As the world continues to see challenging supply chains, we grabbed a Q&A with Probrand's Supply Chain Director, Ian Nethercot MCIPS, to answer critical questions around IT Price rises, hidden costs, total cost packs, CSR and balancing cash flow.
What are the main issues facing buyers in this sector from a price perspective? What is causing prices to increase? What are the hidden costs procurement must think about, such as distribution or packaging, and how can total costs be managed?
‘‘The IT supply chain has been hit by a ‘perfect storm’ in the last 18 months – from the closure of factories that manufacture raw materials used in electronics, to shipping port congestion, sea freight disruption and the aftermath of Brexit.
‘‘The biggest issue affecting prices currently is soaring shipping costs. Costs have more than quadrupled in the last twelve months, with a shipping container that used to cost around $4,000 now anywhere between $20-25,000. This is down to profiteering by shipping lines and, while the situation is currently being investigated by the UK’s Competition and Markets Authority (CMA), my guess is that these prices will stay high until the first few months of next year, maybe later.
‘‘This is why it’s vital to have transparency over what’s happening in the supply chain. This helps buyers to push suppliers to provide evidence as to why costs are so high. I’ve spoken to dozens of buying departments in the last few months who have been under the impression that these are standard price rises in line with supply issues – when the reality is there are definitely instances of profiteering.
‘‘In terms of managing total spend, buyers should run a full assessment of what hidden costs may look like. For example – storage. The shift to hybrid working means there has been a huge demand for WFH technology and we have been advising businesses to buy more than they need and overprovision. However, not all businesses will need stock straight away and this may incur a storage fee. Also, consider soft costs such as the cost to the business should vital technology products be delayed. By running this type of assessment, buyers can get a more holistic view of where spend may need to be more closely managed.’’
What are the main challenges from a cash flow perspective? How can procurement strike a balance between ensuring they have the stock they need and avoiding having large amounts of cash tied up in inventory? Can working with a distributor help here?
‘‘Ensuring you have enough stock is definitely the priority and it’s important that buyers are forecasting much further ahead than they typically would. To strike the right balance, one approach would be to enter into a finance agreement that allows the business to get their hands on the right technology now and pay three months later, for example. Much like a payment holiday, it helps to provide a window of ease while ensuring you can still snap up stock.’’
How big an issue is reliability in the electronics sector, particularly as seen in the semi-conductor shortage? How can procurement overcome this, for instance, by ensuring they partner and develop effective relationships with a reliable supplier?
‘‘Chip manufacturers are investing $billions to help increase output capacity, but these shortages will not go away any time soon, with demand far outstripping supply. This is a high risk category and, to overcome this, procurement need to spread that risk across multiple approved suppliers for chips and components - on a global scale.
‘‘When looking at setting up new partnerships, it’s important that they are the right ones. What messages are they giving out? Do you feel confident that they are in tune with what’s happening in the supply chain? I’d be very wary of anyone who’s offering vague offers or promising that something ‘‘will probably come back in stock in the next couple of months.’’
From a CSR perspective, how big an issue is being able to demonstrate traceability of products (including date and lot codes in certain sectors)? How can businesses go about doing this?
‘‘To achieve increased transparency, businesses can ask suppliers to create an asset register of serial numbers that allows businesses to track products and trace their journey through the supply chain. Any reputable supplier should be able to do this fairly easily, and often at no additional cost. If they can’t, it may be worth reviewing whether they are the right supplier for you.
‘‘From a CSR perspective, it’s also hugely important to carry out due diligence across your supplier network. This can include a standard questionnaire that ensures compliance with social and environmental standards, such as the Modern Slavery Act and The Equality Act. In these challenging times, buying teams should also make time to question their first-tier suppliers about their ongoing strategy for managing the wider supply network.’’