Inflation has been on the rise in recent years both globally and within Ethiopia, registering an inflation rate of 33.5% in July of 2022 (Central Statistics Agency, 2022). Given the impact of this abrupt increase, businesses must reevaluate their strategy, introduce mitigation plans and streamline business plan process if they wish to retain a profitable position.

To help address this concern, Grant Thornton Ethiopia has drawn on the breadth of experience and market knowledge of its network to develop the ‘Essential action plan for managing operations in inflationary times.’ The plan comprises five actions we believe all businesses should consider taking to deal with this challenge.

Action 1: Take action to limit internal and external cost increases

Inflationary pressures have been driving costs up, but not all suppliers are reacting as expected. To take advantage of these asymmetric reactions, businesses should consider renegotiating terms with suppliers, changing suppliers, locking in prices, and bulk buying while keeping storage space availability in mind and maintaining healthy working capital.

Companies can also consider outsourcing certain business processes to reduce internal costs while also addressing the skills crisis in order to achieve the required flexibility to fulfill business demands

Action 2: Improve your understanding of the true cost to serve clients

Most companies throughout the world do not regularly and accurately analyze the expenses and earnings of individual consumers and products. Businesses need to put in programs and systems in place to better understand their actual customer segments and the profitability of each segment.

Action 3: Change your pricing strategy so it is more in line with cost increases

In order to cope with inflation, enterprises should look at boosting prices in parallel to increases in cost. However, this comes with increased risk of client loss and competitiveness.

If prices must be raised, several elements must be considered such as current contractual conditions, timing, type of previous increases, target groups, link of the increase with new product features, and customer’s willingness to pay.