10% inflation

July 18th, 2008 at 07:31am David Bush - Iasta

On the heels of yesterday’s post, about the SCM market expanding in times of economic pressure, Supply Chain Brain had another summary from an analyst about the looming crisis. This one is very frank about the current situation we are in and has some concerning conclusions.

Per Kevin O’Marah - AMR:

At our recent Supply Chain Executive Conference in Scottsdale, Arizona, Dow Chemical addressed the audience on the same day an across-the-board 20% price increase made front-page news in The Wall Street Journal. Dow has been a pioneer in devising ways to keep upstream costs from finding their ways into consumer prices. But, as VP of Supply Chain Jim Varilek told our audience, this game is over now. He showed how this huge price increase would just barely cover the increased costs of upstream inputs, especially oil and natural gas.

The audience had reason to care, since many were supply chain executives from consumer products (CP) companies, retailers, and logistics providers, all of whom are absorbing this price increase. What they saw sitting around them were peers wrestling with their own efficiency versus input cost battles.

He concludes, “Operations executives have been holding back the flood for far too long and it’s about to blow. Longer term, we expect productivity advances in the supply chain to keep inflation under control, but right now the risk of reigniting 10% to 15% inflation is very real. Stimulating demand with continued low interest rates is the wrong answer.”

Yikes. I will not say this is a surprise. I really believe that most people understand, down deep, that things have fundamentally changed forever. I know I used to get away with lunch under $5, no more than a few years ago. Now, its a $10 daily bleeder. However, the drum beat gets louder and more serious, with sourcing looking at front line hazard duty for many years to come.

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Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, e-Sourcing Marketplace