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Business 56 July | 2022 to make the increases bigger. "When infl ation is 2 percent, everything tends to increase by that amount, plus or minus a little bit," says Conerly. "But at 8 percent infl ation, say, prices tend to increase by that amount plus or minus a lot." Retailers should try to get readings on anticipated future increases and shortages. is can be done by maintaining close contacts with vendors. "Work closely with suppliers, and develop good relationships with them," says McQuaig. "What do they see ahead in terms of product availability and price?" ere's another advantage to close contact, notes McQuaig. e suppliers may give you a little more favorable treatment. For example, you might leverage any signifi cant volume you're doing by asking the vendor to hold inventory you would normally keep in stock. You can also ask if a price commitment now will remain fi rm for the duration of the season. Another cost-saving move is to pursue less expensive alternatives to pricier goods and services. "Domestic infl ation has been higher than in most of the world," says Conerly. "Some businesses are shifting sourcing to other countries." Finally, dig deeper into the reasons for suppliers' price hikes. "Are goods and delivery cost increases in line with infl ation?" poses Beaver. "Or are suppliers trying to pad their own margins a bit just because they see infl ation as an opportunity? at sometimes happens." TRIMMING INVENTORY Before infl ation appeared on the horizon, businesses responded to supply-chain disruptions by purchasing and holding whatever they could get their hands on. Any step to avoid running out of product seemed like a good thing. Times have changed. Now too many warehouse goods can tie up cash just at a time when company treasuries need more liquidity. "Businesses need to be thinking about how to manage their inventories better," says Anderson. " ey need to make the right decisions on what, when, how and where to buy it, as well as where to store it. And they need to manage their supply- chain network to maintain strategic inventory stockpiles." Also relegated to history is the unmodulated "just in time" ( JIT) delivery paradigm seen as a strategic hallmark after the Great Recession of 2008. While JIT helped companies maintain good cash fl ow by trimming inventory investment, the supply-chain debacle highlighted the importance of moderation. "Businesses have to ask whether it's better to have too much inventory or to run your customers out," says Anderson. Given that neither situation is ideal, Anderson advises maintaining suffi cient inventory stockpiles to support key customers while maintaining JIT stock for others. Retailers are at particular risk of stockouts (items are out of stock). "Typically, retailers don't maintain any warehouse inventory," says McQuaig. " ey order merchandise when they need it and put it directly onto shelves. So, maybe they need to be thinking about having a secondary location that could maintain an inventory of fast-moving items to obviate stockouts resulting from supply-chain issues and to hedge against price increases." It takes working capital to maintain buff er inventory, of course. "Because of the slim margins in retail, they have to do careful HOW WELL ARE YOU BATTLING INFLATION? Are you taking the right steps to mitigate the costly effects of infl ation? Find out by taking this quiz. Score 10 points for each "yes" answer. Then total your score and check your rating at the bottom of the chart. HAVE YOU INSTITUTED THE FOLLOWING PRACTICES? 1. Running periodic cash fl ow forecasts 2. Maintaining regular accounts receivable aging reports 3. Accelerating account collections 4. Stretching accounts payable, if appropriate 5. Keeping in close touch with customers 6. Identifying the most valuable customers 7. Increasing productive communications with suppliers 8. Ensuring the compliance of any loan covenants 9. Trimming inventory while bolstering critical items 10. Raising prices judiciously WHAT'S YOUR SCORE? 80 or more: Congratulations! You have gone a long way toward protecting your business from costly infl ation. Between 60 and 80: It's time to fi ne-tune your fi nancial management. Below 60: Your business is at risk. Take action on the suggestions in this article.

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