Preface: Navigation during times of inflation for business owners is often not as easy as adhering to textbook models. Yet with the right a toolkit of management knowledge you can reduce the risk of indecisive or wrongly assumed decisions on both inventory management and pricing on changing costs of sales. The following blogs from 2008 provides a historic perspective on re-emerging inflation hazards.
A Precarious Road: How Retailers Can Navigate Inflation’s Hazards
That new thinking can begin with inventory. According to Gérard Cachon, a professor of operations and information management, from the 1990s to 2005, minimizing inventory was seen as a key to success. “The whole mindset has been, ‘Let’s get rid of it.’” But that was when most prices were stable or declining. Today, he says, it’s not as clear that this is the best strategy. In fact, some retailers may want to start holding much more inventory than they did in the past as a way to hedge against future price increases. “Of course … it’s a little risky to hold inventory that might [lose value], especially perishable goods and fashion-oriented goods… but to the extent [retailers] know that prices will be rising over time, they will start to try to hold more inventory.”
…….Grocers typically put more emphasis on their store brands during an inflationary period as a way to offer the customer a better deal without cutting into their own margins, he explained.
…….As complex as some of these adjustments might seem, Cachon is confident that retailers will adapt more quickly than in previous inflationary periods, such as during the 1970s oil shocks. He says retailers now have much more information because of bar coding and other technologies that allow them to track their goods from suppliers to the checkout line. “Retailers are much more flexible and agile than they used to be.
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