If you’re a supply chain leader, your job is harder than ever before, especially given the geopolitical shifts over the past few years. While no one could predict a global pandemic, the war in Ukraine, or changes in U.S. policies, many of our supply chain clients are frustrated that they were caught by surprise numerous times. It’s totally understandable. These are huge changes, and the business impacts are significant. McKinsey & Company estimates that for most companies, “a single prolonged shock to production could wipe out 30 to 50 percent of one year’s earnings.”

Our clients come to us with a long list of supply chain issues, but it’s the availability of supply and price increases that literally keep them up at night. Whether you’re a small business, a mid-market company, or an enterprise, you’re probably similarly overwhelmed. In this post, our supply chain advisors share specific steps that you can take this quarter, this month, or even this week to help your company navigate your current supply chain issues and stay one step ahead in the future.

Top Supply Chain Issue #1: Availability of Supply

The current state of supply feels like a vicious circle. Backlogs with international shipping providers. Global labor shortages. Bottlenecks at critical US ports. Political unrest. Every week there’s a new challenge. Due to these, and a myriad of other factors, you literally can’t get certain products. Or, if you can, you’re probably experiencing an unreal delay on products that your customers expect to purchase from you this month, or even the products that they already ordered months ago. One of our colleagues in electronics manufacturing responded to our poll on LinkedIn and mentioned she was experiencing an 80-week lead time for some products!

In the spring of 2022, many suggested that the supply chain situation was improving. However, economists at the Federal Reserve Bank of New York recently noted that global supply chain pressures actually worsened in April 2022 and this was, “predominantly driven by the Chinese delivery times component, the increase in airfreight costs from the United States to Asia and the euro area delivery times component.”

According to a Wall Street Journal article, even retail giant Target is projecting a drop in profit due to shipping delays and inventory issues. Target’s inventory rose 43% in April, 2022 because consumer demand for small appliances, furniture, and electronics, which increased with the pandemic and United States stimulus payments, declined faster than they anticipated. On top of that, the retailer received their inventory far outside of their ideal selling window.

There are steps you can take to predict these supply chain scenarios in the future. Here are a few simple things that our supply chain advisors suggest that you can do now, whether you’re a small business, mid-market company, or enterprise. Hint: it all comes down to trend analysis.

For Small and Mid-Market Businesses:

Research Trends

To start, set aside 1-2 hours to research supply chain trends once a month. Scan economic and political publications like The New York Times, The Economist, The Wall Street Journal, Bloomberg, Politico, The Washington Post, National Public Radio (NPR), or others for articles that give you insights into current or future geopolitical trends. Conduct a quick Google search for “material shortage trends”, “material shortage watchouts”, “supply chain issues”, “supply chain trends”, or related keywords. You can also enter these same phrases in the search bar of your preferred publications to uncover insights that might not appear through a search engine. Read as many relevant articles as you can, including the comments at the bottom from readers.

Take Action Now

At the end of the 1-2 hours, document what you learn. Then quiz yourself. What market shifts or trends did you identify? What surprised you? Ask yourself, “What steps can I take today or this week to get ahead of what may be coming? Who can help me take action?”

For example, maybe you know that you and your contemporaries source materials from a specific country and you learn that that country, neighboring countries, or the region may soon be in political turmoil. You and your colleagues could start to research and contact suppliers in other parts of the world instead.

Consider Monitoring Trends Weekly

Now, if you’re on the very front line of your supply chain operations, you may need to monitor trends weekly. Or if your company is in growth mode, you may want to establish an Integrated Business Plan (IBP) process or upgrade your existing one. If you have the budget for additional headcount, recruit analyst talent to help you conduct comprehensive trend research, analysis, and forecasting.

For Enterprises:

Leverage Your Integrated Business Plan Process

If you’re part of a sophisticated organization, you probably have an existing IBP process and monitoring geopolitical trends is likely part of the process. Think critically about the way things are working in your organization now. Is there information that you need to make decisions that you aren’t getting today? Who can help you fix that?

Engage Your Sourcing Managers

Most likely it’s your Sourcing Managers. These colleagues are invaluable. Do your Sourcing Managers provide actionable input during your monthly review meetings? If not, how can you help them so they can help you? Ask them to report their biggest concerns to you as soon as they surface. Create a very open-door policy.

Understand Your Risks

At the same time, layer risk management on top of your traditional planning processes. If you have Corporate Enterprise Risk Managers, make sure they dig really deep on risk profiles, market trends, your competition, or economic and geopolitical risks. Again, make sure they deliver the depth of information that you and your colleagues need.

