A supply chain broken beyond 2023: marketing and opportunities

Global supply chain disruptions will probably not end in 2022; and this will have an impact on the availability of products. 

The current disruption is often attributed to a combination of chippageddon - the worldwide shortage of microprocessors - and Covid, but the reality is that the challenges in the supply chain are far deeper and pre-date both the pandemic and chippageddon.  

In Noah Feldman’s Deep Background Podcast, Hannah Kain, the CEO of supply chain management at Alom, details the major causes of supply chain disruption as:

1. A lack of infrastructure development consistent with population growth, increases in middle class size and online purchasing. Locally our challenge is not just that large new infrastructure (expanding ports, rail, or road) need to be built, but that parts of our existing infrastructure are collapsing.
2. Shifts in buyer behaviour: Covid changed our needs; spending on travel was redirected to spending on home and home office comforts. However, there is a deeper issue in buyer behaviour, and this is primarily motivated by the pace of the media. Continually shifting needs result in persistent supply-and-demand issues for retailers and huge complexity for the logistics and movement of products.
3. Consumer expectations: Consumers have come to expect a level of personalisation and customisation in products. This has meant retailers are required to carry not just stock of a single product, but multiple variations of that product. Forecasting which colour variation of a mobile phone consumers will want is difficult, which places significant pressure on retailers. The reality is that the supply chain crisis will reduce this complexity and result in lower product variation.
4. Trade wars and government regulation: Trade wars have increased the amount of regulation and risk in the supply chain, coupled with other regulations around the transport of goods. For instance, much needed environmental regulations have increased costs and pressure on the supply chain. 
5. Covid shifts in the job market: In more developed economies, the pandemic made people rethink their jobs. This has led to a resource crisis in Germany. In the US, more than 50 million employees have resigned from their employment in the past year. 
6. Chippageddon: The lack of the supply of microchips has serious consequences for the manufacture of technology devices, as well as in the automotive and mechanical industries. The crisis is expected to ease only towards the end of 2023 as more chip production facilities come online.

Each of these challenges presents its own unique curve ball. Some will require big investment (most likely in automation) and political will to address. The most reasonable conclusion is that there will need to be a compromise between consumer demand and production and supply realities. That compromise will most likely result in supply and production rationalisation of product or component options, leading to a reduction in consumer variety; the exit of certain products from the market due to the high cost of importing them; and the shortening of supply chains, by leaning into near sourcing.

From a marketing point of view, we need to be cognisant of the supply chain in our promises. Modern consumers are fuelled by instant gratification, and we need to be realistic about the fact that people will most likely choose the product that is immediately available vs the product with a nine-month lead time. Advertising agencies are already receiving complaints because of delivery times impeding marketing promises.

From a marketing and business opportunity viewpoint, there are two big opportunities. The first is to promote local alternatives to leverage the instant gratification or urgent need gap. Consumers are accustomed to variety. That expectation will not go away. Where a brand is reduced to a single product option because of supply chain issues, local businesses can step in to provide a greater variety of options in a similar product. Immediate need and instant gratification will make people settle for “like” as opposed to the actual thing if delivery times are unacceptable or the immediate need is great enough. Turn the crisis into an opportunity by framing scarcity as assisted simplification for a consumer service. This may seem like a cynical approach, but if logistics require a narrowing of options, this narrowing process could be done with the collaboration and research around actual consumer needs and input.

Second, become a part of the shortened supply chain by becoming a local near source option. Despite high local labour and production costs, in an environment of constrained supply chains, local suppliers are a lower-risk option. 

Antonio Petra is the group executive for Strategy & Insights at FCB & Hellocomputer Joburg Group.

The big take-out: Marketers need to be cognisant of the supply chain in their advertising promises.