Now that we are well into 2023, supply chain conditions have improved significantly compared to the last few years. Although the current state is stable in practically all industries, there are certain financial constraints that you, as a brand owner, should be aware of.
We all felt the consequences of the disruptions in the supply chain due to record-high inflation, followed by high prices and scarcity of goods and materials. Looking at the current situation, the good news is that things have turned around, and all areas of the supply chain are back to normal. However, the less good news is that there are still ongoing financial challenges locally, which can affect brand owners.
Let’s look at the supply chain developments so far in 2023 and what it means for your business.
Improved conditions across the supply chain
During the harsh supply chain conditions, everyone seemed to up their game and manoeuvre the challenges that occurred to the best of their ability. With the normalization of the supply chain to pre-pandemic conditions, nearly all areas have improved significantly:
- Reduced shipping costs
- Improved manufacturing lead times from suppliers
- Improved logistics
- Greater availability of raw materials and supplies
- Slight reduction in raw material prices
The regained stability in the supply chain and better access to materials has led to less volatile planning models and better predictability. This has also improved communication and collaboration between label suppliers and brand owners.
As for now, vendors across all industries are not sighting any significant challenges in the supply chain. There are also no major indicators that, for instance, the price of oil will increase any time soon. Although we cannot truly foresee another global adverse event, there are no predictable risky situations on the horizon that might severely disrupt the supply chain.
Read more: Outlook for supply chain in 2023
Financial and legislative constraints prevent cost reductions
Although the stabilization of the supply chain has led to a slight price reduction within some price categories, the financial impact of inputs has been more than mitigated by the sharp depreciation of the Kenyan shilling against the US dollar and the Euro.
This means that if the Kenya Shilling loses value, suppliers can no longer reduce costs and prices. In other words, the currency movement offsets the slight price reduction.
High power and labour costs also prevent further cost reduction in Kenya because they lead to a higher cost base, which will eventually get passed on in the form of a price increase for brand owners.
Moreover, if the 2023 Finance Bill is passed as an act in its current form, the cost of doing business will increase and impact the market. The proposed Finance Bill also includes many provisions for various costs which will affect employers.
Read more: A guide for choosing cost-efficient and sustainable label materials
Taking action to secure normal operations
Adverse events such as the pandemic and war in Europe are global phenomena. They are out of our control and our suppliers’ control. To ensure none of our customers went into an out-of-stock situation, Skanem Africa was able to provide some stability by holding on to higher stock levels.
The conditions in the supply chain have now improved on multiple levels, normalizing many of the key areas within the labelling and packaging industry. However, cost remains an issue and overturns much of the positive progress, leaving brand owners and suppliers no option but to consider price increases.
Skanem Africa will continue to follow up on any shifts or challenges that may occur in the supply chain and do our best to provide stability for our customers.
