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Managing the Impacts of Inflation and Price Fluctuations

Managing the Impacts of Inflation and Price Fluctuations

Over the last two years, the world’s economy, Malaysia included, has been weathering out disruptions from multiple movement control orders with shutdowns and re-openings. However, 2022 seems to be the year of recovery for both economic and health perspectives.

As 2022 began with the glimpse of recovery, the world was greeted by the shocking news of Russia invading Ukraine back in February. For that reason and amongst others, both external and internal factors, we are now faced with a new challenge in dealing with rising cost of living as the price of goods and services have all gone up.

Notably, on the home front, price increase and inflation have also been the top conversations in the past few months; where companies have a greater concern i.e., when raw materials and transport costs go up and subsidies go down.

Inflation on the Rise

According to a recent article published by *The Edge on 1 June 2022, there is a tremendous upward cost pressures that different supply chains in the country are facing. We just need to examine in greater detail the upward pressure on food and non-alcoholic beverages, where the inflation rate was 4% and 4.1% in March and April 2022. Within this category, there are several essential items that have seen price increases, based on statistics collected by the Department of Statistics Malaysia (DOSM), which far exceed 4% (please refer to the table below).

**Starting 1 May 2002, Malaysia will increase the national monthly minimum wage by 25 percent from 1,200 ringgit (US$276) to1,500 ringgit (US$345). Many companies especially manufacturers and small and medium-sized enterprises (SMEs) have stated that given the rising external risks emanating from the lockdowns in China, the Russia-Ukraine crisis, labor shortages, and surging raw material and commodity prices, the wage increase is ill-timed.
***Since February 2021 the ceiling price of petrol for RON95 and diesel have been readjusted to RM2.05 per liter and RM2.15per liter as compared with RM1.96 and RM2.11 respectively. RON97 petrol is currently at an all-time high at RM4.83 per liter, compared to RM3.00 at the beginning of this year.
****With the discontinuation of the monthly electricity discounts given to consumers under the National People’s Well-Being and Economic Recovery Package (Pemulih) in September 2021, it has further added upward pressure to the cause of inflation.

Managing Cost Effectively & Efficiently

Just like any consumer and organization for that matter, the rising inflation, widespread shortages, rising material, and labour costs, and juggling with changes in SOPs are concerns that are top of our minds as well.

Between 2020 and 2021, our business has been impacted tremendously due to the pandemic and the world’s over-demand for surfactants, detergents, disinfectants, and the urgency to uphold cleanliness. Coupled with the disruption patterns of numerous lockdowns, our supply chain for cleaning materials has been deeply affected which led to numerous rounds of price increase of these materials.

Throughout the pandemic, our risk assessment and stock control units have worked tirelessly with Maclean’s management to ensure we are able to manage cost efficiently and cushion out the price fluctuations internally without having the need to review our pricing strategy. At Maclean we tried to prevent any price increase for as long as possible as we understand many of our clients’ business have also been affected by the pandemic. During hard times, we want to be able to continue to provide value to our clients.

An Increment of Overhead Costs Poses a Great Challenge

Beginning 2022, Maclean was hit with rounds of price increase from various suppliers. Several suppliers have also increased their prices at least twice since Jan 2022. Most of Maclean’s suppliers have conveyed their plans of a price increase where the increases are mostly in the double-digit range, with some recording as high as 30%. Coupled with rising labour, fuel prices, logistics, transportation, shipping and import costs; our cost of doing business has been going up and we do expect it to in crease in the coming months.

Amongst the biggest impact for us was that apart from the increase in the minimum wage required for our crew, Maclean will now need to adjust the salaries of our supervisors and team leaders in order to address the narrowing gap between these levels. It is in advertent that we will need to review our pricing strategy. We are currently tracking the rising cost and its impact on our industry as a whole and benchmark it with the Consumer Price Index (CPI).

Going the Distance for our Clients

The circumstances above prompting this change are compelling. Our costs are increasing at a rate that will outpace our income. At Maclean, all price increase is carefully thought through; taken to ensure continued quality. Our intention is always to strike a balance between maximizing the value we give to our clients and sustaining the company’s momentum. We believe the right pricing structure requires a complex, ever-changing calculation that’s derived from constant analysis of the two. Above all we believe in giving value-added services as we are here for business in the long haul. We are ever grateful to our clients for their continued support and understanding in the matter.

Source:
*Managing the Economy: Understanding inflation and supply chain challenges | The Edge Markets
**
https://www.aseanbriefing.com/news/malaysia-to-increase-minimum-wage-from-may-1-2022/
*** Latest Petrol Price Update RON95, RON97 & Diesel in Malaysia (loanstreet.com.my)
****
https://www.freemalaysiatoday.com/category/nation/2022/06/01/inflation-up-by-2-5-due-to-food-fuel-price-increases/

Jul 2022
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