Industrials

Business Challenges For Organizations

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<p>Further to the pandemic wreaking havoc globally, organizations are treading into an unchartered path with cost challenges galore. While concerns of demand outstripping supply in certain key categories exist, time will tell whether the inflationary trend is going to be transitory.</p><p>This article looks at some key factors which can cause business challenges for manufacturing companies in the medium term.</p><p>Commodity prices including industrial metals and agriculture are rising steeply, hiking the input costs for manufacturers. These raw material price increases would at some point of time be passed on to consumers making finished goods more expensive. With executives foreseeing further price increases in the near future,&nbsp;<em>consumer price index</em>&nbsp;figures are expected to go up globally, resulting in higher inflationary pressures.</p><p>Rare earth minerals are struggling to cope-up with the ever increasing demand due to its applications in renewables as well as chips which go into electronic gadgets and automobiles. This has resulted in shortages and price increases in vehicle production turning a lot of consumers to "used car market"​. The supply chain of semi-conductors is highly concentrated and vulnerable with the whole world depending on the behemoth-TSMC which manufactures more than 90% of the world's sophisticated chips.</p><p>Global powers are pushing for a historic &ldquo;Global Tax Policy&rdquo; in an effort to address tax avoidance by corporations who has been used to shifting profits to low tax havens. If final agreement is reached, many multinational companies would be forced to pay corporate tax where they operate or deliver goods and service, rather than where they are registered which is bound to hit the profit margins of many large global firms.</p><p>The shipping industry accounts for 80% of the carriage of global trade. The price of shipping a container globally has been hovering near record highs for the past one year. Disruptions and Covid infections have resulted in logistics bottlenecks with "container boxes sitting in the wrong place at the wrong time"​ leading to container shortages. The out-of-control shipping costs are set to fire up the logistics component of commodities and finished products.</p><p>Crude prices are estimated by some banks and analysts to reach $100 per barrel in the backdrop of demand spike as vaccination rate accelerates. Brent has already breached the $75 per barrel mark. With ESG regulators restricting new investments in the west and green initiatives not ready to fill the shoes yet, transportation costs are expected to go through a roller coaster in the near future.</p><p>Interest rate hikes by major governments shall increase cost of capital for organizations. High borrowing rates can challenge organizations'​ cash flow, increasing operational costs.</p><p>It is imperative for organizations to have long-term category strategies and business continuity plans in place to ensure that adverse events do not upend their supply chains.</p><p>&nbsp;</p>
KR Expert - Joseph George