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SUPPLY CHAIN PREDICTIONS FOR 2022

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Phil Simmonds, Chief Executive Officer of EC Electronics

 

Pandemic-related factory closures, national lockdowns, fluctuating demand and labour shortages have wreaked havoc on supply chains and lead times across various industries — particularly those which rely on supply from China and the Far East, where the impact of the virus was first felt.

And COVID-19 is not the only thing that has rocked global supply chains. Accelerating climate change has increased the frequency of extreme weather events that threaten to disrupt already fragile interdependent shipping networks. Plus, Brexit legislation came into force on 31 January 2021, prompting the mass exodus of EU workers and causing further bottlenecks at borders as companies navigate additional requirements.

Experts predict that the consequences of recent events will continue to impact global supply chains into 2022. Still, so long as the COVID-19 pandemic does not worsen significantly, things should start looking up…

 

An end in sight for the semiconductor shortage

The recent chip shortage — triggered by COVID-19 and increased demand for electronics — has caused problems for several industries, especially consumer electronics and automotive manufacturers.

According to the Semiconductor Industry Association, chip sales were up by 26.2% in May 2021 compared to the previous year, as more organisations underwent digital transformations and businesses and consumers invested in technology to facilitate remote working.

However, the majority of chip production happens in Taiwan, China and South Korea. As coronavirus first gained a foothold in East Asia, the pandemic has caused ongoing delays in chip production, significantly increasing lead times for suppliers and end-consumers.

Although it may be some time before we begin to see significant improvements in the semiconductor shortage, organisations and governments are planning to boost chip manufacturing capacity regionally and globally to help manufacturers meet growing demands.

Taiwanese semiconductor giant TSMC is investing $100 million (around £72.5 million) in additional capacity to address the chip shortage over the next three years. And the European Commission announced plans to introduce a ‘European Chips Act’ as part of efforts to improve ‘tech sovereignty’ in the region earlier this year.

 

Price hikes will begin to soften

The cost of materials, components, labour and transportation have continued to rise with inflation and the demand for electronics throughout 2021.

Due to unprecedented competition for containers and reduced capacity, freight prices have spiked, further compounding price hikes along the supply chain. Plus, businesses face the additional administrative costs of Brexit paperwork and logistics — all while managing the labour shortages affecting almost every sector.

Hapag-Lloyd AG, a German international shipping and container transportation agency, placed a record order of 75,000 shipping containers to help ease shipping congestion, and Chinese container factories are working flat out to keep up with demand.

Still, prices are not likely to come back down until 2022. However, there are hopes that the incline in shipping rates will slow during the post-pandemic period. Factories will begin to ramp up their output, more materials will be extracted, and transportation backlogs will ease and shorten lead times.

Shortages and disruptions also revealed the flaws in western nations’ dependence on resources from China and other eastern distributors for supply chain security. As such, governments and organisations are strengthening local manufacturing and infrastructure to support supply chains in the modern world.

In the UK, for example, a brand new ‘gigafactory’ is set to bolster local production of electric car batteries, and the government has also announced £53 million funding to promote digital tech in the region. And in the EU, the European Investment Bank (EIB) signed a $350 million loan agreement in 2020 to support a new gigafactory in Europe. Northvolt Ett is located in Sweden and will harness clean energy to produce lithium-ion battery cells with an 80% lower carbon footprint than those made using traditional methods.

 

Mitigating threats to supply chain security

Electronics manufacturers depend on global shipping and transport networks for essential materials and components. So, preparing to weather the upcoming supply chain crunch has become a crucial consideration for every business.

Encouraging sustainable manufacturing is a massive part of this. Natural resources are in finite supply, and ever-increasing human activity worldwide is only making the situation worse. Manufacturers must refocus on sustainability to align with net-zero targets, which will, in turn, have a positive impact on supply chains.

Many OEMs and EMS are taking steps to improve sustainability, including becoming more energy-efficient, reducing waste, embracing digitisation and automation and optimising supply chains — all of which reduce costs and diminish carbon footprints.

Labour shortages are also causing problems across most sectors, as businesses experience the knock-on effect of coronavirus outbreaks and Brexit regulations. So, the electronics manufacturing sector must encourage training and education within organisations to help address the skills shortage by introducing courses such as IPC’s ‘Electronics Assembly for Engineers’ to tackle skills gaps within the industry.

Reinforcing every element of supply chain management will be crucial to guarantee the industry can keep pace with the growing demand for electronics as manufacturers, suppliers and customers transition away from survival mode and prepare for long-term growth.

 

Business

The perfect storm: new regulations and an inflationary environment will cause an upswing of M&A and consolidation

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By George Netherton, Partner, Head of Europe Insurance & Asset Management at Oliver Wyman

 

As Q2 results roll in, we’re beginning to see the impact of the perfect storm of challenges facing the UK personal lines insurance market. The effects of significant regulatory changes, heightened inflation, and macroeconomic uncertainty have so far largely been hidden by profits achieved during the pandemic; however, they are gradually being unmasked. The next two years will be tough, and we expect significant market shifts to result.

 

The challenges

The beginning of this year saw major regulatory changes brought in by the FCA. Welcome reforms aimed at creating a level playing field and ensuring good value for money for loyal customers, have nevertheless pushed up premiums for new customers and reduced profits in the back books of many insurers. Those with large retained profits in their back books have reduced flexibility in attracting new customers now, and we are seeing some overdue investment in innovation, particularly around electric cars.

As materials, labour, and energy prices rise, inflation challenges are not only being seen in insurers’ cost base and claims value chain, but are running far ahead of expectations. The motor insurance market, for example, has experienced significant levels of inflation in the first half of 2022, resulting from higher used car prices, higher third-party claims costs, longer repair times and inflation in the cost of car parts. As a result, profitability is dropping sharply.

