Bloomberg Line — Inflation does not let up in Latin America and the world. The pandemic, the battered supply chain and the war in Ukraine have left their mark on rising prices in most economies.
In this situation, it is recurrent in recent months is that interest rates are being raised to curb prices. But it is not only governments or central banks who must make timely decisions to manage high inflation scenarios. According to the consulting firm McKinsey & Company, senior executives must also learn to manage this scenario in their companies.
The report notes that from the start of 2022 it is increasingly evident that high inflation rates will prevail for this year, the next and “possibly longer”, although not all business leaders “have faced the challenge of leading a company through an inflationary spike like the current one.”
For this reason, it is necessary for CEOs to have tools to navigate their companies in the midst of high prices and make the best decisions for their companies, since in previous years the inflationary debate was far removed from the business environmentaccording to surveys by the same firm.
How to guide companies in this period?
For McKinsey, CEOs’ considerations have to be “widened” and cannot be limited to the implications of inflation.
The text indicates that first of all, CEOs they must redesign their products and services quickly, “to respond to commodity volatility, component shortages, and higher production and service costs.”
In addition, it is emphasized that it is essential make the entire supply chain of each company visibleWell, according to the survey Navigating inflation: A new playbook for CEOs, Less than half of companies understand the location of their first-tier suppliers and only 2% make the same statement about providers at the third level and beyond.
It is even suggested that given the situation between Russia and Ukraine, which further fragmented the supply chains, It’s not just about building inventories and finding new sources of raw materials, but senior executives should look to diversify their manufacturing base.
The need to create value
Given the increase in prices of most supplies for companies worldwide, The consultant argues that it is not just about reducing costs when purchasing them, but about creating value by reconfiguring the workflows and negotiations that purchasing leaders carry out.
McKinsey notes that redesigning strategies to deal with a “tougher market” environment strengthens governance, maximizes demand, simplifies requirements, and changes job allocation, moves that “helped alleviate inflationary pressures.”
Along with this, the report highlights thatEstablishing prices of products and services to strengthen the relationship with customers is essentialthen “As costs rise, revising prices to maintain margins is not anyone’s idea of a good time”but it is usually unpleasant for companies and for customers.
Given the situation, It is necessary to propose scenarios in which it is evaluated how to adjust discounts and promotions and maximize levers not related to prices.how to more effectively personalize products and the strategy of communicating the company’s value more effectively.
By last, it is pointed out that the management of inflation from companies must be multifunctional and cannot depend on processes that require months to be implemented, because in some cases at this time prices can grow up to 50%, and the lack of decision can have “costly consequences”.