How to drive results during a global manufacturing shortage
From a manufacturing perspective, the IT industry is in crisis. The demand for high-tech components is outnumbering supply capacity and the global chip shortage is affecting every industry from car makers down to appliance production. While the tech industry is trying to mitigate the shortage, experts predict that the global supply chain won’t normal until 2023.
“It’s got to do a lot with component shortages - raw materials are in short supply because logistic supply chains are not working as they should be and this is mainly due to the pandemic,” explains Johannes Groenewald, General Manager: Demand Factory at Tarsus Distribution. From factories closing down during lockdown to workers contracting the Covid-19 virus and staff being put into extended periods of isolation, the pandemic was the catalyst for outages that IT industry is now experiencing at a global scale.
“There has been an exponential spike in the demand for components. Staff working remotely need laptops and screens. Students require devices for distance learning. Even the medical industry turned to screens instead of paper forms that needed to be filled in,” says Groenewald. With so many sectors and organisations investing heavily in devices, factories simply ran out of supply of raw materials. This caused a ripple effect and a subsequent wave of shortages which meant OEM manufacturers had to prioritise to meet demand as different sectors battled for logistics capacity allocation.
“Entry level devices where the margin is smaller ended up at the bottom of the priority list for manufacturing which created further decline in supply shortages in the developing markets,” says Groenewald. “OEMs were focussed on markets like the US, China and Europe where the demand for pro devices is much higher and therefore more profitable.”
Without available flights, the manufacturing industry also had to rely on water for shipments which created further delays. The pandemic exposed a weak link in the global supply chain and now that the market is open up again for trade, the IT industry is still facing a backlog in logistics. “It is not business as usual. We’re standing in line with developed markets where there is a shortage. It’s not about bad vendor relationships or poor planning, this is a worldwide phenomenon,” says Groenewald.
Where supply and demand was once dictated by budgets or market events, there are now serious supply constraints to consider. Groenewald suggests that channel partners should take the risk of holding stock in order to supply customers when the need arrives. “They have a responsibility to look at when the stock is in the warehouse. The reseller has a responsibility to plan ahead and to align with the distributor to make sure that when that stock becomes available, they’ve placed the order,” explains Groenewald. “Gone are the days where you give an order to five different distributors and wait to see who can give you the best price. The opportunity cost of not taking stock is that you might not be able to supply your customer three months from now.”
Resellers also need to work closely with channel partners to ensure that when they have stock, they can help fulfil customer needs. “If you're a small IT company - as an example - and your livelihood is your relationship with a supply of schools in your town and you think come beginning of January you're going to send an order to any of the distributors and get a delivery three days later… the likelihood of that happening is almost zero,” warns Groenewald.
According to Groenewald, the reseller that will thrive will not only have to update their business processes but also their relationship with channel distributors in order to meet demand. And for many, survival over the next year and a half will come down to a company’s ability to transform their business model from being a pure supplier to becoming a value-added reseller.
“At the bottom end of the customer chain, it’s the market which is suffering the most. If an OEM has to choose between an entry-level touchscreen phone or one of the top-end models, which one are they going to manufacturer?” asks Groenewald. “People with a low disposable income will not be able to afford technology because of the shortage of supply of these entry-level devices.”
Groenewald’s advice to forward-thinking resellers is to plan their demand and supply smartly and, where possible, upscale: “Rather up your demand. Instead of buying ten devices, buy seven so you’ll have stock on-hand to supply your customers,” he says. “Transform your business and see how you can become a trusted adviser by having those critical conversations. By taking cognisance of the fact that that there are indeed supply shortages, you’ll help your customer base through these difficult times.”