For many companies, a high-inflation environment is an unstable and insecure space to operate within. Responding to inflation is of paramount importance now. However, responses must carefully account for future inflation, impact on the company business model, and the time lag for any response to manifest. Organizations can use flexible, analytically sophisticated methods in helping to determine how and when to react to high-inflation environments.
For the application of inflation analytics, a few guideposts will help companies get up to speed:
Start small. Start with a single product, business unit, or geography. Most of these analyses are accretive and need not be completed together.
Start simple. Break down the income statement to drivers of margin. “Stress” these drivers with your view of inflation impact. Not all drivers will be affected by inflation, so they will not need complex analytics solutions.
Start now. Experience shows that capabilities, data, and know-how are always works in progress. The benefits of starting now always outweigh impact with better resources.
This article was originally published on McKinsey.com on August 18, 2022 and is reprinted here by permission.
