Supply Chain Resiliency for brand owners in 2022

As we are all aware, the strong demand for self-adhesive and filmic materials across various sectors – in combination with substantial increase of energy cost as well as interruptions and bottlenecks in supply and global logistics – has led to increased pressure on availability and pricing in the labelling and packaging market. How does that affect you as a brand owner?

The ink industry is additionally still suffering from disruptions in supply due to several different force majeure situations – which caused the industry to go from price-based systems to daily spot prices influenced by actual demand and availability of products. Subsequently, this has unfortunately led to higher prices.

We are faced with unprecedented disruption in material supply combined with record-high inflation, with effects far beyond the control of label suppliers, such as Skanem Africa, and our suppliers.

In addition, the recent significant depreciation of the Kenya Shilling against the US Dollar is having a further adverse impact on landed costs. To further analyse the current situation, to better understand the eminent outcome, we should be aware of the key challenges within the topics Materials, Supply Chain and Impact on prices.

Key Challenges for Materials:

• Depreciation of KES against USD
• War in Ukraine with sharply increased oil and gas pricing
• Shortage of glassine liner (plants on strike and under maintenance)
• Strikes at Pulp & Paper Mills in Finland and Spain
• Extremely high demand for labelstock, inks and varnishes e.g. in China, Europe and USA causing reduced/delayed allocations from suppliers
• Contract pricing with suppliers not holding: most suppliers now giving spot pricing
• Sharply increased sea freight, air freight and road freight costs
• Shortages and sharp increases in resins and ink components, including Force Majeure by suppliers

Key Challenges for Supply Chain:

• Lack of availability and allocations of raw materials
• Volume growth in seafreight and airfreight (30 – 40%)
• Imbalance in trade (containers in China and USA)
• Covid Impact and lack of people, especially drivers in Europe

Impact on Prices:

• Increased prices on all label materials, ink and varnishes, freight and packaging materials.
• KES depreciation against USD.
• The consequence is higher pricing anywhere from 30-100% since January 2021.

Actions that can be taken to mitigate risk and cost during this period of supply chain volatility

To mitigate risk and cost, and further ensure contingency and quality, there are several actions the industry can take – both you as a brand owner, and us as a label supplier.

Actions that you as brand owners can take:

1. Share forecasts with labels and packaging suppliers
2. Factor in spikes based on unusual buying patterns from consumers
3. Review stockholding levels regularly
4. Approve or qualify alternative materials

Actions that we as a label supplier have taken:

1. Huge focus on internal efficiencies and digital transformation to reduce impact of price increases for customers.
2. Assurance of quality through investment in Defect Detection Systems.
3. Stability and reliability of supplies through the ability to get allocation of material and availability
4. Financial strength to allocate working capital
5. Built stock. Secured supplies from global, diverse supplier base.
6. Evaluated alternative materials.
7. Close contact with customers on Planning – forward looking.
8. Close collaboration with suppliers and follow up to ensure deliveries.

Read more: How psychology and sensory marketing will help you sell more products

Outlook for the labelling and packaging industry for 2022

At the moment, unfortunately, all signs are pointing to continued volatility, shortages of materials and pricing trending upwards for the remainder of 2022.

We at Skanem Africa know that this situation may create challenges for business in our industry and our customers, and as always, we want to reassure you that we are doing our utmost to minimize the impact of the challenges in the market through close cooperation with our suppliers, by absorbing as much as possible and through specific analysis of our customers’ portfolios.

We have so far managed to secure the supply of labels throughout the material shortage period, and we are confident that we will continue to do so.  Even though some might experience longer lead times due to reduced availability of raw materials in the market, our top priority remains supply availability and allocation of materials in 2022.