4 Ways Distributors Can Overcome Inflation
For distributors, the current record-breaking inflation could be detrimental. Many business owners are navigating rising material costs, supply shortages, a shortage of qualified workers, and subsequently lower profit margins. Poorly navigating these economic challenges, many of which are likely to continue, can make or break a business.
In our previous blog in this series we discussed how Beginning in 2020 the world saw a series of unprecedented disruptions that created a volatile economic climate. Today inflation is at an unbelievable 40-year high. Residential 8-year average inflation for 2013-2020 was 5.0% In 2021 it rose to an astounding 14%, the highest increase since 1978.
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Today’s unparalleled inflation is a product of 3 events:
- COVID-19: COVID has caused huge fluctuations in supply and demand, between shutdowns, lifting restrictions, and new COVID strains. It also aggravated the pre-existing labor shortage as many workers feared returning to work and further exposed the vulnerabilities in supply chains.
- The Russian and Ukrainian War: Many countries, including the U.S., implemented strict sanctions following the war, severely weakening the supply chain and driving up prices.
- The Ongoing Housing Shortage: Crucial materials like lumber are making housing projects difficult to finish, causing delays and increases in costs. The rising cost of homes also increases the costs of goods and services and general inflation.
This whirlwind of world events has left distributors across the country facing unmatched tensions within their businesses. In construction, 60% of U.S. businesses have reported striking increases in the cost of materials and services. A survey reported by Associated General Contractors of America stated that 75% of E&C firms faced severe delays in project completion. Rising costs paired with significant delays mean that fewer customers are happy and profits risk being substantially lower.
Strategies for boosting efficiency & surviving inflation
In an inflated world where profits are much more difficult to score, efficiency in all facets of a business can be the difference between one that sinks or swims. When navigating inflation, there are four major strategies distributors can use:
1. Proactive Purchasing
Proactive purchasing, put simply, is when distributors plan to purchase a supply before a customer places an order. As supply chain bottlenecks grow to be more common, planning ahead and expecting delays in delivery times can be of great benefit. Getting projects approved and designed as quickly as possible can cut back delays and reduce the amount of time it takes projects to be completed. Inflation is a concern for 63% of business owners according to a survey conducted by Institute for Supply Management, planning ahead may alleviate some of this tension.
2. Energy Efficiency
Oil and gas prices have risen significantly since 2020, making energy incredibly expensive for distributors’ to run their properties, machines, and delivery vehicles. Business owners who do not explore means of increasing energy efficiency will directly feel the impact of inflation as utility and gas companies charge more and more. Generating energy onsite as well as tracking fuel consumption and reevaluating systems in order to optimize heating, cooling, ventilation and light consumption will drastically reduce costs.
3. MEP Engineers
Mechanical, Electrical and Plumbing (MEP) engineers can properly evaluate and optimize building designs to reduce energy consumption and allow functions to run more smoothly. This can save significant amounts for companies as inefficient building designs can waste fuel and drive up already inflated expenses.
4. Invest in Business Operations Technology
Tech tools are revolutionizing the construction industry, allowing for better planning, communication, project management and overall business functions. As new generations enter construction, there will be a greater need for modern solutions. Investing in efficiency boosting technologies can save businesses large amounts of time and money; especially technology that is purpose-built for distributors.
In the midst of a never-before-seen economic disaster, it is still possible for distribution businesses to thrive with the write proactivity. Being proactive, cutting back on energy costs, and implementing purpose-built technologies can optimize business functions and be key to not just managing change, but growing and succeeding despite the current turmoil.
For a more intensive look at inflation and how distributors can succeed in spite of it, download our Inflation whitepaper at the link below!