ANZ businesses are facing a perfect storm of supply chain pressures, inflation and an imminent rate rise that is forcing them to weigh up how much they will have to raise their prices with customers.
Recent data from the Australian Bureau of Statistics found that 57 per cent of all businesses experienced increased business costs from January to April 2022.
This is particularly harmful on companies in highly competitive, consumer-facing sectors where the business can take the biggest hit to its margin may well come out on top. Indeed, the ABS reported that almost half (48 percent) of all companies have completely or partially passed on increased costs to customers, demonstrating how hard it has been to absorb increasing supply costs.
Consumers, for their part, are also now struggling for cash having gotten use to an increase in disposable income thanks to generous government support. Australia’s consumer price index, a barometer of goods prices, has reached a 20 year high, so no wonder then that the ‘cost of living’ has been a central theme of the election campaign so far.
Diversification can be local and international
Supply chain diversification is going to be a key factor in determining which businesses are better prepared to negotiate these tricky times. A more diverse supply base increases a business’ chance of fulfilling customer demands, doing so at a reasonable price, and protect its own margins.
In fact, in a recent interview, new IKEA Australia boss Mirja Viinanen said that even with a diverse base of 1600 manufacturers in 50 markets, the company was having to increase prices by nine percent for customers. She warned that retailers without such a diversity of manufacturing partners would struggle to keep products on shelves.
Companies are having to change their business models to adapt to these times. For example, Australian and New Zealand retailers are moving away from just-in-time delivery models and are instead ordering stock 8-12 months in advance. They are also developing their local supply chains by sourcing more goods locally and offering good suppliers preferential terms to secure stock ahead of competitors.
At the same time, with China’s lockdowns showing no sign of easing, procurement teams are having to find new supply partners abroad. Australia’s recent trade deal with India will mean the removal of tariffs on 96 per cent of Indian goods entering Australia, opening up a major new supply market for Australian businesses.
Keep track of your margins to stay ahead
Whether companies are looking to cultivate new international markets or to build relationships locally, onboarding more and more suppliers (while offloading others) is going to be a big job for procurement teams. Ensuring that end products are priced competitively for customers and margins are protected will depend on keeping track of a plethora of stock volumes, delivery dates and payment terms. Companies relying on manual processing for this will not be able to keep up and will be less competitive against competitors who can better use technology to do so.
It’s why procurement technologies, such as Automated Procure-to-Pay, Accounts Payable and E-Invoicing should be considered table stakes for any business that wants to reduce the risk that manual processes will end up in lost stock or compressed margins.
Technology also exists to automate the evaluation and onboarding process for new suppliers, enabling companies to focus on getting their customer strategies in place instead. Supplier qualification and selection tools should also be integrated into the central supplier directory. These processes increase the level of visibility a business has into the issues affecting individual suppliers, increasing transparency and making it easier to identify (and remedy) weaknesses before they cause an issue.
If there’s one lesson from the last two years of turbulence, it’s that diversification and flexibility are key to responding to unexpected challenges. Having a diverse and flexible supply chain will be key to navigating a year that is sure to feature increasing costs and compressed demand. Automating basic procurement processes can ensure that your team is best equipped to focus on fulfilling customer demands and ensuring your margins are protected.