Lately we have been bombarded with articles and analyzes on the subject of crisis, disruption of supply chains, shortage of goods on the one hand, price increases on the other. Constantly, we keep hearing about inflation, recession and other negative aspects of business world. So you may wonder how to do business in stagflation and survive?
It is inevitable that in the last two years of the pandemic we have already felt the consequences in our business, but also in our personal lives. And just when we thought things were starting to normalize, the geopolitical turmoil between Russia and Ukraine occurs, further exacerbating the problems in the economy.
Inflation, stagflation, recession… these are all terms that have become part of our everyday life, the question is how to deal with them and what to do. From the point of view of an expert who deals with the analysis of supply chain disruptions, I think that we should not spread too much panic in the media and buy supplies of toilet paper, but we should be aware of everything that is happening around us. We definitely should!
So let us start in order…
What is inflation?
An excellent definition from the European Central Bank:
In a market economy, the prices of goods and services change. Some prices rise, others fall. Inflation is a general increase in the prices of goods and services, not an increase in the prices of individual products. Because of inflation, you can buy less for one dollar than you could buy for the same amount yesterday. In other words, inflation causes the value of a currency to fall over time. We are aware of price increases every day when we go to the store.
In any case, what we need to know is that the inflation was not triggered by the war between Russia and Ukraine, but already occurred at the end of last year in America, and the geopolitical events only led to the escalation of the problem.
What is stagflation?
In layman’s terms, stagflation means slow economic growth and/or stagnation and high inflation. It can last longer and recovery is more difficult. One of the solutions is to raise interest rates to lower inflation, but then there is a risk of recession. This is a scenario that is already beginning to emerge in America.
What is a recession?
We speak of a recession when the national economy records negative economic growth in the last two quarters. In layman’s terms, in a recession, citizens buy only the bare necessities and start saving.
How can you do business under these conditions?
Working with our customers over the past two years, and after the initial shock of the Covid crisis, we have moved to the strategy of increasing inventory, expanding the number of suppliers, and finding alternative materials. Increasing inventories is contrary to all previous efficient business strategies, but companies have chosen this model in order to continue operating. It’s just that they have not looked at price so much anymore, they have just taken the goods that we have and have not stopped doing business.
Of course, that has its limits, both in terms of liquidity and storage capacity. In the last month, we have seen a decline in the prices of certain raw materials and services. For example, before the Covid crisis, container transportation cost about $2,000; in the last two years, the price has risen to $20,000, while according to the latest data, prices have fallen to $6,000.
Are these signs that inflation will stop? Experts agree that, unfortunately, this is not the case.
So companies are definitely changing their business models, decisions are being made literally on a daily basis and they are trying to be as agile as possible without panicking. Similarly, our clients have decided to use this time to restructure internally, with a focus on strengthening competencies and new knowledge.
Should you stock up on household goods?
We do not think this is a solution if we look at it more broadly. If each of us increases the supply of, say, oil by 10 percent, it is certain that, according to all economic postulates, there will be a new increase in prices because of the increased demand. So, we are doing ourselves a disservice. Perhaps now is the time to turn to our own garden, bicycling and the clothes that have been in our closet for a few years – sustainability is one of the best lives and business models.
For entrepreneurs, every crisis is a challenge, we should be careful but not panic. Let us listen to the situation day by day, control costs, adjust operations and even make fundamental changes if necessary, but let us focus on creating value and not be afraid of what we are going to do and how we are going to do it…
In the midst of major changes, constant price changes in the market, it is more important than ever to take care of the income and expenses in the business. This is a time when truly only the fittest survive, and dare we say, the fastest and the smartest.
Be wise, manage your finances wisely, but do not forget about investments. Listen to what is happening every day and follow, always follow, because only when you have information at your fingertips can you react properly. Invoice Crowd is here to help you with every financial step and decision you make.
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The coming times can bring a lot of good changes. It all depends on the angle from which you look at the changes and how you will respond to the challenges.