Conduct Periodic Research

Even if you think these internal engines in your company run like a well-oiled machine, you may want to conduct your own research on a regular basis as our supply chain advisors described above. If you uncover critical insights that your internal teams missed, your processes might need to change.

Whether insights and trends are uncovered by you or by your colleagues, you need to be able to act on them in real time. If your executives or co-workers are slow to move or indecisive, work to change that, either independently or with the external help of a consulting firm. If the last few years taught us anything, it’s that significant geopolitical changes can happen fast, and the business ramifications can be large and very long-term. Pivoting quickly is essential.

Monitoring geopolitical trends might feel like a huge thing to add to your already long “to do” list. We can tell you from experience that identifying, analyzing, and reacting to these global trends is absolutely fundamental to improving your company’s supply chain operations and the overall health of your business. Trust us — the effort will be worth the reward.

Top Supply Chain Issue #2: Price increases

As a supply chain professional, you know that inflation isn’t the only thing that’s driving up prices these days. Constant shortages, shipping delays, and operations bottlenecks take up valuable time and human resources which cost money.

You might feel pressured by your suppliers to implement a price increase. When there’s a legitimate reason to believe that a certain issue will be temporary, you can resist a price increase, which is a fundamental change in your cost structure, and instead negotiate to implement a surcharge for a set period of time instead. This will help you manage your costs and may be better received by your customers than if you moved forward with a straight-up price increase.

Similarly, when your base costs of materials go up, you should pass on that cost to your customers. Figure out if that increase in your cost of materials is due to a temporary condition or a permanent shift. In either the temporary or permanent situation, you could share a price increase, which is good for you but perhaps poor for your customer (as it increases their cost base). If you are confident that your cost shift is temporary, then you could proactively offer a surcharge.

For example, if your material cost of goods sold has increased x%, you could add a surcharge of x% to your products or services. Institute this for the time you think it will take for your current issues to resolve. This may be one month, three months, or longer. Of course, use data to inform your decision as much as possible.

Here are several examples of companies that implemented surcharges in 2021 and 2022:

Harley Davidson

Motorcycle manufacturer Harley Davidson added a 2% pricing surcharge in July, 2021as to offset increased costs in the aluminum and steel markets. While they expected this increase to only extend through 2021, they added the surcharge to 2022 models in the U.S. as well.

Ecolabs

In the spring of 2022, Ecolabs, a global leader in water, hygiene, and infection prevention solutions and services, announced a temporary global energy surcharge to, “mitigate the dramatic rise in oil and gas costs and its impact on raw material and logistics inflation.”

Fuel Surcharge Examples

Several transportation companies including Lyft, Uber, and Instacart added fuel surcharges to their services in March, 2022. Amazon added a 5% fuel and inflation surcharge in April, 2022 which impacts sellers who use their packaging and delivery service.

Communication Matters

If you add a surcharge, tell your customers and prospects about this change in advance and keep them updated over the weeks and months that follow. If your customers are consumers, alert them to the surcharge through your website, via email, or even on phone tree messages. If you sell to businesses including resellers or distributors, use these same communications channels, but also schedule virtual meetings or phone calls to deliver this news to key contacts in person. This is especially important if your average deal size is tens of thousands of dollars or higher, since a surcharge that may seem small to you can equal big dollars for them. When you start to draft your communications, be transparent, authentic, and share the specific reasons behind these increases.

Also let customers know what they can do to help you! For example, suggest that they place orders ahead of time to help you manage your supply and demand. In April, 2021, the Senior Vice President and Supply Chain Officer of Rockwell Automation did exactly that, including a “How we can work together” section at the bottom of an update about their global supply chain challenges. Pointers like these can be added to your company’s website or included in emails to customers.

If you implement a surcharge, remind customers that you don’t expect the price increase to be permanent. As conditions improve or as variables in your supply chain shift, keep them updated. This will build trust, and that increases customer loyalty.

Is YOUR Biggest Headache on This List?

Based on our surveys, the two supply chain challenges we addressed in this blog post were the ones you want to solve the most. Our supply chain advisors also know from on-going conversations with clients that there are certainly additional challenges, and we want you to know that your biggest obstacle likely has an answer too. Longer lead times, sourcing your products with new suppliers, turning a customer forecast into an inventory plan, what should your network of plants and warehouses look like to best serve your customers, or how to ship on time from your distribution center are all popular challenges we’re helping leaders tackle for their companies.

Contact Our Supply Chain Advisors

If you’re feeling overwhelmed or wish to speak with an expert about your supply chain challenges, please contact our team of supply chain advisors. We are here to help your business succeed and look forward to speaking with you.