Did you ever go to the market and return empty-handed due to a lack of money? Or did you ever come from the market after purchasing many products but still have ample money in your hand? Do we understand why the cost of tomatoes is increasing these days suddenly? Why do we have to pay extra shipping when purchasing a good? Why the shipping amount does differ from place to place, even though many customers buy the same good? It is because of the expense bored by the company to transport the goods to your doorstep which may differ according to places. Tomato prices are rising daily due to an increase in demand, and a decrease in supply, which is increasing the cost of tomatoes and purchasing it is below the capacity of consumers.
What is a supply chain?
Do you know how a product is made and how it reaches us quickly? Is any process involved in it? Is it lengthy? Yes, it is! The supply chain refers to a systematic process of collecting raw materials to send the finished product to the customer. Now let us understand this process through an example. Firstly, raw materials, such as cotton, fabric, or wool, will be collected from natural resources. Then, it will be hauled to a wholesaler, who will sell it to manufacturers or industries to convert the raw materials into finished goods. Once it reaches the manufacturer, the manufacturing department employees with expertise in this field will convert it to a finished product that needs to be elegant as it needs to attract customers. After completing the process, it will be sent to retailers, who will finally be responsible for delivering the goods to customers. This is not just the end, as the center of production may be far from the center of consumption; it must be shipped, packaged, and picked up. This process may seem easy, but it is complicated and will require a lot of hard work and time. This entire chain system, which is interlinked, is known as Supply Chain.
What is Inflation?
When the balance between the purchasing power of people and the price of goods breaks down, it is known as Inflation. Undoubtedly, when the product’s cost rises, consumers’ purchasing power declines. Each unit of currency can buy fewer goods and services, and middle-class people need more money to afford it as they are comfortable purchasing goods at as low a price as possible. As consumers’ purchasing power reduces, the individual’s living standard falls, which results in the deceleration of economic growth.
Impact of Inflation on Supply Chain:
· Shortage of semi-conductor during COVID
1. There is a myth that Inflation significantly impacts the supply chain. But it is not always true. With the breakdown of COVID-19, Inflation has affected the supply chain as production of the significant component called semi-conductor or computer chip, which plays a vital role in electronic gadgets such as computers, phones, light-bulb, and other home appliances, has halted.
2. Semi-conductor chips are essential during the shipping process as it helps in tracking goods. Due to the low-level production of these chips, the shipping process got delayed, resulting in low production of goods. As the shipping charges increased, demand significantly lowered down.
· Sudden increase in electronic products
1. Due to the increase in the usage of online modes of communication, starting from online classes by schools and colleges to online meetings held by companies through Zoom or Meet, there was a rapid increase in the demand for electronic products. The shortage of chips impacted the manufacturers, which delayed the delivery of goods.
2. After the lockdown period, when people unlocked their houses, and business works resumed, consumers’ demand for vehicles increased, and the supply decreased. This became a challenging situation, and it disrupted the supply chain.
· Balance between supply and demand curve
1. Things got better slowly and steadily, and the balance between the supply chain and the demand and supply curve had become steady. This was an unforeseen situation as no one predicted the impact of COVID on the supply chain. But supply and demand balance out. Consumers will not be willing to pay more when the prices of the goods increase, and therefore the production of the particular good will go down, ultimately balancing the cycle.
2. Research has proven the efficiency of the new technologies and the efficiency of the supply chain over time. It assures that the proper use of technologies can alleviate supply chain disruption. With the advancement of technology, there is a rapid increase in the production of goods and a short supply of goods to a distinct location at an affordable cost, increasing the demand for products, which is a good sign.
Conclusion:
Even though COVID-19 has impacted and caused disruption in the supply chain, it is not the same case always. India is trying to explore new technology, and with its help, we hope there will be a balance between the supply chain and Inflation.
Written by – Amit Duggal (COO, Meraqui Ventures Pvt Ltd)
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