Inflation and its impact on business are explained in this PPT. The focus is more on drivers related to supply chain. Though I spoke on how SAP technology can help during economic downturns at this event, the slides here only show the impact and drivers of inflation and top level solutions from SAP.

1. Technology for Supply Chain in High Inflationary
Environment
Ramakrishna Potluri
SAP Labs
SCALE 2011

2. Agenda
Inflation Overview – Effect on businesses
IT in Business to manage Inflation
© 2011 SAP AG. All rights reserved.
2

3. Inflation is taxation without legislation
- Milton Friedman
“Inflation is when you pay 15 dollars for
the 10-dollar haircut you used to get for 5
dollars when you had hair” - Sam Ewing
“Inflation is bringing us true democracy.
For the first time, luxuries and necessities
are selling at same price” – Robert Orben
© 2011 SAP AG. All rights reserved.
3

4. Inflation in India (CPI) - History
Source:global-rates.com
© 2011 SAP AG. All rights reserved.
4

5. Inflation in India (CPI) – 2010-11
Source:global-rates.com
© 2011 SAP AG. All rights reserved.
5

6. Profitable Business
Profit
© 2011 SAP AG. All rights reserved.
6

7. Inflation  Costs Increase & Profits reduce
Cost increase
Price
Cost
© 2011 SAP AG. All rights reserved.
7

8. Inflation  Costs Increase  Loss
Loss
© 2011 SAP AG. All rights reserved.
8

9. Effect of Inflation - Back to Basics
Costs &
Disposable
Prices
Incomes
Costs &
(Monetary Policy)
Prices
Interests
Costs &
(Monetary Policy)
Prices
Interests
Consumption
Savings
Savings
Working Capital
/Debt
Cost of Inputs
Disposable
Incomes
Investments
Consumption
Recession
Bankruptcy risk
(also Interest rates)
Prices
(Lag)
© 2011 SAP AG. All rights reserved.
Sales
Inventory
Working Capital
/Debt
Bankruptcy risk
9

10. Managing Inflationary Environment
Monitor Cash, Operating Profit and Working Capital.
Understand the drivers
 Costs
 Prices
 Cash Flow
Costs





Input costs
Logistics costs
Inventory Costs
Financial costs
Strength of Supplier base
Prices
 Price Elasticity
– Brand Strength
– Competition
– Innovation (Ability to launch new products rapidly)
Financial Costs
 Debt burden
 Cash flows
© 2011 SAP AG. All rights reserved.
Cost of Inputs
Inventory
Prices
(Lag)
Sales
Working Capital
/Debt
(also Interest rates)
10

11. Agenda
Inflation Overview – Effect on businesses
IT in Business to Manage Inflation
© 2011 SAP AG. All rights reserved.
11

12. Can IT Help Businesses During Inflation?
Costs





Input costs
Logistics costs
Inventory Costs
Financial costs
Strength of Supplier base
– N tier supplier ?
Prices
 Price Elasticity
– Brand Strength
– Competition
– Innovation (Ability to launch new
products rapidly)
Financial Costs
 Debt burden
 Cash flows
How fast do you get Information
back from your supply chain ?
© 2011 SAP AG. All rights reserved.
Analyze Spend
SAP SPM
Manage Spend
SAP Procurement
Optimize Logistics &
Transportation
SAP TM
Manage Supply Network
to reduce inventory in
network
SAP SCM/SCPM
Supplier Mgmt & Risk
SAP Supplier Mgmt
Contract Mgmt
SAP SRM/ CLM
Manage Liquidity
SAP Treasury
Hedging
SAP CTRM
Price & Promotion
Analysis
SAP HANA
Supplier Network, Risk
Mgmt & Benchmarking
SAP Supplier
Infonet
12

13. Manage Spend, Compliance & Risk for All categories – Indirect, Direct & Services
Address Inflation Challenges
Do I have visibility of my
supply base ?
Can I source from low
inflation regions ?
Supplier
Management
How do I look at risk from
‘n-tier’ supplier ?
Strategic
Sourcing
Can I source from ‘less
risky’ suppliers ?
SAP Procurement
Am I managing my entire
spend ?
Do my buyers have time to
look at strategic aspects ?
Are my planning &
procurement systems
integrated ?
Can I reschedule quickly ?
Are my suppliers connected
to make info flow faster?
Operational
Procurement -
Contract
Management
Spend Performance Management (SPM)
© 2011 SAP AG. All rights reserved.
Are the prices locked ?
What are the escalation
clauses ? Can I incorporate
penalties/rebates ?
Can I renegotiate contracts
?
Is my entire spend visible
?
Where are the
opportunities to
reduce/postpone / shift
sourcing ?
13