5 minute read
BIG ASK – CHINKS IN THE CHAIN
Challenges in the chains
Global supply chains have been under pressure for the past two years and have yet to recover from the effects of the pandemic. Now, given the current geopolitical situation, what are the prospects for the next 18 months? We asked those in the know...
Peter Cowan, procurement director, Data Direct
To say that global supply chains have been under pressure for the past two years is an understatement. Having been perfected and improved continuously for years, supply chains have somewhat imploded over the past two years, unravelling in the face of unprecedented challenges. While some of these has been self-inflicted, with the fallout from Brexit, the pandemic, along with geo-political upheaval, has seen challenges simply multiply. Some improvements and efficiencies have been put in place, only for another shock to add to the pressure of simply trying to get to a state of ‘business as usual’ for stocking, supply and pricing.
Personally, I do not see any positive change coming within the next two years, and just about the only plan you can make is to continue to plan for the worst; it’s my guiding principle, and a motto we have within procurement at Data Direct. Planning for the worst outcome ensures there is always an upside for our dealer customers – we’ve planned the supply chain as best we can, ensuring stock availability, with minimal price disruption. In examples where significant increases in demand are simply unforeseen, it’s our duty to keep our dealers fully-informed so that they can tailor their choices, and manage their end-user demand accordingly.
There is such huge transparency now in the reporting of the global supply chain that I think everyone in business fully understands, and appreciates, the extent of the challenges that are felt by everyone in the chain. Every OEM and aftermarket supplier for any product you would care to mention is facing the same challenges, so we really are ‘all in it together’.
In planning for the worst, we have greatly increased our stock levels of key items and keep transit to lowest cost sea freight routes. If we do have to ‘top-up’ stocks to maintain service levels, we accept that our margin will be greatly impacted due to air freight costs but, so be it – that’s reality right now.
Simon Howorth, marketing and design manager, Dams
Looking back over the past two years, of course, it’s been a challenge at times. The COVID pandemic has not only caused global health issues, but also created challenges throughout the world economy, with disruption to our supply chain, a continuous upturn in pricing, shortages in available containers, freight costs rocketing, and much more. We’ve used our manufacturing and purchasing strength to ensure we maintain stocks of materials at appropriate levels where possible, and we’ve done everything we can to maintain a stable supply chain for customers over these turbulent times.
Coming into 2022 there was some real hope that things were beginning to return to something like normality as COVID restrictions were eased, but now the uncertainty of the war in Ukraine, and the resulting economic sanctions placed on Russia, are resulting in higher prices for everyday items such as petrol and food, with our energy bills rising to record levels and inflation on the increase.
In the office furniture industry, unfortunately, we’re not immune to these factors, but at Dams we work tirelessly on behalf of our customers to minimise any disruption that may arise. For the remainder of 2022 it’s likely that material prices will not fall, as supply chain problems and high production costs, coupled with high demand for materials, will continue to hit the industry, meaning that some pricing issues will not soften over the course of this year.
However, due to the investments Dams has made over the past two years into state-of-the-art machinery, delivery service enhancements, a new IT system, and our warehouse expansion, we’re well-placed to manage any external factors. The new 60,000sq ft extension to our warehouse and distribution centre is now fully-operational, giving us an additional 5,000 pallet locations to not only increase our stockholding capacity, but also allow us to hold an increased level of components and materials so that we can offer a fast-track solution for many made-to-order soft seating items. This will ensure that we can better service the needs of our existing and new customers during these uncertain times.
Mark Wilkinson, regional vice president – UK & Ireland, ACCO Brands EMEA
The global supply chain situation remains challenging, and the original impact of the COVID pandemic is still very much with us. The industry is still suffering from the backlog of issues from the pandemic that were driven by the initial COVID-induced slowdown, followed by an unexpectedly steep recovery in demand. Delays, capacity constraints, transport challenges – as well as unprecedented supply-side cost increases – are still very much part of the picture today.
The supply chain challenges originally emanated from a global lack of capacity, as factories around the world shut down production and reduced inventories of components and raw materials in response to lockdowns in Europe and elsewhere. The steep recovery in demand that followed exacerbated those supply issues and, subsequently, also led to significantly increased costs and longer lead times.
The pandemic also led to significant product mix changes, as workers first went to work from home, returned to the office briefly and, more recently, seem to have settled into some sort of hybrid work pattern, making it challenging for the sector to accurately predict demand as a result.
In the short- to medium-term, China’s current zero COVID policy, with strict local lockdowns, will continue to cause intermittent, but frequent, delays and longer lead times. In addition, there is little prospect of supply-side costs moving down materially in the short-term, except possibly for container costs, which appear to have stabilised. However, most vendors and suppliers have yet to recover their margins from the unprecedented increases of 2021 and 22, so price inflation will continue.
As a sector we will need to continue to try and mitigate cost increases, manage pricing dynamically and plan for continued uncertainty. In the medium-term this will continue as China grapples with Omicron and local lockdowns, and we all confront the awful war in Ukraine, and the resulting impact on energy costs.
Higher prices are, therefore, here to stay for some while yet, and inflation will continue to rise in 2022, though some elements will start to recover. One outcome of this for our
sector is that we will have to become much more dynamic in our management of pricing and selling of alternative products, where supply chain challenges persist.
