Navigating inflation-induced supply chain challenges

Inflation has become a pressing concern in Bangladesh, echoing the challenges experienced by numerous other countries in South Asia and beyond. According to data from Bangladesh Bank, the point-to-point inflation rate reached 9.92 per cent in August 2023. This surge in inflation is not just an economic statistic; it carries extensive social implications and perturbs the lives of the people. Inflation is universally recognised as an adverse economic phenomenon and is met with widespread disapproval, especially in countries like Bangladesh, where the cost of living for a significant portion of the population is highly sensitive to price changes.

According to the Asian Development Bank's economic outlook, the inflation forecast for South Asia in 2023 remains at 8.1 per cent, but the projection for 2024 has been substantially revised upward to 6.4 per cent. In contrast, the inflation forecast for Southeast Asia has been revised downward for both years. The adjustments, from 4.4 per cent to 4.3 per cent in 2023 and from 3.3 per cent to 3.2 per cent in 2024, can be attributed to the global commodity prices and the implementation of tighter monetary policies. It is anticipated that inflation will still moderate in the Pacific sub-region, with a projection of 5.0 per cent in 2023 and 4.4 per cent in 2024.

The Western world is not alone in facing this inflationary challenge. The United Kingdom, for example, experienced a July inflation rate of 6.82 per cent which, though a decrease from the previous month's 7.95 per cent, still signifies a significant economic burden for households. Inflation affects individuals and families, making it more challenging to make ends meet, especially for those with fixed incomes. When prices rise faster than incomes, it erodes purchasing power and decreases the standard of living, particularly for the vulnerable segments of society.

This inflationary upsurge carries extensive implications for the traditional approaches used by business leaders to grasp, strategisee and predict aspects like product demand, supply chain, logistics, inventory control, and cash flow. Inflation disrupts the finely-balanced relationship between consumers and businesses, leading to uncertainty and instability in the marketplace. In South Asia, including Bangladesh, where economies heavily rely on agriculture, textiles, and manufacturing, these challenges have far-reaching consequences on livelihoods.

Traditionally reliable methodologies in supply chain management are proving inadequate in the face of heightened inflation. Within the supply chain, inflationary pressures have set off a chain effect of escalating costs, subsequently inflating prices across the board. This upward price spiral is primarily attributed to the escalating production costs, encompassing factors such as rising wages, raw material expenses, energy costs, and transportation expenditures. These factors, in the context of this region, mean that the cost of essentials, such as food and clothing, is on the rise, impacting the budgets of ordinary people.

Inflation unquestionably exerts a significant influence on supply chain dynamics globally. As inflation rates continue to rise, the costs associated with various components of the supply chain, including raw materials, labour, and transportation, tend to escalate as well. This upward cost pressure can disrupt the intricate balance within the supply chain, creating a rippling effect that affects prices and overall operational efficiency. Another relevant global example is the surging oil prices, driven by geopolitical tensions or disruptions in oil-producing regions, such as the Middle East. High oil prices result in higher transportation and energy costs, which ripple through supply chains, impacting the production and distribution of goods and consequently affecting the livelihoods of those involved in these supply chains.

Manufacturers and producers often face the dilemma of absorbing higher costs or passing them on to consumers, potentially resulting in higher prices for end products. This inflation-induced pricing pressure can trigger a domino effect throughout the supply chain, affecting vendors, distributors, retailers, and ultimately, consumers.

To address these challenges, companies in Bangladesh, for example, must embrace agile and adaptive supply chain strategies, while also exploring alternatives in sourcing, logistics, and pricing models to navigate the complexities brought about by global inflation. However, it's imperative that these strategies are developed with a profound understanding of their societal impacts, not solely focused on business goals.

Bangladesh, akin to numerous other nations in South Asia, grapples with the intricate web of implications stemming from inflation within its supply chain ecosystem. In a country where industries such as textiles, garments, leather, and agriculture play a pivotal role in an export-oriented economy, the repercussions of inflation are far-reaching and multifaceted. The recent inflationary pressures have had a significant impact on Bangladesh's garment industry. While the country's garment exports for the first quarter of the year reached a substantial $12.25 billion, the rising inflation has notably increased the costs of production. This, in turn, has implications for employment and the livelihoods of countless individuals who rely on these industries for their income.

Furthermore, transportation costs have an upward trajectory, posing challenges to the timely and cost-effective delivery of goods to international markets. For many in Asia, access to affordable and reliable transportation is essential for their economic well-being, as it influences trade, employment, and access to goods and services.

Crucially, Bangladesh heavily depends on the import of crucial raw materials necessary for its manufacturing processes. In the case of the RMG (Ready-Made Garments) sector, data from Bangladesh Bank indicate that raw material imports amounted to $3.54 billion during the first quarter. In the context of a world marked by inflationary pressures, professionals involved in procurement are facing amplified difficulties in securing these vital inputs at competitive prices. This dual challenge of escalating production costs and increased procurement expenses places significant stress on the supply chain, and consequently affects the accessibility and cost of goods for consumers in South Asia.

The country is currently facing significant pressure on all of its macroeconomic indicators, leading to growing frustration among the population due to surging inflation. Particularly challenging has been the government's endeavour to manage food price inflation. As of the end of last September, the nation's overall inflation rate saw a marginal decrease to 9.63 per cent. While there was a slight dip in food price inflation compared to the previous month, it remained stubbornly high, failing to fall below the 12 per cent threshold.

In a landscape marked by inflationary pressures across the globe, supply chain professionals in the region are compelled to adopt a multifaceted strategy to navigate these challenging times effectively. First and foremost, a proactive approach to risk management is paramount, including a robust-scenario planning and risk assessment to identify vulnerabilities in the supply chain. This is not just a matter of business resilience but also of ensuring that the supply chain disruptions do not lead to widespread shortages or exorbitant prices for essential goods.

Secondly, diversification in sourcing, both in terms of suppliers and geographies, can help mitigate the impact of inflation-induced disruptions. A diversified supply chain can contribute to the stability of prices and the availability of goods in Asia and other regions, ensuring that consumers do not face severe shortages or price spikes.

Embracing technology and data analytics to enhance supply chain visibility, optimize inventory management, and streamline operations is another critical facet. This, when implemented effectively, can improve the efficiency of supply chains in South Asia and help businesses adapt to the changing economic landscape.

Moreover, flexible pricing models, agile logistics, and adaptive demand forecasting are essential components of a responsive supply chain strategy. These elements are not just about maintaining profitability but also about ensuring that consumers in South Asia can access goods and services at reasonable prices and that livelihoods are not unduly disrupted by inflationary pressures.

It's important to note that the recent Russia-Ukraine war has also had a significant impact on the prices of goods globally, and South Asia is not immune to these effects. The conflict has disrupted supply chains and led to increased costs, particularly in energy and raw materials. These rising costs further exacerbate the inflationary pressures in South Asia, affecting the availability and affordability of essential goods.

In conclusion, inflation is not merely an economic statistic but a deeply social issue, particularly in regions like South Asia where many people are highly sensitive to changes in the cost of living. The supply chain challenges brought about by inflation are multifaceted and have profound implications for individuals, businesses, and society at large. In navigating these challenges, it is crucial for businesses to adopt strategies that not only protect their interests but also ensure the affordability and availability of goods for the people of Bangladesh and other regions affected by inflation.

The writer is president of The Supply Chain Street and previously Head of Supply Chain Advisory Services at KPMG Bangladesh. Residing in Winnipeg, Canada, he is a dedicated management consultant with expertise in growth strategy, operational optimisation, fintech, and supply chain management.

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