We never used to hear about supply chain issues. Now everyone is talking about Supply Chain interruption. What is the real cause of these disruptions? Andrew Barclay, an economist at Statistics Canada, discusses the supply chain in the Eh Sayers: Season 2, Episode 3 – Dude, Where’s My Semiconductor? podcast.
Supply Chain Management (SCM) is a complicated process. It involves many moving parts and can be impacted negatively in many ways. The pandemic has further complicated this model.
Now more than ever, global organizations have come to realize that change is constant and there is no value in resistance. The procurement and supply chain management space is no exception to this. The writing is on the wall – a revolution is on the horizon.
Delivering tangible cost savings has always been a critical ask for procurement, and it will continue to be a high priority in the next decade. Considering this, procurement leaders must look for newer ways to achieve cost-efficiency. According to the Deloitte 2020 Chief Procurement Officer Flash survey, most respondents highlighted cost management as their top priority, commanding nearly 8 times more focus in their everyday operations. Additionally, the survey also reveals that two-thirds of organizations are planning to pursue aggressive cost reduction strategies post-pandemic compared to just one-third who planned to do so before the pandemic.
Key Points Raised by Andrew Barclay
- Stress comes from the possibility of running out of parts and raw materials.
- It’s known that many consumers, and even companies, have been consumed with stockpiling enough materials to ensure that they meet the needs of their businesses and so the assembly lines could continue operating without debilitating shortages.
- Shifts in demand and supply are no new trend. Fluctuations are likely to happen, with changes realigning over periods of time. However, sometimes, these shifts can result in a skewed supply and demand situation, leaving companies reeling with surplus supply, pricing insecurity, and instability.
- The scarcity of raw materials throughout the global economy, many companies have been forced to intermittently halt production like the global microchip shortage example in the podcast.
- Global conflict directly impacts these shortages of raw materials.
- Knowing where and how to use limited resources is a strategy leaders across multiple industries are working to master.
- American Trucking Associations have argue that a national shortage of drivers has amplified supply-chain problems.
- Enhanced planning and supply chain collaboration can accelerate your go-to-market plan while driving efficiency in the overall supply chain.
- Throughout the world, an indicator to some extent of supply chain disruption is an increase in prices. And we are seeing it around the world. The United States has the highest rate of inflation since the early 1980s. All these countries are experiencing much higher prices, and for the most part, being caused by supply chain disruptions.
- Shipping goods from Asia has become way more expensive, and Canadians import many products from Asia. The containers are both more expensive to ship and taking longer to arrive in Canada. In the summer of 2019 it took about 40 to 50 days for a container to get from Asia to North America. Now it is about 110 days.
- More direct things and challenges we see are things such as absences from work due to positive COVID-19 cases, so delays and or closures of businesses. Other challenges like slaughterhouses, are now forced to shut down because of COVID-19 outbreaks within them, and this situation impacts the price of meat due to purchasing behaviours. For example, the demand in meat sales/consumption and less to go around. Similar to the semiconductor chips for automobiles, which was not necessarily expected. Other similar businesses had to try to ramp up production, or companies/ consumers had to change supply chains to meet this new type of demand.
- Pandemic has forced new spending behaviours for many consumers.
- Now that restrictions have lifted, things are in much more of a supply and demand. Businesses have lower production, so they have more people chasing fewer products, which leads to higher prices.
- Supply chains are not the sole reason why prices are increasing. There are lots of factors that go into prices, and there are lots of determinants of prices. In the grand scheme of things, it’s mostly supply and demand, but other things are happening.
Andrew said it best in the podcast,
The complexity that’s associated with higher prices aren’t strictly down to supply chain factors. There are a handful of other things that are happening, whether that’s firms changing prices, whether that’s higher demand, whether that’s disruptions to supply chain or disruptions in general that can factor into prices. When things change, it generally manifests itself in higher prices for consumers. So, if things can kind of get back to quote, unquote, normal. And consumers start to behave the way, or we start to consume in the way things were prior to the onset of the pandemic, then that’s when we can kind of expect more stability in prices, more stability in that price change area.