Supply chain challenges: Massive opportunities

By Antonio Petra, Group Executive for Strategy & Insights at FCB & Hellocomputer Joburg Group

The supply chain disruption we are currently experiencing that is both restricting access and increasing the lead time of products will probably not end in 2023. In fact, it will take many years for the situation to normalise. Normalisation does not mean that we’ll once again return to pre-COVID-19 heydays, but a compromise between consumer and supplier. This will impact every single retail category, from the 10 colours of mobile phone options you have, to the wide variety of imported tomatoes stocked at your local shopping market.

The current disruption is often attributed to a combination of Chippageddon and COVID-19, but the reality is that the current challenges in the supply chain are far deeper and pre-date COVID-19 or Chippageddon.  

In Noah Feldman’s Deep Background Podcast CEO of supply chain management at Alom, a strategic supply chain partner operating across 19 global locations for the past 25 years, detailed the major causes of supply chain disruption as:

A lack of infrastructure development consistent with population growth, increases in middle class size, and online purchasing. Locally our challenge is not just building large new infrastructure (expanding ports, rail, or road), but that parts of our existing infrastructure are collapsing.

Shifts in buyer behaviour: COVID-19 changed our needs; spending on travel was redirected into spend in home/home office comforts. However, there is a deeper issue in buyer behaviour, and this is primarily motivated by the pace of media. Our trends in the goods we purchase have far shorter attention spans, we shift our needs continually and this causes continual supply and demand issues for retailers and massive complexity for the logistics in the movement of products.

Consumer expectations: Consumers have come to expect a level of personalisation and customisation in products. This has meant retailers are required to carry not just stock of a single product, but multiple variations of that product. Forecasting which colour variation of a mobile phone consumers will want is difficult, which places significant pressure on retailers. The reality is that the supply chain crisis will reduce this complexity, and result in lower product variation.

Trade wars and government regulation: Trade wars have increased the amount of regulation and risk in the supply chain, coupled with other regulations around the transport of goods, for instance much needed environmental regulations have increased the cost and pressure on the supply chain. 

COVID-19 shifts in the job market: Certainly, in the first world, COVID-19 made people rethink their jobs. In Canada and Germany it is well documented that many blue-collar workers decided not to return to their original jobs, leading to a resource crisis in Germany. In the US, an excess of 50 million employees have resigned from their employment in the past year. 

Chippageddon: The lack of supply in microchips is serious and is the cause of major disruptions not just for technology devices, but this extends to other industries such as the automotive, mechanical and other non-technical instruments. However, this crisis is expected to ease towards the end of 2023 as more chip production facilities come online.

Each of these challenges present a hard curve ball to tackle, with some having irreversible consequences. When you look at them in combination, it’s obvious that there will be no short term solution. They will require big investment (most likely in automation) and political will, both in short supply locally, and the most reasonable conclusion that one can make is that some compromise will need to be found between consumer demand and production/supplier realities. That compromise will most likely result in:

  1. Supplier and production rationalisation of product or component options leading to a reduction in consumer variety.
  2. Exit of products from market due to high cost of importing.
  3. The shortening of supply chains, by leaning into near sourcing.

Given these massive challenges, and their projected timelines, what are the watchouts and opportunities for marketing and business?

From a marketing point of view, we need to be cognoscente of the supply chain in our promises. Modern consumers are fueled by instant gratification, and we need to be realistic about the fact that people would most likely choose the product that is available vs the product with a nine-month lead time. Advertising agencies are already receiving ASA complaints because of delivery times impeding marketing promises.

From a marketing and business opportunity viewpoint, there are two big opportunities:

  • Promote local alternatives leveraging the instant gratification or urgent need gap:
    There are many ways businesses can step in:
    • People have been trained to desire variety and customisation, that expectation will not go away. Where a brand is reduced to a single product option because of supply chain issues, local businesses can step in to provide a greater variety of options in a similar product. 
    • Immediate need and instant gratification will make people settle for “like” as opposed to the actual thing if delivery times are unacceptable or the immediate need is great enough.
    • Turn the crisis into an opportunity by framing scarcity as assisted simplification for a consumer service. This may seem like a cynical approach, but actually if logistics require a narrowing of options, this narrowing process could be done with the collaboration and research around actual consumer needs and input.
  • Become a part of the shortened supply chain by becoming a local near source option:

Over the years as globalisation has introduced not just cheaper products, but component parts into our market we have seen local suppliers in many industries closed because they could not compete because of our local labour and production costs (The causes are more multifaceted and are captured in the report referenced). The reality is now that even though we cannot reduce our labour costs or labour disruption, local suppliers become a lower risk option to the extended delivery times of international suppliers. 

Antonio Petra is the Group Executive for Data & Insights for FCB Joburg and Hellocomputer. A digital and marketing environment veteran of over 20 years, he is a specialist in strategy, marketing, analytics and measurement, recognised as an industry expert both locally and internationally in this field.

 

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References:

  1. “The Supply Chain Crisis Isn’t Going Away” Deep Background with Noah Feldman; 15/12/2021
  2. A simple overview of Chipageddon: “The Supply Chain Crisis Isn’t Going Away” Julian Kamasa, 09/02/2022; Center for Strategic & International Studies
  3. “ The Unseen Sector: A report on the MSME Opportunity in South Africa” International Finance Corporation, World Bank Group; November 2018; Focus on Chapter 2) Pain Points: Barriers to MSME Growth
  4. “Supply chain resilience in the face of geopolitical risks: Preparing for the tumult ahead” Michael Wolf, Ira Kalish; 03/12/2021; Deloitte Insight

Written by Editor

14/07/2022

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Written by Editor

14/07/2022

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