Plastic Resin Buyers Struggle With High Prices And Short Supply

Heineken sells 300 brands to customers in 190 countries. But part of the brewer’s strategy has been to produce regional brands locally and then export them to bigger markets. When it bought majority control of Red Stripe in 2015, it repatriated production to Jamaica. Similarly, the Dos Equis brand was brewed exclusively in Mexico, though much of its sales were in the US and elsewhere.

That single sourcing came back to bite last year when the Mexican government declared beer non-essential, and temporarily closed the country’s breweries during the first wave of the pandemic. Rather than just give up on Dos Equis, Heineken regrouped, sent the labels and bottles to the Netherlands and started brewing the beer there. Production in Mexico has since restarted, but the company is now far more aware that it needs to have alternative production hubs — with access to the necessary supplies — for its biggest, most lucrative brands.

All over the world, companies have encountered snags in their supply chains during the pandemic and the shipping bottlenecks that have followed as economies restarted. Car production lines have been halted by a lack of semiconductors, liquor distillers have run out of bottles and department stores are short of Christmas stock.

Such troubles are forcing a rethink of corporate strategy. For decades, companies prioritised costs above all else when selecting suppliers, building factories and deciding how much stock to keep on hand. This philosophy was often dubbed “just in time” because it emphasised keeping inventory to a minimum and using short-term, flexible contracts that could be adjusted quickly to changes in demand.

But the drive for efficiency encompassed far more than that. Companies also moved production to low-wage locations, consolidated orders to maximise economies of scale, and tried to minimise their physical presence in high-tax jurisdictions.

An employee carries out quality checks as Heineken beer bottles move along a packaging conveyor at the Heineken brewery in the Netherlands. The pandemic forced Heineken to rethink its strategy of producing regional brands locally and then exporting them to bigger markets
The pandemic forced Heineken to rethink its strategy of producing regional brands locally and then exporting them to bigger markets © Jasper Juinen/Bloomberg

“A lot of the operating models in the supply chains we see as broken today, were cemented 20 years ago on what at the time were universal truths, that going after low-cost suppliers . . . made a tonne of sense,” says Brian Higgins, head of KPMG’s US supply chain and operations practice. “It lends itself to these very long supply chains because they are [focusing on] cost, not risk. We’ve seen that fracture many, many times.”

Companies are not entirely abandoning existing supply chain policies, but they are revamping them to build additional resilience.

Some businesses are increasing the inventory they keep on hand and entering into longer term contracts with key suppliers. Others are diversifying their manufacturing to create regional hubs with local suppliers and investing in technology to give them greater advance warning of potential bottlenecks. Some companies are also investigating ways of working with their rivals to share information to develop emergency back up facilities without falling foul of competition regulators.

“What companies love to do is to optimise working capital. So many manufacturers went to just-in-time inventory, and, pre-pandemic, that worked pretty well,” Carol Tomé, chief executive of UPS, said at a recent industry event.

“But when the pandemic hit and everything was shut down, including manufacturing, and then the economy started to open and the demand . . . jumped, well, that just-in-time inventory didn’t work any more. Companies are now thinking about, I need ‘just in case’ inventory,” she added.

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Source : https://www.ft.com/content/8a7cdc0d-99aa-4ef6-ba9a-fd1a1180dc82

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