We might have moved into a new year, but we haven’t left all of the past couple behind us, says ACA Research

Unfortunately, one area facing ongoing disruption is global supply chains.
Citi published a paper on this in January, arguing “uncertainty in global supply chains is going to stay.” As a market which is heavily reliant on imported products, this will by necessity have a large impact on Australia.
Given this, let’s look at how some key themes might impact local operators.

1. Increases in cost of goods – 46 percent of suppliers globally have indicated they are passing costs directly on to customers
   We know the cost of raw materials has increased across many industries through the pandemic, and this holds equally true when it comes to the production of automotive parts.
   While the survey results are not specific to automotive, manufacturers in this sector are facing the same pressures, and are also having to choose between trading away profit margins or investment in other areas of the business (for example, marketing), and increasing prices. It will be no surprise where many businesses end up, choosing to pass costs on to customers down the line.
2. Lengthening lead times – 34 percent of suppliers are seeking longer lead times to produce goods
   As an individual workshop operator or retail outlet, you may assume your wholesale and retail partners will manage the process, and ensure they have products on their shelves or in their distribution centres as needed.
   The reality is however more complex, with the demands on lead times forcing them to commit to products further out, and make early judgement calls on likely demand for products. In the case of new product lines (or new vehicles), it is easy for mistakes to be made, leaving local businesses short of supply.
3. Rising Inventory Costs – >75 percent of large corporates are facing higher inventory costs
   This is a direct outcome of the previous two points, and will directly impact end-users.
   Your local suppliers are being forced to increase ordering, and hold more product against the risk of supply chain disruption. This ties up their capital, and reduces their ability to invest it in other areas. As highlighted above, they are then left with the choice of wearing the additional expenses themselves, or passing them on.

Takeaways
The key takeaway here is that product costs and security of supply are going to remain somewhat concerning through 2023.
As an end customer, this highlights the importance of planning your purchasing to manage both costs and availability.
Strong relationships with your key suppliers will help to ensure you can fill gaps at short notice, but it is also worth exploring other distribution channels to ensure that you have backup options ready to go should they be needed.

For more information about ACA Research’s services, visit www.acaresearch.com.au or contact Ben Selwyn on bselwyn@acaresearch.com.au

This column was prepared for AAAA Magazine by ACA Research, the AAAA’s partners in the AAAA Aftermarket Dashboard which is delivered to AAAA members each quarter.