As 2021 comes to a close, we find ourselves dealing with the new normal of vaccination cards, changing restrictions and a potential “fifth wave” of the disease that has upended our lives and businesses for almost two years. This new normal includes several effects of COVID-19 that have entered everyday vocabulary and have companies scrambling to adapt, namely: supply chain issues, inflation and hiring during "The Great Resignation."
Before COVID-19, not many outside operations discussed the supply chain, but now the term is mentioned in everyday conversation. Businesses are facing delays, shortages and higher prices for raw materials. What does this mean financially? When budgeting, companies should factor in various delivery methods (air and ground) since you may need to go with the higher price method to get supplies or your product to consumers.
Because hindsight is 20/20 (or 2020), you should also make sure that you are not in the same situation as last year. Look for opportunities to get ahead of planning and buying earlier to ensure supply and take advantage of ground shipping and discounts from suppliers. Talk to your finance partner if you need funding to do this. But buy smart; you don’t want to fall victim to overstocking on opportunistic deals (like so many did with hand sanitizer last year). Many companies got ahead of 2022 and the Chinese New Year, during which manufacturers and suppliers in China shut down production for 2-4 weeks, by bringing in goods early. Whether you have done so this year or not, think about it for 2023. When doing your 2022 planning, do you need to incorporate 2023 purchases to reduce the possibility of unplanned delays and keep your business running smoothly?
Another concern is inflation. According to the Consumer Price Index, the price of goods rose more than 5% in the 12 months ending in September, and prices will continue to rise throughout the supply chain. In all likelihood, your business will not be immune, and you will need to raise prices if you haven’t already. The sooner you make the decision, the better. When forecasting, you should run a sensitivity analysis and consider the impact to your margins. You’ll want to run the forecast through multiple scenarios, including all the way up to up to double-digit reduction. No matter what, be prepared for volume to go down temporarily because consumers may be shocked by the price increases and step out of the market for a period (especially if you are on the early side to raise prices). Look at what costs you can move to variable costs to offset this reduced volume.
Finally, we’ve all been hearing about “The Great Resignation,” with workers leaving their jobs in droves as they rethink work-life balance because of COVID. Companies certainly feel the effects as they try to retain and hire talent. There is no doubt that it is an employees’ market, and you need to ask yourself if you have enough in the payroll budget to handle signing bonuses, mid-year bonuses and other drivers to retain your employees. While you may think you’re not able to afford these added costs, it may be that you cannot afford not to in order to compete in this job market. Run an analysis of the cost of finding a new employee versus what it takes to keep a current, already trained employee.
Supply chain interruptions, inflation issues and talent retention are undoubtedly challenging, on top of all the other personal and professional issues we have dealt with over the last almost two years. But the natural products industry has proven to be resilient. We will also get through these issues with good financial planning and come out stronger.
Jennifer Palmer is CEO of Gerber Finance, the leading Asset Based Lender for fast-growing brands, with a specialty in natural products through its Naturally Gerber division.
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