War, earthquakes, civil unrest, and global pandemics. These are the makings of a Force Majeure event. The 2021 Covid epidemic has been the largest Force Majeure event of the century. It taught us to prepare for workplace disruptions in a way that has entrenched remote working, online storage, and automation of our daily activities to the extent that it hastened the adoption of AI into our technological landscape.
Remote work and its associated infrastructure allowed business as usual to continue while raising the demand for home computing and cloud storage equipment.
The components of these products were the same ones that the electric vehicle industry depended on, and resulted in manufacturing challenges for the Renault-Mitsubishi-Nissan alliance. Like other vehicle supply chains, they had adopted the Just-In-Time production method that Toyota had introduced in the previous century. This production method created a lean mean production machine by reducing the quantity of stock on hand. Little stock on hand increased the pressure experienced by an already constricted supply chain during a time when Renault-Nissan-Mitsubishi had little buffer stock, thus threatened operations.
With suppliers in lockdown mode, the alliance needed to find an alternative method of staying afloat. They chose to review and optimize the Total Cost of Ownership (TCO) for their final production output. This meant bringing the production of e-vehicles to a halt and restructuring in a way that resulted in the loss of 8% of their global staff complement. Through these interventions, they were able to ride the wave and keep their alliance intact.
Fast forward half a decade later and the supply of semi conductors is once again under threat. This time due to the movement constraints in the Strait of Hormuz. Vehicle manufacturers are once again facing challenges, with this Force Majeure event placing the burgeoning self-driving vehicle industry under threat. They are vying for the same reduced supply of microchips used by the storage, mobile, laptop, and vehicle manufacturing industries.
While Covid may have taught us to thrive in remote working conditions, few have been prepared for the shift in power as computer chip makers have gained negotiation leverage amid an increase in global demand during this time of restricted global production. With buyers desperate for supply, memory chip makers like SK Hynix are opting for shorter contractual terms and flexible post-settlement pricing (https://www.digitimes.com/news/a20260206VL210/memory-samsung-sk-hynix-price-apple.html). This pricing method is likely to have a knock-o effect as we move further up the supply chain.
When sitting in an industry that is not immediately impacted by these changes, you should still be aware that the fluctuating prices will eventually land on your bottom line. As such you need to be prepared for a situation whereby supplier leverage continues to grow due to the prevailing market conditions. Engage the suppliers of your vehicle and computing equipment early to determine whether you can reduce the impact that the volatile market environment will place your organization in 6 to 12 months from now. Look at the TCO of your end products and see where you can make gains.
You can do this by managing:
- Risk by diversifying your supplier base
- Operating costs by negotiating the license fees paid for services
- Acquisition costs through negotiating service and delivery fees
Finally, remember to maintain good relations with your suppliers so that they gain more than just a cheque at the end of each month of engaging with you. Your relationship with your suppliers should be mutually beneficial on multiple levels. Maintaining good supplier relations is key to being able to steer though these choppy global supply waters. To further inspire your supplier negotiation and risk management processes in the wake of this year’s great force majeure event, take time to review Chapter 2 and Chapter 6 of “Managing IT Suppliers : A Practical Guide To Vendor Management (https://exclusivebooks.co.za/products/9781041104155)”
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