A Toxic Relationship: Inflations and the Supply Chain Crisis

During ‘normal’ times, supply chain management and inflation are rarely discussed by the general public. However, thanks to the aftermath of the first two years of Covid, these topics have become front-page news, and their effects are being felt around the world by average citizens.

Currently, the two topics appear in popular media publications, and in lists of doom-and-gloom, not unlike the gossip spread about the impending breakup of a celebrity couple. However, unlike the celebrity couple, the toxic relationship between inflation and supply chains is rarely examined in depth. Moreover, when examined, the supply chain crisis is often unfairly attributed as the sole reason for current inflation rates. As a result, the effect of inflation on the supply chain crisis is far too often overlooked.

The supply chain crisis has been caused by many issues, including labor shortages, factory shutdowns, and shipping backlogs. However, companies that could spend more money solving these problems have reasonably weathered the crisis. (In many cases, these costs are passed along to the consumer.) This over-spend contributed to inflation, but by no means is the single reason for its untimely emergence. Circularly, small, mid-size, and manufacturing companies have higher prices caused by the increased prices charged by their suppliers, who are under pressure from their largest buyers.

Rising prices have resulted in bidding wars. As the holiday season approached, it was the big-box retailer, not the family-owned store, who could afford to stock their shelves. Within the global chip shortages, the large auto-manufactures, not the developing EV company, can afford first access (yes, we realize the Big-4 are behind on production). And in manufacturing, companies are going out of business as a decreasing talent pool meeting a higher cost of living means workers can and often must demand higher wages, right when critical components are at their most expensive. While some companies may successfully pass these higher costs to their consumers, many companies do not have the cash reserves to weather the storm. Further exacerbating the problem: companies that shutter their doors leave crucial gaps in an already taxed supply chain ecosystem.

Returning to the celebrity couple analogy: wish as one may that the toxic couple would divorce for the sake of the kids- the marriage doesn’t seem to be dissolving any time soon. The same goes for the poisonous relationship between inflation and supply chain disruption: it’s sticking around, and the ones that are hurt the most are consumers and small businesses. For the sake of their future, companies must take steps to protect themselves. The companies that will best weather these turbulent times are the ones who have: A- the ability to pass costs along to the consumer (a short-term solution given the havoc inflation wreaks on supply chains); or B- the financial health necessary to withstand and wait-out turbulent periods.

However, option B is unstable: should a company’s suppliers or customers go out of business, that company might not stay solvent for very long.

That’s why Rebirth Analytics offers a Correlated and Predictive Risk Rating solution tailored to today’s market. You’re taking steps to emerge resilient from these turbulent times. Shouldn’t you ensure that your counterparties and suppliers are doing the same? Let Rebirth Analytics empower you to make the best decisions in an increasingly challenging economic climate.

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