EkaLore's posted recently on inflation and how it's affecting enterprise operations. Our goal in these articles is to go a layer deeper than the average front-page story. Here is part two of our series on China's effect on your enterprise pricing.
A major challenge is underestimating or oversimplifying what an upstream change in pricing is considered by enterprises.
Simple expectations are:
New Price = Old Price * 100%+(increase percentage)
More realistic expectations are:
New Price = (Old Price * 100%+(increase percentage)) + Increased Logistics Costs + Risk%*costs + Increased inventory (turnover costs)
More complex? Yes! And that’s where the risks increase for enterprises operating in inflationary times where risks of inflation have been ignored. Fundamental costs (end consumer individuals or enterprises) increase for food, energy, and money – all of these are additive. The increases through the economy are calculated with equations like:
New Price = (Old Price * 100%+Iincrease percentage)) + Increased logistics costs * increases * energy surcharge * financing surcharge + Risk%*Costs * Energy Surcharge * Inflation Risk * Financing surcharge + increased inventory costs * increased financing surcharge * inventory volume adjustment * inventory tracking cost increases
Or, the equations get more complicated with more (and different) cost increase factors (technically discrete charge and coefficients mathematically). A majority of these numbers have been ignored in the last few years as inflation has been low/negligible and so have relevant financing costs. A simple test question: What is the cumulative rate of US CPI-U inflation for the last 5 and 10 years? Most enterprise people won’t get the cumulative inflation rates right.
If you're looking for an outside opinion on how all these prices increases are going to affect your enterprise, why schedule a free 20-minute call with a Senior Analyst?
Commentaires