Widdison warns on the logic of today’s global logistics
By Leon Gettler, Talking Business >>
THE GLOBAL supply chain has been caught up in a ‘perfect storm’ according to New Laboratories managing director Rohan Widdison.
The turbulence ranges from the war in Ukraine to the energy crisis hitting manufacturers in Europe and to Indonesia stopping the export of palm oil which slowed down the supply of glycerine.
New Laboratories supplies the cosmetics manufacturing industry for skin care, body care and tanning products.
“You might have 20 raw materials that go to one manufacturer to create that material and when all these things stop happening, then those suppliers run down their supplies, then price starts moving up, they try to catch up with demand – and they can’t catch up with demand so it becomes a supply-demand situation,” Mr Widdison told Talking Business.
“So you might have bamboo material that comes out of Thailand that goes to France to be processed. Well, when you don’t have a demand for Thailand, then suddenly those materials stop getting made.
“It’s a perfect storm situation because right now we’re seeing shortages happening and prices going up because of situations like that very unfortunate war in Ukraine. A lot of oils come out of there, particularly sunflower oil. And so we suddenly saw sunflower oil take a 200-300 percent increase overnight,” he said.
“At the same time, you see the issue of energy going into Europe, particularly for German manufacturers, and that has a kick-on effect for manufacturers in Germany, so suddenly you get short supply and cost increases
“Then you compound that with Indonesia reducing the export of palm oil. That pushes up the price of basic materials so suddenly glycerine goes up 300-400 percent in a matter of months.”
Manufacturing lead times ‘blown out’
As a result, Mr Widdison said, the lead time to manufacture products “has blown out”.
“What that means for the consumer is that you go to a store and you see an increase in something that used to be $29 and it’s now $32,” he said. “That’s the reality of it. The cost unfortunately kicks on down the line because manufacturers pass on the cost to the brand and the brand passes on the cost to retailers and consumers.”
There is also the issue of shipping costs, which rose massively during COVID.
New Laboratories is telling its brand partners that this will continue until 2025. Which means it’s a “rocky road ahead”.
Inflation ‘built in’ to 2025
The other issue too, Mr Widdison said, was that whenever there had been a shortage of raw materials, and subsequent price increases, they never go back to their old prices.
This is the inflationary aspect to supply shortages, he said.
This also means accepting there will be a longer lead time in the manufacture of certain products.
“That’s a common discussion, almost daily discussion, we have with our clients,” Mr Widdison said.
“Don’t think about having your products made within 60 days. Think of them being made four to six months down the track, subject to availability of raw materials.”
Added to this is the problem that inflation will still be around for the next two years, he warned.
Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.