Inflation has taken over the global market and shows no sign of abating in the near future. Mid-sized international companies must take immediate steps to mitigate problems at the outset.

Inflation is something that is better known to previous generations of managers in the world. Most of today's mid-sized company leaders have not experienced serious levels of inflation in their working lives. To survive and thrive, mid-sized companies must adapt. To help, we've developed a list of essential actions we think companies should take. These are listed below and are used to assess the current priorities and progress of mid-sized companies.

Recognize and mitigate inflation risks to your business

Very few companies at the international level have pre-prepared plans for managing high and prolonged inflation, while all companies should identify the risks and create a plan to mitigate them. This is not something one or two key executives do in a darkened room. Inflation touches all parts of the business, so the best plans will include a variety of viewpoints. Once developed, the plan will need to be reviewed regularly to ensure that it evolves in step with the overall situation.

Limit the increase in external costs

Cost containment is something businesses have been considering since the very beginning of inflation. Actions here include price locking, bulk buying, renegotiating terms with suppliers, or switching suppliers. In a high-inflation environment, these basic countermeasures can really have an impact on cost containment and margin protection. While many companies hedged against price increases by buying in bulk, this put additional pressure on inventory, working capital and warehouse space requirements. There is a growing need for more intensive cooperation with suppliers, given the serious problems that now exist in supply chains.

Mitigate labor shortages

Outsourcing may seem like an old solution to a new problem, but the benefits it offers are now more compelling than ever to help businesses address rising costs and skill shortages. The costs of services in the outsourcing space compared to in-house teams have fallen in the last couple of years. Another strategy employed by companies is to relocate corporations to "cheaper" jurisdictions to help manage wage costs and inflation in general.

Improve your understanding of real cost

Grant Thornton experts agree that most medium-sized companies around the world still do not accurately and regularly calculate the costs and profits of the individual customers they serve. However, customer segmentation provides crucial information if you want to protect your own profitability by actively managing your customer base during these times. Once customer segments are clearly defined, the focus should be on understanding the costs of serving each segment. It is important to clearly define what costs are included in these calculations – such as supply chain, sales and marketing, and customer success, and allocate them appropriately to individual customer segments.

Change your pricing strategy to match the increase in costs

Grant Thornton's market insights show that many companies have been quick to raise prices over the past 12 months. Approximately 52% of global companies increased prices exactly in line with costs, and another 35% increased prices more than current costs. Price increases are fraught with risk. One of them is the loss of customers, and the other is competitiveness. Before adjusting prices, look at customer experiences (and implied service costs) along with profitability. If prices still need to be increased, there are multiple factors to weigh: existing contract terms, the timing of the increases, the nature of historical increases, who the increases should apply to, whether you can tie the increases to new features, and the customer's willingness to pay. How you communicate with customers about price increases is also very important.

Take measures to improve the capital structure

Not only are input costs rising, but so are the costs of capital as interest rates rise to contain inflationary pressures. Companies must optimize their cost of capital and also consider increasing or decreasing the level of working capital to meet their needs. In the short term, if companies are healthy and have enough cash, they can consider strategies like bulk buying to beat inflation. If the opposite is true, then additional capital may need to be found and debt managed.

Take steps to improve internal efficiency and costs

There are so many solutions to stop the high prices that are more and more common in business. If you can do more with less and reduce waste, you may be able to offset higher prices – and reduce your impact on the environment. What really drives internal efficiency is technology. Some of the areas we identify are automation, robotics and machine learning. These technologies improve productivity by reducing production costs and enabling companies to use human capital more efficiently.

Data source: Grant Thornton Global