There’s been no shortage of news pieces about inflation lately. We read a lot about how inflation is affecting consumers. But how is it affecting small- and medium-sized enterprises (SMEs) who rely on warehousing?
There are many factors that affect inflation. To oversimplify the situation slightly, in 2020, several governments provided Covid-19 payments to citizens and kept interest rates very low in the hopes that people would keep spending money while they were stuck at home, even if they had less or no work.
People bought a lot of consumer goods. Now unemployment rates are generally very low and people keep buying things, so the currency they use is worth a little less than it used to be. Marginal inflation over long periods of time is actually a good thing, but we’re seeing sharp rises in inflation now, and that’s worrying. In response, several government banks have raised the interest rate significantly. Russia’s invasion of Ukraine and the subsequent boycotts have also upset markets.
Excess inventory
An inflationary situation such as this normally results in businesses carrying a lot of excess inventory. If you manufacture products, or have a deal with a manufacturer, that reflects the demand there’s been for the past couple of years, you could be in trouble now. With credit card rates being higher, and items costing more than they did before, people are less inclined to buy as much. This could mean your warehousing is overflowing with excess stock.
Inflation and warehousing
One important thing to note is that because of Covid-19, we’ve been seeing supply chain issues for years now. For some SMEs, there is no excess inventory, because they were already having a hard time manufacturing their products, or shipping them to their warehouses. In these particular cases, the two problems kind of cancel each other out.
Some manufacturers are feeling the worst of both worlds, though. Supply chain issues might mean they can’t get one key material for their product, while they have a glut of other materials taking up space which they can’t use. Most SMEs are somewhere between these two situations.
What’s the solution?
The solution to your SME’s warehousing issues depends very much on what you sell and where you sell it. No matter what factors affect you, careful planning is going to be part of your solution. What will you lose more money on, extra warehouse space or selling your products at a discount? Can you even find extra warehouse space?
If your current agreements are flexible enough, reducing how much you manufacture or how much stock you buy might be one solution. This period of inflation is unlikely to end soon, so overall consumer demand will probably be down for a while. One option is to export your goods to a new market. This way, you can achieve the same level of demand, just across multiple markets.
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