The Inovis Blog

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The rise of inflation is impacting businesses, especially on the supply chain side. Companies are finding the increase in commodity prices, like fuel and other raw materials, difficult to deal with and painfully impacting to the bottom line. The challenge is passing all, or at least some, of these increased costs along to the customer. You see, most products have a fairly elastic demand, meaning as the price for the product increases, demand decreases. So what are companies doing to offset cost inflation?

Well, according to a recent Supply & Demand Chain Executive article, some companies are indeed passing along the increase in costs to customers through effective price increases. In fact, 44% of companies are doing this through price increases, volume/quantity decreases, or promotion reductions.

Another, more prevalent strategy (57% of companies) to combat increased costs is a focused cost reduction initiative. In the supply chain, this means taking steps to optimize logistics activities, eliminate common supply chain problems, and automate traditionally manual supply chain activities. According to AMR, on average 20% of all orders are in error and, according to GS1, the average cost of each error ranges from $40-$80. Therefore, reducing the number of orders (and shipments and invoices, etc) that are in error and minimizing the manual activities that take place when an error occurs carry a significant cost benefit. Interestingly, companies that have invested in tools such as business process management (BPM), supply chain visibility, and supply chain collaboration applications are able to leverage these investments to offset cost inflation and recognize a competitive advantage.