How the Right WMS Can Help You Fight Rising Costs

The Corrosive Nature of Inflation

It can begin with a slight rise of a common commodity, such as gasoline, sugar, or steel, and gradually spread to adjacent and related items. It can start with a sharp rise in a specific sector in response to sudden change in the environment, such as a major accident or natural disaster like a bridge collapse or a pandemic. Regardless of how it starts, rising costs of materials, goods, and services spreading like wildfire across related, and unrelated, areas of the economy can have a devastating effect on your business. The rising cost of goods and materials drives up the cost of products, which drives up the cost of living, which drives up the cost of labor, which drives up the costs of operations, which drives up the costs of goods and materials. When combined with the rising costs of energy, utilities and equipment, it should be clear to even the most casual observer that unrelated sectors of the economy are still connected and thus related. The loss of operating capital to rising costs beyond your control is an “opportunity loss.” The additional money you are spending with no additional benefit is at best lessening your opportunity to invest elsewhere and at worst significantly decreasing your profits.

• E-commerce Boom: The pandemic accelerated e-commerce growth, leading to increased demand for warehouse space. Retailers and manufacturers adapted by expanding their e-commerce offerings, resulting in a wave of new contracts for real estate firms.
• Low Vacancy Rates: During 2021, U.S. national vacancy rates hit their lowest levels since 2002, creating a landlord-friendly market.
• Unprecedented Rent Increases: Real estate firms are confidently demanding higher rates for lease renewals, impacting businesses previously shielded by multi-year contracts.
• Increased Labor Costs: Many states have introduced new minimum wage laws and inflationary trends have also required employers to increase wages to retain trained and qualified staff, who would otherwise be forced to look elsewhere to keep up with increasing food and housing costs in hopes of maintaining their standard of living.
• Utilities: While less susceptible to inflationary trends at large, energy costs tend to rise and fall in a more direct correlation to demand, which tends to be seasonal (e.g. Electricity costs rise in the summer when air conditioning is at a premium and natural gas and heating oil prices tend to rise in the winter for obvious reasons). Unfortunately, the last several summers have been hotter for longer stretches of time, causing some municipalities to initiate rationing strategies to meet demand. Given the current weather trends year over year, it is reasonable to expect energy costs, and even water and sewage prices to remain high as utility expenses.
• Equipment: Technological advances are now coming at breakneck speed. Artificial Intelligence seems to be impacting everything we interact with these days. From hand-held scanners to smart tablets to robotics, the pressure to obtain and use the latest tools to boost productivity, reduce the risk of errors or injury and hopefully improve profitability is relentless. While many of these tools will live up to the promise of improving operations, it is blatantly obvious that there is no such thing as a free lunch. Growth through investment is always costly at first. The key question is always, what is your ROI and over what period of time.

The Negative Effects on Profit

• Higher Operating Costs: Businesses face increased operating expenses due to rising costs of rent, labor, utilities, insurance, maintenance etc. These costs directly impact profit margins.
• Reduced Profitability: As these costs eat into profits, businesses must find ways to optimize operations and minimize costs.