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Inflation and its impact on business are explained in this PPT. The focus is more on drivers related to supply chain. Though I spoke on how SAP technology can help during economic downturns at this event, the slides here only show the impact and drivers of inflation and top level solutions from SAP.
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Technology for Supply Chain in High Inflationary Environment
Ramakrishna PotluriSAP Labs
SCALE 2011
© 2011 SAP AG. All rights reserved. 2
Agenda
Inflation Overview – Effect on businesses
IT in Business to manage Inflation
© 2011 SAP AG. All rights reserved. 3
Inflation is taxation without legislation- Milton Friedman
“Inflation is bringing us true democracy. For the first
time, luxuries and necessities are selling at
same price” – Robert Orben
“Inflation is when you pay 15 dollars for the 10-dollar
haircut you used to get for 5 dollars when you had hair” -
Sam Ewing
© 2011 SAP AG. All rights reserved. 4
Inflation in India (CPI) - History
Source:global-rates.com
© 2011 SAP AG. All rights reserved. 5
Inflation in India (CPI) – 2010-11
Source:global-rates.com
© 2011 SAP AG. All rights reserved. 6
Profitable Business
CostPrice
Profit
© 2011 SAP AG. All rights reserved. 7
Inflation Costs Increase & Profits reduce
Price
Cost
Cost increase
© 2011 SAP AG. All rights reserved. 8
Price
Cost
Inflation Costs Increase Loss
Cost increase
Loss
© 2011 SAP AG. All rights reserved. 9
Effect of Inflation - Back to Basics
Costs &
Prices
Disposable
Incomes Consumption
Costs &
Prices
Disposable
Incomes Consumption
(Monetary Policy)
InterestsSavings
Cost of Inputs
Working Capital /Debt
(also Interest rates)
Bankruptcy risk
Prices
(Lag)Sales Bankruptcy risk
Working Capital /Debt
Inventory
Costs &
PricesInvestments Recession
(Monetary Policy)
InterestsSavings
© 2011 SAP AG. All rights reserved. 10
Managing Inflationary EnvironmentMonitor Cash, Operating Profit and Working Capital.
Understand the drivers Costs Prices Cash Flow
Costs Input costs Logistics costs Inventory Costs Financial costs Strength of Supplier base
Prices Price Elasticity
– Brand Strength
– Competition
– Innovation (Ability to launch new products rapidly)
Financial Costs Debt burden Cash flows
Prices
(Lag)Sales
Cost of Inputs Inventory
Working Capital /Debt
(also Interest rates)
© 2011 SAP AG. All rights reserved. 11
Agenda
Inflation Overview – Effect on businesses
IT in Business to Manage Inflation
© 2011 SAP AG. All rights reserved. 12
Can IT Help Businesses During Inflation?
Costs Input costs Logistics costs Inventory Costs Financial costs Strength of Supplier base
– N tier supplier ?
Prices Price Elasticity
– Brand Strength
– Competition
– Innovation (Ability to launch new products rapidly)
Financial Costs Debt burden Cash flows
How fast do you get Information back from your supply chain ?
Analyze Spend
Optimize Logistics & Transportation
Manage Supply Network to reduce inventory in network
Manage Liquidity
Hedging
Supplier Mgmt & Risk
Price & Promotion Analysis
Contract Mgmt
Supplier Network, Risk Mgmt & Benchmarking
SAP SPM
SAP TM
SAP SCM/SCPM
SAP Treasury
SAP CTRM
SAP Supplier Mgmt
SAP HANA
SAP SRM/ CLM
SAP Supplier Infonet
Manage Spend SAP Procurement
© 2011 SAP AG. All rights reserved. 13
Manage Spend, Compliance & Risk for All categories – Indirect, Direct & ServicesAddress Inflation Challenges
SupplierManagement
Contract Management
OperationalProcurement -
SAP Procurement
Strategic Sourcing
Spend Performance Management (SPM)
Can I source from low inflation regions ?
Can I source from ‘less risky’ suppliers ?
Do I have visibility of my supply base ?
How do I look at risk from ‘n-tier’ supplier ?
Am I managing my entire spend ?Do my buyers have time to look at strategic aspects ?Are my planning & procurement systems integrated ?Can I reschedule quickly ?Are my suppliers connected to make info flow faster?
Are the prices locked ? What are the escalation clauses ? Can I incorporate penalties/rebates ?Can I renegotiate contracts ?
Is my entire spend visible ?
Where are the opportunities to reduce/postpone / shift sourcing ?