For months now, the news everywhere has been full of stories about procurement and supply chain disruption brought on by the global pandemic and its effects. Everywhere, all kinds of goods and services suddenly became much more difficult to buy, from toilet paper and groceries to ventilators and masks. Everyone has suddenly become much more aware of the very real role that functioning supply chains play in our quality of life as individuals and societies, and that broken supply chains can, in fact, cost lives. The question of the day, month and year is, how do we fix them, and quickly? Our experience shows that SMEs in the role of resellers can be an important part of the solution. We need their agility and resilience and ground level intelligence—from rapid, granular demand discovery to last mile execution—to succeed at this. However, we also need to proactively work to include them, as forces of change are threatening to marginalize, sideline and threaten their existence even more, just when we may need them most.
The changing landscape of trade
Since the global pandemic began to take hold, we have entered into a scenario where demand outstrips supply globally of many items and existing stocks of PPE have been sought out and bought up by resourceful parties responding to both urgent need and surge pricing. Procurement of personal protective equipment (PPE) to save lives became especially challenging as governments and institutions around the world competed to supply the current and projected needs of hospitals, essential workers and the general public. Some of the most supply-constrained items like certified medical grade N-95 masks rose in price by 10x or more and all factories that produce these items were suddenly having to manage many more buyers than they could accommodate, deciding who got a place in line to receive goods they would produce in the coming months and on what terms.
These suppliers had to adapt rapidly to a fluid situation in which excess demand for their products was only one of many factors. Their governments also stepped in with new and frequently changing policies designed to protect national supplies and respond to new challenges like global profiteering and also with political motivations, which can be very unpredictable. We have seen governments forbid the export of certain items like masks and ventilators or place severe restrictions on what can be exported. Uncertainty will continue because of the unpredictability of what will happen as efforts are made to reopen economies for business and the threats, quickly becoming realities, of second waves. Future needs remain uncertain and new products like COVID-related drugs and vaccines, as they begin to become available, will further strain supply chains and bring their own sets of challenges, logistically, economically and politically.
On the demand side, competition for orders has come from governments offering to pay in hard currency (primarily USD), now often upfront. These include several U.S. state governments whose economies are larger than some countries’. Those who are “winning” are using all means at their disposal to get to the front of the line and have even reportedly diverted shipments en route to other buyers. In addition, many well-funded foundations, charities and groups of private individuals jumped into the fray to place large orders for distribution through non-governmental channels in efforts to help. Many of these players had very little experience in procurement or global trade and have had to learn as they go, working with very large sums of money, extreme time pressures and the high stakes that come with attempting to save lives.
All this activity has come at a time when transportation and logistics systems have been strained from their own coronavirus related challenges. With planes grounded due to travel restrictions and container shipping down dramatically, shipping prices have shot up. It’s quite possible for air freight charges to be many times the cost of the goods being shipped, pushing the price for the end customer up to levels many governments and regular buyers will find astronomical.
The new seller's market
In this climate, bidding to get a spot in line from a factory has become the new normal for buyers trying to place large orders. This need to bid is new for those used to procuring goods from inventory, and requires a different approach. Understanding how to bid is key to success in this new seller’s market. Sellers who have more buyers than they can accommodate, all vying for the best possible place in line can set their price and their terms, but more than that, they will only entertain the highest quality bids from the most reputable purchasers.
This has presented a unique set of challenges for government procurement systems which depend on tendering to local supplier businesses. Deals must be built impeccably with every document and all parties transparently validated. To decrease the risk of shipments being confiscated by other governments along the way to the final destination, many manufacturers need to know they’re selling to government end payers, which means if a local supplier is purchasing on behalf of their government, the manufacturer wants to be able to see through to that ultimate end-payer and know that a confirmed contract exists between the local supplier and that government entity for the purchase of the goods in question. Many government run procurement processes are not set up to create this kind of visibility. They were not designed for a sellers’ market nor were they built for the agility needed to adapt and respond in this current climate.
As in any situation where there is desperation and a need for speed, clever fraudsters have also been taking advantage, adding further risk to the mix. The number of inexperienced buyers jumping into the marketplace with money and the changes in buying strategy that are preventing experienced buyers from getting product through their usual methods and channels (eg. getting quotes and samples, as in a buyers’ market) provide ample opportunities for fraudulent sellers who either do not have the goods at all or are trying to misrepresent something substandard. Even national governments in the US and Europe have been bilked and forced to send back shipments for millions of units that are clearly not up to specifications. In such an opportune environment for creative bad actors, it has never been more important for organizations of all sizes to vet all the parties involved in a trade [using both KYC (Know Your Customer) and KYCC (Know Your Customer’s Customer)], to build every trade with precision and attention to detail, and to stay on top of what is known about how legitimate trades are getting done successfully in this environment.
Building the road to a new, better normal
In short, trades need to be designed and executed flawlessly so as to leave as little as possible to chance. Kountable’s cloud-based trade platform was purpose-built for this, and with our five years of experience at de-risking complex trades in challenging environments, we have been asked to help by a multitude of traders and organizations globally who know how critical it is right now to get goods where they need to go efficiently, transparently and reliably. Our specialty is in trade that requires effective collaboration between global and local players, big and small, and engages the power of local SME resellers, who have long been critical players in efforts to procure medical supplies and many other important categories of goods in emerging markets. SMEs who survive in these markets are by their nature resilient and persistent, but the structures that define how they can help solve the problems at hand need to adapt to allow them to play this role at the scale and speed required.
As great as the challenges are, we and many of the partners we’re engaging with see this period as an opportunity to create more effective, adaptive, resilient and inclusive structures, systems and networks—to use technology, creativity and necessity to improve our ability to efficiently distribute what the world needs for the betterment of lives everywhere, during COVID-19 and long beyond. We relish the opportunity to contribute to this rebuilding process and continue to appreciate the partners who are willing to approach it with an eye to the speed and agility that an SME-centered approach, supported by larger suppliers, buyers and funders, can bring to match the urgency of the stakes.
Hear from Julian Kyula, a lifelong entrepreneur and expert in the credit and tech sectors, about the biggest challenges facing small businesses in emerging markets.