This article is the first in a three-part series detailing best practices, and dispelling common misconceptions, for cost optimization in today’s inflationary market.

InflationRising input costs, consumer behavior changes, and supply chain logjams continue challenging business today. The Russia-Ukrainian war and recent China COVID-19 restrictions only fuel the uncertainty in the marketplace despite the Fed’s efforts to rein in inflation with hopes of avoiding a full-on recession.

All the while, business executives are experiencing cost pressures relating to supplier price and labor rate increases. Companies can only pass along so many price increases to customers before consumers seek alternate products/ suppliers or the market faces an economic downturn.

Businesses are taking measures to ensure their viability and success throughout the challenges ahead.

Focusing on profitability, not just sales.

Big business is focusing on profitability.

According to Business Insider, Walmart, Target, and other big box retailers have indicated that they will improve their declining profitability through supplier negotiations to hold prices steady.

Whereas manufacturers are quietly shrinking package sizes without lowering prices (“shrinkflation”), NPR reported earlier this month. Middle market firms selling to larger buyers should expect pushback on future price increases.

By having your business focus on overall profitability, not just sales revenue, you will gain a holistic view of your business’ costs and where opportunities for optimization and streamlining spending exist.

Building cash cushion to weather the downturn

Economists speculate wages, gasoline, and many other input costs will likely remain high in the coming year. Focusing on productivity and non-wage operating cost optimization is one avenue some companies are taking to conserve cash.

Mimicking their approach will help build a cash cushion for your organization that can be used to combat any decline in profits over the coming months.

Looking Ahead

Focus on cost optimization, building cash reserves, and taking a holistic view of your organization. Starting these improvements now will ensure your business is well prepared to weather any potential economic downturn in a few months.

 

About the Authors

 

 

 

 

Dileep Kulkarni and Bradley Uhr are  Principal Consultants with Expense Reduction Analysts (ERA). They specialize in supplier management and focus on unique customer needs to craft solutions that deliver savings while improving quality and service.