Even if the war ends soon, it will take at least a year for the effects to reach consumers, says procurement expert Wolfgang Schnellbächer from the Boston Consulting Group (BCG).
“The price increases come in waves,” explained Schnellbächer, partner at BCG in Stuttgart, in an interview with APA. You’ve already seen it with fuel prices. “The next ones will probably be felt in the next three or four weeks. And it can take up to a year for the last waves to appear.”
Inflation will remain your constant theme
Inflation will therefore remain an ongoing issue, says Schnellbächer, who specializes in supply chain management at the Boston Consulting Group. Since February 24, the raw material prices purchased by manufacturing companies have risen by a further 2 to 8 percent. “In the chemical industry and mechanical engineering, the price increases in purchasing last month were as high as they were in the whole of last year. There were price increases of 11 percent for food in total, but only 5 percent have reached the customer so far, the increase is for hygiene articles 8 percent and only 2 percent have reached the end customer.”
This is due to the fact that the flow of information between the companies and between the buying and selling units of the companies is quite slow. “As an outsider, you might imagine the processes to be far more efficient, transparent and collaborative than they actually are.” Before the companies that produce the end products, there is a long supply chain of smaller producers. “The engine is becoming more expensive and thus increases the price of the tractor. The tractor in turn is sold to the farmer, who in turn has to convert the whole thing into his wheat price. That affects the baker and only then the end consumer.”
A boycott of energy supplies from Russia would have unforeseeable consequences
According to the expert, a boycott of energy supplies from Russia would have unforeseeable consequences. “It might be easier to do with oil than with gas. With gas, you have to say that everything that has happened so far is almost exclusively psychological.” There is no less gas arriving from Russia. So far, no one has calculated what a gas supply stop would mean for the supply chain, the main focus is on households. “When energy prices go up, costs go up for every company. From machine manufacturers who make stamping machines to car manufacturers, costs go up everywhere. It’s by no means clear what that means across the board.”
Schnellbächer said that most of the instruments used to cushion the economic downturn caused by rising energy costs have already been used up. Another interest rate cut is not possible. “I can hardly cut interest rates any further at a time when I’m approaching six percent inflation – apart from the fact that they are already at zero.” Households have experienced a massive loss of wealth and purchasing power as a result of inflation, and there is little to counteract an impending recession.
Danger of a price-wage spiral
The expert also sees the danger of a price-wage spiral. “Due to inflation, entrepreneurs have less money. Nevertheless, there will be demands for higher wages, which is also totally clear. This is a difficult situation for companies that are not sure how much profit they will make and therefore have difficulties to increase wages. At the same time, workers suffer from reduced purchasing power.”
The situation is currently more volatile than it has been for a long time, explained Schnellbächer. “We can look back on many years and even decades with great price stability. That’s why the collaboration between purchasing and sales is marginal. There is great collaboration between purchasing and development, between purchasing and production, but right down to sales there is a lot little in the way of conversations. And the incentive structures are set up in such a way that you really don’t have anything to do with each other.”
The expert sees a paradigm shift from a buyer’s to a seller’s market, sometimes with auctions to the highest-bidder companies. This also requires a much more dynamic adjustment in the company and a stronger exchange of information between purchasing and sales. “Companies no longer operate in a world in which purchase prices are somehow set and where sales prices are detached from them or are only adjusted every year or maybe half a year.”
Source: Nachrichten
