consumers. It’s a vicious cycle that can impact the viability of your organization.

Managing the Impacts of Inflation

Forecasting economic downturns is a key way of protecting your supply chain. Remember that inflation rates can increase at a slow but steady pace, eventually hitting your supply chain all at once. Long before inflation hits, you should develop a process for how your organization can react to the reduced purchasing power of the dollar.

An important countermeasure against inflation is to build up your capability for adapting to rising prices. How exactly you do this will depend on several factors specific to your situation. One general tactic is to have alternatives for suppliers and sources of raw resources that can help you to navigate a sudden spike in prices.

Additionally, it’s time for supply chain managers to take a closer look at contracts. We have been enjoying a period of very low inflation, which allowed some business leaders to become complacent with their cost structures. Now is a good time to assess, analyze, and target key elements of sales or external spend and see where adjustments can be made.

To an even larger degree, companies should focus on increasing their supply chain resilience. Resilient supply chains offer visibility, predictability, and flexibility over three time horizons: the short term (tactical), the mid term (operational), and the long term (strategic), according to a resilience test developed by MIT and Accenture.

A Partner in Managing a New Business Landscape

Third-party logistics (3PL) solutions have become increasingly popular over the past few tumultuous years. A 3PL provider like Taylored Services offers solutions from warehousing and transportation to distribution and inventory management. This allows organizations to streamline their entire supply chain process, saving resources and limiting external contracts. Rather than reviewing several contracts and working with multiple contacts, companies using a 3PL can work with a dedicated, single point of contact to determine the best solutions for their entire supply chain. 3PLs also help businesses save money by freeing up the time and resources associated with running their own logistics. Specifically, a 3PL can save you the following costs:

  • Warehousing space. A 3PL provides the warehouse and the necessary team. You don’t need to worry about the space or the associated costs.
  • Utilities. Keeping a large warehouse requires energy, water, insurance, air conditioning, etc. By using a third party you can skip all of these bills.
  • Employee costs. Picking, packing, shipping, and transporting are all necessary parts of doing business. You can save full-time employee salaries, benefits, etc.
  • Courier costs. Expect couriers to raise prices in line with national inflation. However, these companies have strong ties to 3PL companies and often function as part of a larger deal, keeping rates low.

Inflation is going to affect many areas of business, including supply chain. Just how much your supply chain is impacted depends on several factors, but you can safeguard against many of the challenges by partnering with a 3PL provider.

Taylored Services represents the gold standard in logistics management by offering high-quality, efficient solutions combined with massive volume discounts through our small parcel carrier partners.

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