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Stagflation, Supply Chain, Logistics

Former Undersecretary of Treasury and Economist Mahfi Eğilmez, In an August 12 Twitter (X) message “Industrial production is falling, unemployment is rising. The economy is heading for stagflation.”

Stagflation is a situation in which stagnation (decline in production and consumption, increase in unemployment) and inflation (price increase) occur at the same time.

Stagflation, derived from the words stagnation (stagnation, a lower-than-average rate of GDP growth) and inflation (inflation, a sustained and noticeable increase in the general level of prices), is a situation in which stagnation and inflation occur at the same time. In this case, the economy experiences stagnation and inflation at the same time, with unemployment rising and prices rising rapidly.

Stagflation leads to higher production costs, and higher production costs may force producers to cut costs. The result could be a weakening of the labor market.

Increased costs are reflected in the prices of the final product that goes to the consumer, so the consumer may end up paying higher prices. In cases of stagflation, consumers may face inflation as unemployment rises and prices rise, leading to a decline in purchasing power, and inflation may increase more rapidly than expected.

Stagflation, which affects production and consumption, directly affects the supply chain and logistics.

  • Less consumption may lead to increased stocks and therefore more storage space (m2) needed
  • Reduced order size (quantity) due to less consumption, which may lead to less quantity shipped
  • Increased uncertainty can make investment and new business development more difficult
  • Increased unemployment could negatively affect the availability of labor for warehouses
  • Cost increase may also increase the cost of logistics activities (storage, transportation)
  • Reduced production may reduce the movement of goods (transportation)
  • Higher interest rates and difficult access to credit may make it difficult for logistics companies that need credit for working capital to do business
  • With the effect of high inflation, the motive of “the goods bought today will be much cheaper than the goods bought tomorrow” may increase demand, but the fact that production is decreasing may negatively affect product availability (order fulfillment) * vicious circle unfortunately *

So what should be done?

In case of stagflation, companies should be as flexible as possible, pay attention to inventory management, manage their costs correctly (control, traceability), work with their suppliers as true “business partners” and even support them. In short, the right supply chain and logistics management must be implemented.

For those who can manage it, stagflation can be an opportunity for success in the near future (3 years, I estimate, if economic science is not violated).