2021 was the year when supply chain disruption went beyond impacting businesses to impacting the average Australian.
There was a time, not long ago, when most people were blissfully naïve about supply chains. To “zoom” simply meant to go faster and you could pop into your local game shop and just grab the latest Xbox off the shelf. Few people thought about container ships or what a procurement team really did. Now, much like the toilet rolls that went missing from supermarket aisles, semiconductors are hard to come by.
One thing has come to light during this time. Procurement’s positioning has changed from a “back-office basement” function, to one that provides real insight, visibility, and perspective at boardroom level. They’ve been informing decisions that benefit the resilience and profitability of the business as a whole. Despite, or rather because of supply chain disruption, this trend will continue.
Companies that take that a step further with a focus on business spend management (BSM) with the intent to capitalise on the power of spend, will be able to leverage their spend decisions to contribute value to the purpose, performance, and profitability of the business.
Where Have All the Shipping Containers Gone?
Turns out the pandemic has exposed an already stretched and shaky system of supply and shipping. There was a pre-existing condition of disruption affecting the logistical infrastructure system, as supply chains running on outdated technology were being hit by geo-political challenges and changing weather patterns.
The need for supply chain diversification predates Covid-19 but most companies were, and still are, investing in the “just-in-time” model of supply. The reliable practices of warehousing and stock management were already challenged by a wave of globalisation and have been all but washed away by the pandemic.
During lockdown, ports like Sydney’s Botany Bay, became storage centres for empty shipping containers. Routes were cancelled for over a year, and no one was picking up empty boxes and returning them to the manufacturing centres. The world getting back to work and play (and doing their holiday shopping) has created a sudden demand for products and raw materials which was met with manufacturing bottlenecks.
Cut to December 2021 and we are experiencing a doubling in the price of a 40-foot container. Yet, Australian businesses that rely upon replenishing their inventories are resorting to booking out entire containers.
Air freight prices have also spiked because of this surge in demand. Yet, construction companies and office supply vendors have resorted to flying in nails and staples. Since we’re quickly touching on the construction side of things, the cost of raw materials in the building sector has increased as a symptomatic issue of global demand for base materials such as timber, whilst the financial papers are anticipating additional impacts from inflation.
The issues with shipping were dramatically spotlighted back in March when a container ship blocked the Suez Canal, and we are still seeing the ripple effects.
The shortage of containers and the fight for raw materials means organisations need to maintain efficiency and shore up digital capabilities to compete.
Global Semiconductor Shortage
There are only a handful of computer chip suppliers in the world, and none are in Australia. So what? Well, most of the things we use today contain computer chips. Even LED lights are semiconductors. Even if the containers were available to ship them here in a timely manner, there aren’t enough to go around.
If you’ve tried to buy a new car lately, anywhere in the world, you’ve probably been told that delivery will take at least 6 months. Cars contain over 300 semiconductors and manufacturers are factoring in the wait for chips as well as the time it’ll take for the car to float to your local lot.
The “all-eggs-in-one-basket” approach is to blame, which has been illuminated by the Covid crisis. Car makers thought there would be a dramatic downturn in automobile purchases (there wasn’t) so they cancelled semiconductor orders. Since most things have a chip these days, the chip makers pivoted to manufacturing other products that consumers were buying, such as phones, laptops and wine fridges.
Chip factories are running flat out and are simply at capacity. It takes well over a year and billions of dollars to build a new factory. Guess what? It also requires raw building materials which have to arrive in shipping containers. Much like the toilet paper fiasco, some companies are hoarding chips, further snowballing the semiconductor supply chain mess.
Enabling the Power of Spend
While we wait for new semiconductor plants and shipping containers to be built, companies are doing what they can to solve supply chain issues at their end by looking at the “back office”.
Pandemic lockdowns were stressful and disruptive, but most companies managed to keep operations running. Time and time again we saw the wonderful collaboration between software innovation and people power to “make it work” during the pandemic.
Procurement teams, supply chain managers and finance staff played increasingly valuable roles.
They had to source PPE, they had to rapidly find or adapt to digital solutions, they had their entire workflows disrupted and yet still had to make purchases, find, and onboard suppliers, make sure supplies got through and make sure people got paid. And they had to do it while teaching their kids algebra during lockdowns.
While digital workarounds were rapidly put in place during the first wave of the pandemic, employees, customers, stakeholders, leadership now have upgraded expectations around speed, efficiency and digital capabilities. They expect to be able to work effectively from wherever and expect software to enable and add value to their jobs.
The longer-term digital solutions companies put in place to support these critical functions will need to satisfy three critical requirements.
3 Ways to Unlock the Power of Spend
- Help your team work smarter with better data, visibility and the ability to make decisions quickly while mitigating risk, to navigate today’s dynamic environment.
- Help your team collaborate better by breaking down silos across departments, functions and processes that contribute to business spend eg. procurement, finance, payroll, accounts payable etc.
- Help your team engage in the wider procurement and supply chain community to draw on data-driven insights, best practices and ratings platforms where suppliers register to share their environmental, social and ethical performance.
We may still have to wait a little longer for our computer chips but have been enjoying the advances in digital capabilities. As we step into recovery, procurement decisions become more crucial than ever. Whether you need to procure Christmas presents via Amazon or your company’s supplies via your Coupa procurement platform, software technology is core. Unlike a shipping container, it is agile. Like your supply chain should be, it is continuously designed.
The back office has become the battleground for business continuity and growth. Without investing in agile digital systems (such as real-time business spend management) businesses will not be able to compete. It’s a reality, not a nice to have.