Supply Chains Encounter a Global Raw Materials Crisis

Everywhere you look, raw material prices are skyrocketing — if you can find the materials you need at all. The Financial Times is warning consumers to brace themselves for climbing costs for everything from burritos to washing machines: “Price rises have emerged as a dominant theme in the quarterly earnings season,” the article states. “Executives at Coca-Cola, Chipotle and appliance maker Whirlpool, as well as household brand behemoths Procter & Gamble (P&G) and Kimberly-Clark, all told analysts in earnings calls last week that they were preparing to raise prices to offset rising input costs, particularly of commodities.”

In fact, P&G CFO Andre Schulten says today’s raw material cost escalations are some of the sharpest he’s ever seen, and he expects things to only get worse.

Last month, I discussed the lumber shortage and how certain inputs had elevated the price of building a new home by $25,000. This week, lumber hit yet another record. “Worldwide and local shortages, Brexit, COVID, and spikes in demand as construction prepared to restart have combined to force up prices,” according to The Irish Times.

Meanwhile, the Food and Agriculture Organization of the United Nations price index has reached its highest point in six years, and The World Bank says this is causing an epidemic of hunger throughout the world. Emerging markets are especially vulnerable because food comprises a bigger portion of their spending.

“For the poorest and often politically unstable countries, the surge in raw materials threatens to further stoke global hunger,” according to Bloomberg. The media outlet adds that industry professionals should keep a close eye on grain prices: “The world’s cattle, hogs and chickens are all gobbling up the grain faster than farmers can grow it. Corn is so expensive that it has at times surpassed wheat, a rare occurrence.”

Some people are trying to avoid the grocery store and, instead, plant their own gardens. Unfortunately, there’s also a seed shortage, as a result of packaging constraints. In fact, lack of sufficient packaging is affecting everything from seed packets to aluminum dog food cans. Plus, with so many pet owners now working from home, people are spending more time with their animals, often buying them more treats, further adding to the strain.

Having plenty of a certain product, but nowhere to put it, is a common theme. Telegraf quotes the head of paper-based packaging company Smurfit Kappa: “Our raw materials have gone through the roof. There isn’t a single free ton of paper in the world at the moment,” says Chief Executive Tony Smurfit. He notes that, with more paper being thrown away and less collected for recycling, the price of corrugated containers will continue to multiply.

In addition, the European Plastic Converters Association (EuPC) reports a severe plastics shortage. EuPC Managing Director Alexandre Dangis says manufacturers all over Europe are experiencing serious bottlenecks — a symptom of the “structural imbalance between the local production of, and demand for, raw materials.”

And of course, there’s the semiconductor issue, which continues to impede the production of cars and trucks; personal computers, digital cameras and many other consumer products; household appliances, such as smart refrigerators and washing machines; and countless other everyday items.

Protecting your supply chain

As supply chain management professionals, how do we successfully detect and get ahead of the next shortage? Our forecasts, sourcing and inventories will remain at risk until we can achieve true resilience. ASCM is here to help with resilience-building tools and education:

• Digitize your supply chain to achieve the visibility and agility necessary to survive and thrive with the SCOR Digital Standard.
• Access research that reveals the key traits of resilient companies, including prioritizing predictive analytics, such as artificial intelligence; investing in scanning technology; and cultivating the ability to scale up and down to match supply and demand.
• Address your supply chain’s most pressing challenges with ASCM Transformation Learning Programs, coaching and mentoring services that deliver proven organizational excellence.
• Finally, discover how real-world organizations overcome disruption and create effective early-warning systems with The Resilient Supply Chain Benchmark, developed by The Economist Intelligence Unit and sponsored by ASCM. This resource provides the information to truly ensure your supply chain is ready for anything.