Waybridge has spent the last few months conducting a set of customer interviews, attending conferences, and digging in with many of our prospects on the issues that they see ahead when it comes to their procurement of key raw materials for 2023.
The results are in, and if you thought 2020 through 2022 were challenging for the commodity supply chain, 2023 may be the most difficult year of them all. The list of problems seems to get longer every day with inflation, a recession causing hiring freezes and job cuts, tightening of supply, and climate change all causing disruptions and new requirements to manage it all successfully.
All is not lost though, as through these conversations we also got to see what the smartest companies in raw materials are doing to protect themselves and set their 2023 up for success. Let’s dive in.
Inflation Raising Inventory Costs
The last 10 years have been a great run, with things maybe going too well in some cases. We are currently experiencing the highest rate of global inflation in 40 years according to the International Monetary Fund. Higher interest rates are leading to a rise in borrowing costs and a rise in logistics costs that make the cost of inventory skyrocket.
Management teams throughout raw material supply chains have already started mandating a reduction in inventory balances. This mandate is easier said than done, especially as supply lanes are redrawn and globalization reverses. Reducing your inventory balance puts you at risk of stock-outs, all while visibility is as challenging as ever.
The solution to managing lower inventory levels is to optimize your supplier base, by using technology to get transactional visibility, order management, and data analytics that allows you to forecast your real-time inventory levels moving forward. It’s an added bonus if the technology can handle consignment, which can be leveraged as another strong tool to have inventory available without having to finance or own more materials outright. By adopting the right technology, it can all but eliminate the impacts of inflation on a raw materials business.
Action: Optimize your inventory flow levels, and evaluate technology that can provide visibility and forecast inventory levels.
Recession Making Employee Retention and Hiring Even Harder
The raw materials industry has been suffering from a shortage of employees even prior to the global pandemic and the current recessionary environment that appeared in 2022. Low unemployment rates globally, an aging workforce, the great resignation movement of the early 2020s, and workers' desire for hybrid work environments, mean that attracting and retaining top talent has become more challenging than ever.
The smartest companies are evaluating their digital transformation strategies, if they even had one, and asking what manual work people are spending time on. In a recent study, the Institute for Business Value found that 60% of organizations accelerated their investments in digital technologies due to COVID-19, and more than half (55%) permanently course-corrected their organizational strategies in 2020.
Action: Evaluate your digital transformation strategy and perform an up-to-date analysis of what people are spending time on to determine what tasks can be automated or removed by technology.
Tightness Changing The Supply Landscape
Many factors including geopolitical conflict are causing the supply landscape to tighten. In many ways, we are seeing a reversal of the globalization that we’ve been seeing over the past decade as the need to have reliable supply sources closer to home becomes more important.
Leaders are taking the opportunity to evaluate and expand their supplier mix in the wake of all the changes. They are evaluating new suppliers and fostering new relationships as well as needing to maintain or even improve relationships with existing suppliers. In the case of new suppliers, companies are needing to increase their observation and scrutiny of the performance of the relationship. Using technology tools that provide insights to help build supplier scorecards, visibility into the impact of current events, and allow you to work with more suppliers by automating much of the work around adding new options. Additionally, technology can keep you connected and improve the relationship you have with existing suppliers as well.
Action: Evaluate and adopt a technology tool that makes it easy to build supplier scorecards, increases visibility, and makes it easier to expand your quantity and quality of suppliers.
Climate Change Impacts and New Reporting Requirements
Beyond dealing with weather events, governments, customers, and general corporate good citizenry are now requesting data on greenhouse gas emissions as well as plans to reduce those emissions and move towards carbon neutrality. B2B customers are also For example, the United States Government’s Security and Exchange Commission (SEC) has already proposed enhancing and standardizing all climate-related disclosures.
This is all new work that is difficult without embracing technology’s ability to track, optimize, and reduce your company’s Scope 1, Scope 2, and Scope 3 emissions overall.
Action: Since this can be a daunting challenge that will require years of work, start now with adopting technology that has the ability to start tracking carbon emissions since you can’t change what you aren’t measuring.
What’s clear overall in analyzing this list of issues for 2023, is that business as usual isn’t going to work. The best companies are taking immediate action to not only protect their existing business but also to make sure they are set up for growth. In our next piece of this series, we’ll go into more detail about how the leading companies out there are evaluating and selecting technology that will make them ready to shine in 2023.