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Do Those Social Media Gossipers Complaining About Inflation Know ANYTHING About BASIC Supply Chain Management?

It's really funny (and frustrating) to see all the posts on Facebook concerning inflation. "Thought leader" page Silent No More Philippines is just one of them. I couldn't help but laugh (and cringe) when they started complaining about the prices of goods increasing. Unfortunately, that page is only known for complaining since the reign of former Philippine president, Rodrigo R. Duterte and the recent reign of Philippine President Ferdinand R. Marcos Jr. Once again, I'd like to state that I didn't vote for Marcos Jr. The problem with that page isn't their criticism. The problem is that the page hardly displays solutions. In fact, recent posts that they have complained about inflation and the increase in price of Jollibee fast food makes me ask, "Do they know a thing about supply chain management?" That's why I really refuse to take advice from social media gossipers, especially in matters about economics (read here).

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I decided to revisit some old lessons way back in 2004-2007 during my business administration years. A simple analysis of the supply chain will tell you how pricing is done. People say that the government is just using the war in Ukraine (or any factor beyond the control of the Philippines) as an excuse to have expensive gasoline. Please, it's all about the law of supply and demand. A simple supply chain management will tell you that barrels of gasoline are still transported by gasoline. If the supply of gasoline in the world market is low then the demand in the world market is high--gasoline prices ought to rise up. Subsidizing gasoline or making gasoline companies sell at a lower price than their costs is just plain bad business and economics!

Yup, you can just expect it to backfire badly on your face.

This just reminds me of the classic demand by some protesters for higher salaries, lower prices of goods, and cash handouts for everyone. The three demands are very self-defeating (read why here). The supply chain will tell you that salaries are all parts of the means of production. If the company increases the salary rate of the workers--they ought to increase the prices for products and services. If farmers are going to get a raise then the cost of rice must increase to continue giving that rate. The prices can only drop when there's an economy of scale (which fills in the supply-demand gap). Otherwise, prices must normally increase if workers are to get a higher salary.

Image by Sabrina Jiang © Investopedia 2020

Once again, do I need to display basic accounting for why demanding higher salaries while lowering the prices of goods is stupid? The supply chain really has the cost of goods sold and other expenses. All these will end up adding up to how much must be sold in order to gain a profit. The revenue is deducted from the cost of goods sold  (COGS). Every direct expense such as materials purchased will affect the final price. 

Let's think about Jollibee's current increase in prices. There are many factors why the prices will increase. It all involves expenses. If the cost of gasoline is high then naturally the materials they need will have to be priced higher. Let's say gasoline prices increase due to the world market. Jollibee must have a shipment of supplies. Think about Jollibee having longer operating hours these days. If gasoline prices are high then the cost of electricity will be high as well. Longer operating hours equals higher operating costs. It might be a complex network but it doesn't take a genius to understand it. Jollibee is a very huge company. Therefore, operating expenses will be naturally expensive. If Jollibee is to sell their food at the same prices all the time--you can expect Jollibee to shut down soon!

The same can go for whipped cream which is a basic grocery item. If there's an increase in gasoline prices then do you think the costs of transportation and power will be lower? The cost of raw materials will be higher. The cost of production will be higher. If one part of the supply chain's cost increases then logic dictates that you need to sell higher to be able to survive. It makes sense for whipped cream to nearly double its price if one (or more) component of its supply chain has an increased its cost.

These people are just there to spread gossip. That's why I refuse to take pages like Silent No More PH seriously. Whoever the administrators are, I'd like to ask them if they even bothered to see the situation beyond blaming politicians they dislike. Besides, even if Atty. Maria Leonor Gerona-Robredo won as the 17th president--the Philippines will still feel the shock. Meanwhile, if they do demand for more "economics magic"--we can guarantee that the Philippines will go from simple inflation to hyper-inflation like Venezuela. 

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