by 
Richard Hans
It’s no secret that inflation is on the rise and just about everything is getting more expensive. Unfortunately, that’s a trend that’s likely to continue—so OEMs need to be thinking strategically now about how to manage this curve.
Earlier this month, the Labor Department reported that the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.2 percent putting consumer prices in March 8.5 percent higher than a year ago — the sharpest annual increase since December of 1981. In this evolving world, manufacturers need to sell more than before to generate value for the organization. In addition, the cost of keeping employees is also on the rise—in a market where talent can be hard to find.
The good news: the world economy is strong and rising interest rates will slow inflation. But that creates another strategic issue to manage. We’ve seen this type of cycle before in the 1970s, when inflation hit double digits. On the downside, there is not a lot of room for financial missteps in the current economy.
Navigating the current business landscape is only going to get more complicated as electronics supply chain restraints also continue. Everything from capital equipment to components is running on long lead times. Essentially, the common sense solution to a tricky supply chain (holding more inventory) runs counter to best practices for fighting rising interest rates (cutting inventory).
It’s important to remember that everyone is facing this dilemma—from component makers and distributors to contract manufactures and OEMs. Lengthening lead times and unexpected delays are the norm. In our industry, we’ve always emphasized the importance of good relationships. That only becomes more critical in this current economic climate.
At the same time, we need to clearly define what a good relationship looks like. Increasingly, financial transparency will become the hallmark of a good partner. As a distributor, we can extend more favorable terms to customers who can demonstrate that they are good risk with a strong balance sheet, even as the cost to carry goes up. We use this same type of transparency with our suppliers so we can get the best possible terms and for visibility around supply timelines for our customers.
In the past, shifting between suppliers to get the best prices and terms has netted results. In this current climate, with less capital in the overall system, though, consistency will be the key factor. We prioritize our regular customers.
I believe the rising interest rates are upon us for at least a couple of more years. Beyond that, it’s hard to predict. Good credit and a strong balance sheets, though, are what organizations need to weather the storm and come out stronger.
