The pandemic caused a dramatic decline in supply and demand across many industries. Now that recovery is underway, demand is rapidly increasing. However, because of the production break during quarantine, supply is lagging, and markets are experiencing shortages and price hikes.
Supply will eventually catch up with demand, but how soon it happens will dictate the level of inflation the world experiences. As an IoT supplier, understanding how the impending inflation could affect your bottom line will help you take proper measures to secure your future.
The Impact of Inflation on the IoT market
Believe it or not, inflation does not always have a negative impact on businesses. For some sectors, rising prices could spur innovative activities and job growth. In IoT, for instance, inflation can motivate developers to design new products that are more in line with customer demand or make production more cost-efficient and sustainable.
However, when inflation exceeds tolerable levels, input prices skyrocket, customers buy fewer products, company revenues decline, and the economy slows. Today, the world is gearing up for the worst inflation in 29 years
, and the IoT sector is already feeling the sting. The raw material market is currently experiencing a severe chip shortage
, thanks to the 2018-2019 trade war and the inflation-inducing pandemic. Because supply cannot just be “turned on” like a switch, chip prices will continue rising at least until the end of the year.
High inflation can also encourage end-users to consider cutting down non-essential spending, further constraining supplier returns.
How Can You Shield Your Business From Inflation Shake-ups?
As inflation looms, IoT dealers will need to work harder to achieve cost-effective production and prove their products’ value in the market. Below are five key strategic points you can implement to prepare your business for the impending inflation.
- Restructure Your Pricing Scheme
Inflation can leave you with no choice but to increase prices. The best strategy is to implement frequent small price increments rather than waiting and hoping to catch up with one big jump. Customers are typically more willing to accept small price increases over time than large ones with immediate impact. Furthermore, increasing prices gradually gives you a chance to implement cost reduction measures that can keep hikes manageable and competitors at bay.
Speaking of competitors, look up how the prices of competing products are changing. IoT2Market.com
, for instance, is an excellent place to start because of its extensive range of products from suppliers worldwide. With this knowledge, you can determine how low you can go to remain competitive without selling at a loss.
- Review Your Borrowing Strategy
Financial regulators tend to hike interest rates during high inflation. Therefore, if you have variable-interest loans, you are likely to pay higher interest rates over the long term.
If you have been planning to get a new loan, you are better off borrowing now, before interest rates start soaring. Secure long-term, fixed-rate loans at current rates to cushion the effects of cyclical lending needs down the road. Also, consider borrowing for capital that funds your strategy to reduce costs or secure additional revenue streams.
- Boost Productivity
Inflation forces all businesses to try achieving more output with less input. As an IoT supplier, you need to measure your productivity and develop ways to optimize it. For example, implement robust task tracking systems to keep your team committed to deadlines and avoid unproductive meetings. Also, prioritize efficiently, and give the most sensitive projects to your best developers.
High inflation will also create wage and salary pressures that could impact your profits. Before adjusting your payroll, think about how you can maintain the same productivity levels with less staff or higher productivity without increasing employees. That way, you can afford to pay your team more while keeping the same profit margins.
- Improve Cash Flow
During inflation, costs usually increase faster than suppliers can raise money. So, if you have significant capital tied up on assets with slow returns, consider selling them quickly to bulk up your cash reserves. You can also improve cash flow by tightening receivables collection. If you have service contracts with clients, do not give them the chance to manage their cash flow problems at your expense.
Although acquiring more cash can seem counterintuitive with currencies getting weaker, having a decent cash level can help you stay afloat when sales decline and revenue takes a hit. You will also be able to buy some time for your cost-reduction initiatives to start bearing fruit before passing higher prices to your customers.
- Renegotiate With Vendors
If you do not have supply agreements with your prominent vendors, now is the time to draw them. Because prices are set to get higher, locking supply at fixed prices now can earn you a better competitive position. You can also benefit from decent discounts by buying in bulk or committing to purchase over the next 12 to 18 months. However, be careful not to risk your cash reserves over inventory.
Most IoT businesses started no earlier than the 21st century. Because the world has not had high inflation rates in decades, these companies are beginning to experience inflation shake-ups for the first time.
If you are an IoT supplier, it is understandable to worry about the difficult times ahead. Fortunately, inflation is not a natural disaster that leaves you with no choice but to run for your life. With the steps above, you can buckle up and wade through the storm without a scratch.