Running a business during the COVID crisis that has to solve problems and continuously adjust over the past 2 years is similar to running a marathon. Even though I’m tired and I’ve been running for a while But there are still tests of strength coming in. Until today, I still haven’t crossed the finish line. But every business has to face a new cost crisis in general. When the price of oil and almost all kinds of commodities gradually increased continuously. Entering another test and it’s a time to determine which business will “survive or stop” from here.
when costs move But it’s difficult to adjust the price.
If you look at the current situation where the price of goods has increased to what extent it affects the business sector The Bank of Thailand (BOT) has conducted a monthly business sentiment survey since 1999 to prepare the Business Sentiment Index (BSI). One of the six components of the BSI is the cost of production index. that reflects inflation well Because when statistically tested, it was found that the cost index was inversely related to the general inflation data and had a correlation coefficient. (Correlation) is at 0.8 (Picture 1)
Although the cost index Usually stays below 50, reflecting that most operators see that costs are always increasing from the previous month. But it is not often that the index continues to decline until it reaches the 20 level as it is today. Represents a large number of entrepreneurs who agree that the cost of business is rising. The last time that the cost index At a similar level, it was before the Global Financial Crisis in June 2008, when oil prices and food inputs rose considerably. However, this round of expensive goods crisis is different in that it occurred during the period when the Thai economy had not yet recovered from COVID. This allows the business to pass on the cost to the price of goods and services quite a bit (Figure 2).
adjustment of the military process of the business sector amid weak purchasing power
Business adjustments during this period are different from those during the new COVID epidemic because it was during the time when trading began to return. But purchasing power is still fragile and “price” is an important factor in consumers’ purchasing decisions. While the cost tends to increase steadily and the stock of raw materials has started to gradually run out. Raising prices is not much, adjusting the business process this time. therefore focusing on reducing expenses and optimize cost management as much as possible.
Strategies that are often employed include (1) increasing productivity, including focusing on waste management and increasing labor efficiency through high multi-task. (2) Reducing raw material costs Both adjusting the formula to use more of the same type of raw materials. to increase bargaining power when purchasing larger lots of raw materials Application of other raw materials to replace scarce or high-priced raw materials But still have to maintain the quality of the product, such as canned tuna, which has changed the formula from sunflower oil to other vegetable oils instead. Or adjust the packaging by reducing the use of film to 2 layers from 3 layers and using aluminum cans instead of steel cans, etc. (3) Other cost reductions such as reducing electricity bills by investing in solar panels. Or some places change the production time from day to night with cheaper electricity rates. In addition, sharing of location and labor costs, such as Cloud kitchen, which is a by-product of the adjustment from the COVID era, still works well in current situation
If the business tries to manage its costs at its best and still cannot bear the increased burden The last thing is the gradual increase in prices of goods and services as we have seen. May choose to pass costs on to consumers indirectly, such as downsizing products Adjust the product formula or launch a new product to adjust the price. Reduce price promotions or reduce discounts (Trade margin) for wholesale, etc.
the way forward What else do you have to go through?
Although I don’t know when the crisis of expensive things will end. And there are still challenges ahead. including the minimum wage that may increase after not adjusting for a while protracted geopolitical conflicts including volatility in financial markets But the crisis and the economic crisis (Perfect storm) that businesses are facing right now. It is compared to the distance before crossing the finish line of the marathon course. which if crossed believe that the return will be worthwhile because the Thai economy is recovering following the opening of the country And it is an important opportunity for the business to grow exponentially. It also helps elevate the capabilities of Thai entrepreneurs to a higher level. To be a smart business that is always ready to adapt This includes looking for opportunities to increase income, reduce expenses, and recover quickly from difficult situations. These will make the business ready for new challenges in the future. no matter how many more races have to be played will definitely be able to reach the finish line
Author : Dr. Kingkarn Kessiri Natthaorn Benjapathomrong Economic Structural Policy Department