As a business owner, you might just feel as if you are under siege. Your input costs seem to be rising constantly. From fuel, to a weak currency and soaring administration prices, the inflationary attack never seems to stop. Being profitable is the single most important reason people start businesses. Sustainability, to be able to maintain the business at a certain level now and into the future, is a direct result of remaining profitable. So the questions become: How can you prevent inflation from completely eroding the sustainability of your business? How do you grow your business in such challenging times?
For the past six decades, SEIFSA has been honing, incrementally improving and delivering to members its premier product. A product specifically designed for businesses to use for adjusting price escalations in contracts. The goal is to ensure fair and equitable relationships between buyers and sellers involved in a contract. By having the right information which is available on a timely basis, correctly calculated and interpreted, all from a central source, SEIFSA has managed to advance the interest of businesses and to keep the doors of many businesses open. SEIFSA, through its PIPS subscription service, has provided the industry with the opportunity to ensure companies’ sustainability.
To demonstrate the importance of PIPS to any company and the reasons why a business simply cannot afford not to use the service, we should look at an example showing the devastating impact an incorrect calculation and or not using the service can have on a business. The example assumes a 10-year, R10 million contract. The inflation experienced by the company is 6%, but the company mistakenly calculates its escalation as 4% annually, yielding a 2% error every year. In short, the error equates to a R2.7 million cumulative loss after 10 years. In such tough times, can any company really afford to lose that kind of money?
In light of the importance of the service to the metals and engineering sector in particular and other businesses in general, SEIFSA is always innovating and adding new features to the PIPS product. The improvements are always in response to business needs, requests and frequently-asked questions from the membership and the wider SEIFSA community of stakeholders.
Some of the highlights include:
- Free monthly commentary on the state of price escalation for that relevant month;
- Theory of Cost Price Adjustment Courses, which are held nationally and at the SEIFSA Head Office;
- The acquisition and creation of new indices almost on a quarterly basis;
- Support for companies involved in international trade such as providing:
- The exchange rates of major trading partners countries, and
- International Production Price Indices;
- Ensuring quality of our data by continually checking our processes against reputable authorities such as Statistics South Africa;
- SEIFSA understands that friction may arise between buyers and sellers as a result of not understanding the contract price adjustment process or its mechanics – thankfully, SEIFSA is able to review the process from an objective perspective and suggest a way forward based on best practice;
- SEIFSA helps companies directly by providing guidance and implementing the actual escalation calculations, with the escalation carried out by SEIFSA experts and prepared for submission; and
- The PIPS online portal is now live and functioning well, with members getting almost immediate updates and more features, which are now easily loaded online.
PIPS: The Future
SEIFSA will continue to invest time and resources into enhancing PIPS as the Federation’s contribution to creating sustainable South African business. In future we will also be moving our training online into a webinar format so that you can learn at your own pace. So, watch this space, and always visit www.pips.seifsa.co.za for the latest news and updates.
Contact SEIFSA today to find out how our PIPS experts and economists can assist your organisation to avoid project cost overruns and manage the corrosive effects of inflation and keep your business competitiveness in an extremely tough economy and against international competition.
Attend one of our training sessions and convince your management and finance team to become PIPS members and you, too, will be able to de-risk your operations in a volatile environment.
Reaching sustainability is a multi-faceted process. It is often difficult to harness the skills that are potentially available to us. The ability to position a company in the global market needs a mind-set change. Real value can only be added to achieve sustainability and unlock the profit potential. Therefore, an intense focus on competitiveness and sustainability would more likely remove barriers to entry to the local and global market. SEIFSA PIPS is a low hanging fruit, a tool that can help you have 20-20 vision going forward.