Enterprise’s – behaving as the people that manage them – respond to problems in the same ways. Enterprises respond the same way just as military planners are often said to “fight the last war”. Forced by perception, crisis, or events enterprises act in some predictable ways.
In response to huge drops in sales, automotive companies cut back orders for semiconductors and other inventoried parts. The resulting supply chain shortages continue months and months later. In response to growing inventories of components and finished goods: production is cut to reduce money tied up in inventory. After accelerating goods in 2021 to match consumer demand orders to factories dropped. The result is lower capacity to fill orders as there is less ready to ship goods.
In response to lower margins as costs increase in unforeseen areas due to inflation (or rising costs of labor or energy) prices are hiked. Take-away food, products with high energy costs, and travel are examples. The result is a spiral pattern where prices chase costs and begin to rise just in case until prices lead costs and spirals continue. Political expectations that enterprises will forego profits by raising wages or absorbing costs without raising prices aren’t matched by enterprise behavior or investor demands.
To thrive enterprises must act understanding the urges to “fight the last war”. Different industrial and financial models approach this differently. “Longer term thinking” and “supplier networks” build in structural slow-downs to cost/price spirals. “Enterprise relationship contracts” and ongoing personal trust relationships can buffer against sharp price swings and service variations. In less than three years the prices for energy supplies (crude and gas) have doubled. Enterprises are facing energy cost ripples even if artificial event-driven causes (Ukraine, COVID) are discounted. Rising labor costs (factories driven by expectations set by hospitality, retail, and less skilled labor) will also ripple thru decisions. Until a ‘new normal’ asserts itself business models will see forced changes.
The post continues with Fighting the Last War – 2. You can find it at www.ekalore.com/blog-1
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