‘Inflation tapeworm’ makes companies more susceptible to shocks

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The risks of a corporate mis-step are rising and the potential impact is deepening

email rounding up the latest“Inflation acts as a gigantic corporate tapeworm,” Warren Buffettin 1982 when US consumer prices rose just over 6 per cent over the year. “That tapeworm pre-emptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism.”

However, while the initial market impact of these has dissipated, the longer-term legacy remains in the form of increased energy and food scarcity, disrupted international supply chains and, in some countries includingAfter dealing with a series of sharp operational shocks, chief executives have had to adapt once more, this time to rising input costs.

Adapting products and services swiftly to new realities is another strategy, changing their composition or components to mitigate the pressure. According to a McKinsey study of the impact of inflation on corporate decision making and supply chains, some car manufacturers stripped down features to maintain production, pricing and sales amid shortages or to handle rising input costs.

These silo-busting efforts can help reduce interdepartmental friction and decision-making times, ensuring that investments are identified and made more quickly, or unnecessary costs halted at an earlier stage.

 

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