July 24, 2024

The world’s supply problems stretch far beyond current headlines

In this timely article, Justin Floyd, CEO and co-founder of open commerce platform RedCloud, outlines how the global supply chain issues will have deep ramifications for consumers that will be here for the long term.

People must get used to higher prices. So says food manufacturing giant Kraft Heinz, in response to the news that global food prices have reached a ten-year high.

Supply has been struggling to keep up with demand for some time, while a series of supply chain crises have dominated the international news agenda all year, with each new incident stoking fears of further price inflation and shelf shortages.

But here’s the thing. There will always be headlines. World events are not going to stop happening. External pressures like shipping delays, bad weather and fractious geopolitics are not going to miraculously disappear.

What’s becoming increasingly obvious is that our global supply chain is too fragile, falling over every time there’s any hint of pressure.

Our supply chain problem has been decades in the making

Essentially, the B2B supply chains relied upon by FMCG manufacturers everywhere have become over-complex and opaque. There are hundreds of thousands of intermediaries and subcontractors, still trading in cash and relying upon manual trading processes to get these consumer goods where they need to go.

Consequently, there’s too much distance between the brand responsible for creating the product and the local merchant responsible for selling it. Brands don’t know who their sellers are or possess any decent data on the local appetite for their products.

It also takes too long to get products out to merchants. In the past 12 months, FMCG brands lost $1.8 trillion in sales because their inventory didn’t make it onto merchants’ shelves in the first place. And the inventory that does arrive ends up costing more than it ought to, because the trades are being carried out using expensive, slow and cumbersome cash.

This system is not fit for purpose. It is constraining economic activity to the detriment of billions of consumers. To put the scale of this problem into context, in emerging markets – which most FMCG brands rely upon for growth – there’s now a genuine risk that lower-earning consumers will be priced out of the market, not just for aspirational purchases, but for everyday essentials like rice, pasta and nappies.

And with our massive global reliance on Latin American and African nations for essential food items, these broken supply chains will increasingly affect consumers in developed markets too.

It’s time to fix the fundamentals

There are things we can do to solve driver shortages, like offering better incentives and working conditions. New technologies can almost certainly improve the efficiency of the shipping industry. More satellites and better weather forecasting can help reduce unexpected distribution delays.

But unless we can digitise the B2B supply chain – kicking cash out and bringing transparency and real-time sales data in – then the supply chain woes are going to carry on getting worse.

The only way to get millions of local merchants and distributors to digitise is to build commerce platforms that they actually want to use. It might sound obvious, but to date, this has been the most significant barrier to getting these businesses online. Brands and manufacturers have built digital trading systems with their own interests in mind, rather than providing clear incentives for their supply chain partners to try these systems out.

Ultimately, our goal must be to build a truly open, digital marketplace for commerce that allows any merchant to run their business more efficiently and access any FMCG products they want to sell. To stop consumer goods from becoming prohibitively expensive, we must change the way consumer goods are bought, sold and paid for.

Justin Floyd, CEO of RedCloud (Credit: Rachel Calvo)