Inflation has been a huge area of concern this year. In June, inflation peaked at 9.1% with some sectors, like energy, seeing hikes as high as 70.4%. Even later in the year, inflation remains high at 7.9% in November. Inflation has an especially strong impact on small and medium-sized businesses with owners reporting inflation as their biggest problems in operating their business this year (NFIB).
As the year closes, many businesses are looking for ways to pivot their strategies and adapt to this inflationary environment. In this article, we hope to offer some insights on the most effective strategies to help your business move forward into 2023.
What is inflation?
Inflation is the general increase in prices and fall in the purchasing power of money. It can have a significant impact on small businesses, as it can lead to higher costs and lower profits.
As prices rise, consumers may be less willing to pay higher prices for goods and services. This can result in lower demand and lower sales for small businesses. In addition, as the cost of goods and services increases, small businesses may have to increase their prices to maintain their profit margins. This can further decrease demand, as consumers may turn to cheaper alternatives.
What are some strategies for dealing with inflation?
Strategies that are proven to help businesses during periods of inflation include the following:
- Focus on employees
- Automate what you can
- Reduce shipping costs
Let’s talk about each of these a bit more.
Focus on employees
Happy employees lead to higher productivity and better outcomes for your business. During inflation, there will be additional pressures on employees. Make sure you’re at a minimum matching inflation with annual pay increases. While this can create additional costs and you’re trying to avoid those, the downside of not adjusting accordingly could be losing employees and having to dedicate resources to hire a replacement (and you may have trouble getting someone to get on board without paying more than you were paying your original employee). That’s without mentioning the extra work losing a team member creates for other members of that team. Additionally, listen to employees and take their suggestions for improvement in their department to heart. They are more intimately familiar with their day-to-day processes than management.
Automate what you can
Regardless of your efforts, employee retention will likely be difficult during prolonged periods of inflation. Investing in automating procedures has a dual benefit. First, it takes dull, repetitive tasks out of the hands of human employees. This reduces the effect of human error and allows employees to take on more complex and engaging tasks. The second benefit is that higher levels of technology lead to higher job satisfaction. Recent research from Salesforce found that 58% of employees who are satisfied with their workplace tech are also generally happy in their work. This is significant when compared to just 29% of employees reporting general work happiness for employees who are dissatisfied with their work tech. The benefit of investing in automation technology extends beyond the specific tasks the tech will accomplish.
Reduce shipping costs
One way to reduce shipping costs is to optimize the packaging of your products. Using smaller or lighter packaging materials can reduce the overall weight and size of your shipments, leading to lower shipping costs. Another option is to partner with an existing warehouse network. Expanding a warehouse network allows for quicker fulfillment (and quicker fulfillment leads to happier customers) with lower costs because shipments avoid cross-zone shipping costs.
Another great strategy is to offer customers the option to choose their own carrier or shipping method which can give them the flexibility to select the most cost-effective option for their needs. This helps reduce your shipping costs while meeting the individual expectations of each customer. There are plenty of different ways to cut shipping costs, but there isn’t a one-size-fits-all solution, so it’s important to look at your options and do your research.
Prolonged periods of inflation are extremely hard to deal with, especially for small and medium-sized businesses, but owners have options. Some of the best strategies in the logistics space include focusing on employees, automating what you can, and reducing shipping costs.
iDrive Logistics features several options to help businesses cope with inflation. We offer a distribution network that reaches 98% of the continental U.S. in three days or less, a first-to-market ShipCaddie TWMS management software, and a team of logistics advisors ready to help meet your business's unique needs. Reach out today for more information.