How Supply Chain Shortages are Impacting the Channel

We are all seeing the impacts of supply chain shortages, from empty shelves to higher prices on just about everything. I’ve been waiting over a year for the bike I want to become available, and it’s hard to find the parts to keep my existing bike in top performance. In this episode, Chanan Greenberg, SVP Corporate Strategy at Model N, discusses causes of the technology supply chain shortages, impacts on channel partners, and what you can do to best serve your customers.

KEY TAKEAWAYS

Causes of the supply chain problems:

The first supply chain problem started about a year and a half ago, when manufacturers of products were giving false indications about demand. Due to the pandemic, everyone was expecting a massive drop in consumption. And that’s what they communicated to their supply chain. This led suppliers to start downsizing their manufacturing capacity. Then demand actually turned out to be as great or greater than pre-pandemic.
The second problen is that we had real scarcity in some raw materials. And so the cost of manufacturing with those raw materials started going up. We also had labor shortages for a variety of reasons. These factors, combined with inflationary pressures, caused the cost of producing products to go up.
A third factor is that companies are stockpiling products for two reasons; first, they want to be able to continue servicing their customers. And secondly, they know that once inventory becomes scarce, they can raise prices and benefit from those raised prices.

Impacts on the channel:

Facing shortages, manufacturers have to make tough decisions and prioritize which customers, and which partners, to supply first.
Top producing partners with strong vendor relationships are going to have the best access to products to meet their customer demand.
Vendors and partners should not expect to see prices on technology products come down in the near term due to real decreases in manufacturing costs.
Prices on technology should eventually start to come down as long as the pace of innovation keeps up.
Channel Chiefs should be preparing for more price fluxuations by implementing partner management systems that makes quoting to partners easier, creating more flexible and simpler incentives, and make sure partners aren’t double dipping by stacking incentives.