What can wholesale distributors learn from the impact of coronavirus on the global supply chain, and what steps can be taken to mitigate the risk?
After decades of living in London, Los Angeles, New York, and Dallas, my wife and I decided to settle down in the Scottish countryside. The “middle of nowhere” is a happening place compared to where we live. On a busy day, we may see a couple of cars (one of which is normally lost tourists looking for where they film “Outlander”), a tractor, and an ATV with a border collie hanging off the back.
The nearest town – which is five miles away – contains a pub, petrol station, convenience store, and a post office that closes for lunch, half-days on Wednesday, and, really, any other time they feel like it.
The world doesn’t interfere here. And we like it that way. Until recently.
Paying more for less: Even rural hippies in Scotland are feeling the pain of inflation and supply chain issues
While in the checkout line at a convenience store holding a chocolate bar and a litre of oat milk, my mind started to wander. The chocolate bar wrapper seemed the same size, but felt like it contained mostly air.
My house is surrounded by fields of oats and barley, but I’m sure the price of my oat milk is about 25% more than I used to pay.
On my way to the store, I paid nearly £100 to fill up the car with petrol. I’ve had an electric vehicle on order for nearly a year, but all that I’ve received is a slew of emails stating that “Your delivery has been delayed” again and again. Of course, due to the increase in the cost of electricity, when my new EV arrives, it may cost almost as much to run as my old diesel car.
We use wood pellets to power the boiler in our remote home because they’re better for the environment and much cheaper than oil.
But our local pellet supplier recently informed us in a very informational email that, “A huge amount of pellets sold in the UK come from Russia, Ukraine, and Belarus. This kept the prices so low that many UK producers folded. Now that these imported pellets are not available, it has created a shortage of wood pellets in the UK and Europe.”
With demand spiking across Europe for my local supplier’s pellets, a tonne – which used to cost about £300 – will now cost over £600!
You may be thinking that an EV-driving, oat-milk-drinking, biomass-boiler-heating rural hippy doesn’t deserve any sympathy – and I’m not asking for any. I know I’m fortunate when considering the overall global economy and employment factors.
Cloud computing trends for 2023 show sovereign cloud solutions, FinOps, XaaS, AI, and cloud-native strategies are all on the rise.
Inflation and the supply chain is affecting people everywhere. Here’s why…
The thing is that my tiny part of the world is still affected by the rest of the world.
And the ripple-effect of inflation is that it impacts not just global corporations, but also small businesses, families, and individuals all over the world – from rural Scotland to urban New York City.
There are five key areas impacting inflation and supply chain issues:
- COVID caused (and is still causing) supply and demand issues
- Staffing issues
- When economies re-opened, demand rose and supply shortages increased
- Gas shortages/energy concerns
- Cost of living increases are driving demands for higher wages
1. COVID-19 pandemic caused supply-side and demand-side shutdowns
Businesses of all sizes were affected by the supply chain disruptions caused by the COVID-19 pandemic, even small ones like my local pellet provider.
According to the Office of National Statistics, 20% of businesses with 10 or more employees reported they’d experienced global supply chain disruption in June ’22.
This percentage has remained broadly stable since March 2022.
Supply chain challenges can make for a wild ride. Get advice, best practices, + predictions from top experts HERE.
Supply chain risk management must be a priority for the global supply chain industry, especially with the start of the US hurricane season, which forecasters say will be dangerous.
2. The Great Resignation happened (and is still happening)
That line at my grocery store I was waiting in? Normally, there’s never a line because there are enough people working to keep customers from getting backed up. But not anymore, thanks to the Great Resignation.
Accommodations, food service, construction and production industries continue to report the largest percentage of businesses experiencing worker shortages.
How can companies attract top talent through - and beyond - the Great Resignation and post-pandemic labor shortage?
3. As economies reopened, demand quickly rose, and supply shortages appeared
Since July 2021, job openings in the United States have reached an historic high, clocking in at over 10 million per month. Competition for employees is fierce, with nearly two job openings per unemployed American, resulting in significant labour shortages.
Insufficient labour (at manufacturing plants, warehouses, and transportation companies) combined with rising inflation have triggered a myriad of tangible effects on American daily life, including widespread delays in receiving products and services – just as I’ve experienced with wood pellets – and out-of-stock situations for items in stores and even online.
These trends have come fast and furious.
Before the pandemic, online shoppers encountered an out-of-stock item once every 200 pages. By early 2022, that number had jumped 235% to once every 59 pages.
Shipping speeds have taken a hit as well. Before the pandemic, Amazon Prime members were used to a one or two-day delivery standard. Now, with far fewer warehouse workers and delivery drivers, customers in some areas began reporting deliveries taking longer than usual – apparently because they were deemed “nonessential.”
Employee shortages have hit grocery stores particularly hard. To deal with employee shortages, Harris Teeter, a South Atlantic supermarket chain, has shortened operating hours at nearly all of its 250+ stores.
And customers at nearly all grocery stores are reporting frustration with more frequent, post-pandemic lockdowns. Increasingly empty shelves have come with sharply higher food prices across the board, affecting fresh produce, packaged foods, all types of proteins, and even coffee.
Higher prices are driving down basket sizes, and thus demand for everyday food categories such as meat and cereal, as well as higher-priced “luxury” items.
4. Gas shortages and energy concerns are widespread
Gas shortages and energy concerns run deep across the world, including the United States and Europe, and they’ve been exacerbated by the war in Ukraine.
And it’s not just impacting petrol prices.
Everyone is looking for low-cost ways to heat their homes through the winter, which is driving up demand for wood pellets and firewood – even in my area where sustainably managed forests are literally all around us.
The combination of massive inflation, uncertain economies, and supply and demand issues are making for a perfect storm of anxiety and fear as we face the winter months ahead.
As customers worry about paying their bills, utility companies must step up their customer service by making it efficient AND empathetic.
5. Inflation has driven up the cost of living, so people are demanding higher wages
As inflation has driven up the cost of living, people who want to work are demanding higher wages.
I suspect that one reason for the soaring price of wood pellets in my area is that there aren’t enough people to hire to do the work needed to scale up inventories and meet growing demand.
Potential hires know their value in the current market and are demanding more pay – as are current workers who want more money to stay. This story is playing out in my little neck of the woods – and on a grand scale globally, leading to higher labor costs that drive up product costs for customers.
"Hey Siri, find cheap food." Consumer spending is weakening as sky-high inflation forces shoppers to tighten their belts. How can brands keep customers?
Inflation and supply chain: Now what?
Of course, the central banks are struggling to balance supply side inflation with the risk of recession. And we’ll all have to see how that plays out.
But for businesses trying to manufacture goods: ship them in a timely manner, and sell them at prices customers with already-strained financial resources can afford.
The time is NOW to prepare your business for what’s ahead.