Strongest links in supply chains now trust and security
Supply security will be the new strategic imperative, perhaps even the new competitive advantage.
Before Covid-19 and before Russia’s invasion of Ukraine, the emphasis was on the cheapest and most efficient sources of inputs to manufacture — including labour — across the world. There were no trade boundary definitions that couldn’t be overruled in the name of lowest cost of production.
No matter the governance, or even morality, of suppliers, it seemed that the cheapest combination prevailed.
Market share at any price, as long as it was the lowest price. Who cared where it came from, or what their agenda was; that could be buried in the small print.
That worked until it didn’t. It wasn’t all good, this international free flow of trade. When the only issue is price no matter what, tried and trusted supply agreements get pushed aside and with them good relationships. Crossborder dumping becomes commonplace and import tariffs have little effect.
Compound this with limitations on the movement of goods, such as we have experienced with Covid-19 restrictions (with each government making and changing its own rules, often with agendas beyond scientific foundation) and once again “local is lekker” comes into play.
Customer loyalty, once deserted in the name of a better deal, is brought back through longer-term offtake and supply agreements.
This presents a huge opportunity for major local established manufacturers, and it is also a major opportunity for governments to provide incentives for local production and manufacture at all levels.
Let’s hope our government steps up to the plate, because our international competitors surely will.
The most urgent, and primal, need to address will be food security. Again, the RussiaUkraine conflict takes centre stage, already having a major effect on food supply directly and on the cost of both food output and inputs. Russia is a major’producer doesn t look to finish of phosphates, soon), a principal input for fertiliser.
This all just gets worse as the conflict continues (and it sanctions expand and lengthen, and developed countries buy up both current and future production, making access to foodstuffs unaffordable to emerging markets. Hungry people fight.
It won’t just be primary supplies though. All along the supply chain new contracts and alliances will need to be drawn up. Predictability will be the new pricing metric, replacing and yet determining price.
Despite the rising interest rate cycle we’re now entering (driven by a rather blunt instrument to fight inflation, arguably caused by the quantitative easing strategies imposed by the same wise old men who are now the hawks), the cost of long-term project finance goes down with increasing predictability, the longevity of the investment horizon and the scarcity of supply.
In the short term, though, stock management and funding become critical. Usually one of the biggest balance sheet line items, inventory isn’t given the priority it deserves neither as a strategic asset nor as a funding priority, nor a source of competitive advantage. It’ sa dull, boring asset, right?
In my experience, banks finance stock based on ratios, which in turn are driven by the total blob of stock with scant regard for its makeup. We’ll see a move away from that and towards intelligent and “fit” stock with aligned, outcomedriven financing structures. I’m betting on it.
I think the world gets more complicated, and government intervention more pervasive, going forward a dangerous mixture of nationalism, protectionism and power struggles.
Like in most challenging environments, looking after yourself first becomes an imperative, and the priority. Sadly, in SA we’ve already had to become used to that, for services ranging from education to health care, security and, soon enough, electricity. Perhaps even water.
Plan for a more complicated, controlled trade playing field, internationally and locally, keep your cards close to your chest, make good friends and look after them, even when the storm passes.