Climate change is also hitting the market, with more extreme weather events, such as storms and heatwaves, becoming more frequent and expected to result in increased claims for flood damage, subsidence and even wildfire. In the first half of 2021, global insurers paid out the largest amount of claims in 10 years to cover the damage caused by natural disasters. Insurers are also facing costs for developing net zero and transition plans, as climate commitments are prioritised and scrutinised.

In addition, the cost of technology and data investment is becoming an increasing burden. Weaker businesses are struggling to justify big investment costs, yet are struggling for competitiveness without them.

 

The impact

Traditionally, insurance has been a stable business with balance sheet reserves reducing volatility and creating room for manoeuvre. This has meant that some in the market have in effect been ‘zombie business models’, not creating economic value for shareholders but still writing some new business, nursing a backbook and hoping for better next year. Insurers can give the impression of health long into their decline and several that were on their way-out pre-pandemic were able to rebuild their reserves to some extent as lockdowns created unexpected profits from motor portfolios. However, the tide is now going out and the recent market changes will make it very difficult for unprofitable outlets to survive. As the market settles into the new ‘rules of the game’, we expect to see some significant changes.

We predict the market will rationalise down to a smaller number of players, consisting of some rejuvenated major players and some low-cost digital attackers. Many Tier 2 and 3 insurers may withdraw from the market entirely, consolidate their exposures or merge to reduce their cost base. Marginal players will be faced with the choice of significant investment to reach market leadership or narrowing to focus on defendable niches.

At the same time, we predict diversity and scale to come back into fashion. The decade of 2010-20 was dominated by the success of largely monoline businesses writing largely one product (motor) through largely one channel (price comparison websites). But this concentration is now proving painful. Diversification brings resilience and breadth of opportunity, and the companies recently announcing successful Q2 results are those that have been able to secure varied portfolios. Personal speciality businesses, such as pet and travel, will benefit from this as they become attractive opportunities for major players seeking diversification in tricky core markets.

Tough market conditions are a natural part of the insurance cycle, but the combination of factors experienced over the last year has been extraordinary. The challenges run deep, and the impacts will continue to be seen for a long time to come. Insurers need to continue to adapt to protect their operations, promote customer retention, and prepare for the future.

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Accounting software: the future is not what it used to be

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By Lyndon Stickley, CEO of iplicit; an award-winning accounting software developer


Escape your discomfort zone

US Navy Seals have a saying: “The only easy day was yesterday.” That sentiment could well be echoed by some of the FDs and CFOs we hear from.

Many are suffering (unnecessarily) in a discomfort zone that looks like this:

  • their old on-premise accounting software is unable to integrate with other true cloud applications, within their organisation
  • they resort to numerous time-consuming spreadsheet workarounds to patch ‘holes’ in their reporting processes
  • their teams have to manually rekey data to make sense of information from multiple sources
  • reports can take days and even weeks to complete – when they could take just hours
  • their desktop technology can’t cope with today’s efficient WFH and hybrid working
  • essential information is trapped on office servers (or even in filing cabinets) – but they need to access it remotely.

It’s not ideal – so why do they put up with it? What’s so bad that they’d rather soldier on with this sub-optimal status quo?

What’s worse than your outdated on-premise accounting software?

The cost, time and stress involved with upgrading to more powerful software – that’s what. Or so some finance professionals believe.

It’s not uncommon for them to worry that the cure could be worse than the ailment. That’s because of all the pain that they experienced the last time they changed their accounting software.

They can recount horror stories of paying tens of thousands of pounds for an annual licence and similar for implementation charges. But the software was so complex that even the experts took months to install it and customise it.

Back then, too many buyers had to endure a string of broken promises and missed deadlines – all of them bad enough to trigger nightmares, flashbacks and the occasional nervous tick:

  • the system cost twice as much as the quoted price
  • installation took twice as long as promised
  • it still didn’t achieve the intended result because it was so difficult to use
  • staff never truly understood the system or liked it.

And we sympathise because their concerns are based on bitter experience. Back then, they were the victims of a cynical software industry that revelled in putting them through the wringer.

The vendors made a fortune from overselling a sledgehammer to crack a nut…and then took forever to install it. All the pain simply meant higher profits for them.

But that was then. This is now…

Don’t get me wrong – there are still vendors out there peddling the old model by charging far too much and taking too long to install the software.

But the difference now is that there are alternatives. Sensible, readily accessible ones.


Don’t let the past define your future

You no longer have to repeat the misery of the past to end the discomfort of the present.

You don’t need the open-heart surgery of a high-priced corporate ERP system that takes a year to install. Now you can opt for the elegant keyhole surgery of mid-market true cloud accounting software – whether you’re an SME or a Nonprofit organisation.

Today’s mid-market cloud accounting software costs a fraction of the price of a big ERP system. And it can be installed in just 15 applied days – over a time period to suit you. The data migration, configuration, implementation and training can all be executed in bite-sized chunks – enabling you to continue with your day job and transition with minimal disruption.

So there’s no reason to continue putting up with the hopelessness of your existing on-premise accounting software. Your fears – though rooted in all-too-real past experience – are based on a future you’ll no longer have to endure.

 

The Devil you know is no longer worth knowing

Inevitably, ‘Better the Devil you know’ will never be a solution to the increasingly pressing problems posed by old and outmoded accounting software. At what point does prudence become inertia? If you choose not to decide, you still have made a choice; deferment is still a decision.  Both the saying and the software have a nasty habit of wasting money as well as time in the long run.

And, with every organisation requiring increasing levels of timely, actionable information, hindsight could show that doing nothing, in this instance, is the wrong decision to make.

The future is not what it used to be. Take a look.

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