Top 5 biggest Supply Chain pain points - #2 Rising Supply Chain Costs


Published by Jan Veerman, last updated on


In a series of five blog posts, we are going to do a deep dive on the top 5 biggest supply chain pain points, experienced by the business. How did we came up with this top 5? By researching the Internet to look for articles that describe current pain points and keep score of the number of articles. And by the interactions we had with our customers, we listened to the issues they brought to the table.
The top 5 of the biggest supply chain pain points:
  1. Lack of end-to-end visibility
  2. Rising supply chain costs
  3. Demand volatility and forecast accuracy
  4. Shortage of raw materials
  5. Out-of-stock items
In this blog post we’ll do a deep dive on the pain point ‘rising supply chain costs’, what is the impact on the business if not addressed and how it can be solved.


Why are supply chain costs rising?

The costs of supply chains are rising. Think of specific raw materials, containers, transportation, energy, labour, different costs components have increased in price. Add these all up and the total cost price of most goods (and services) have increased significantly. And the main reason why these costs have increased, is shortages.


After COVID we started to come back to a new normal. As consumers, we started to order more goods, we started to spent our money as soon as that became possible. This increased demand led to an increase in demand for containers. This led to a increase in price per rented container. Due to the war in Ukraine, the price for gas and energy exploded last autumn and winter. Europe was too dependent on Russia for gas, and we had to buy it elsewhere, leading to increased pricing.


Due to all kinds of increases in pricing, the total costs of living increased for most people. To compensate for this increase, people demanded higher wages, which was honoured in the last couple of months. Increases between 10% to 15% were the norm and made many small retail organisations go bankrupt.
Planadigm - High Supply Chain Costs - 01

What is the impact of the rise in costs for supply chain?

Supply chains experienced different kinds of increases of pricing, resulting in a much higher cost price. As an organisation, you can react in different ways to this increase:
  • Increase your sales price to cover for the increased costs.
  • Increase your sales price a bit to cover some of the increased costs.
  • Don’t increase your sales price and accept a lower margin.
As we did see, most companies reacted in increasing their sales price. Depending on the level and severity of competition, you were able to fully compensate for the increased prices or only partly. See for yourself if you go to the grocery store: if you buy only a handful of products, the bill adds up to at least €20 to €30. And we could buy more goods for that same amount a few years back.


If you do not increase your sales price, the raise in costs price does have an impact on your margin. We do not see that many organisations that did not increase their prices. And you can only use your margin to keep your prices the same if there is enough left for you to run your business profitable. Without profit, there is no business.


An increased price at the start of the supply chain triggers a complete chain of reactions down to the end user. This price spiral, if not managed by the governments and central banks, will lead to an ever increasing price level. Which is not sustainable in the end. So organisations, governments and central banks adjust their pricing and policies in such a way to control this price spiral. That is a fine balance of price adjustments, policies and interest rates.


How to deal with the rising costs

To stay profitable, companies need to make a margin. If cost prices increase (significantly), you need to raise your prices as well to keep a profitable margin. As mentioned, no margin is no profit is no organisation.


Another option could be to look for alternatives (if there are any). If your suppliers raised their costs, you can look for alternatives that have the same quality, but lower costs. In that case, the costs can stay the same and no increase in your sales price has to occur.


Besides other suppliers, you can also try to negotiate better prices from your current suppliers by ordering less frequent but in higher volumes. The down side is the additional stock you need to keep, which also comes at a cost!


Another way to reduce costs across the supply chain, is to work more efficient. Programs like Lean Six Sigma help to understand the current steps in the process and optimise these processes by reducing unnecessary steps and activities or reduce the non-value added activities. If the total process is more efficient, the costs will decrease. One way is automation, the replacement of manual labour with robots or software.


We believe that this time of rising costs, shortages of (raw) materials and personnel is an excellent breeding place of innovation. New products, software and ways of working will be introduced in the next couple of months an years. The use of Artificial Intelligence (AI) is an example of innovation that will help us automate processes even further.



Increased prices can lead to an upward price spiral if we do not interfere. But companies need to make a living to be able to stay financially healthy in the long run. The fact that a lot of prices have increased during the last months put a huge pressure on society. The end consumer can buy less for the same amount of money, which results in less demand.


As mentioned, this is a very fruitful environment for innovations. Companies look internal and external for ways to reduce costs. Basic considerations as process improvements or price negotiations can help, but the main benefit will come from new inventions. Automation, robotisation, AI will make sure we can produce the same or even more, but without the increased costs.


We can help you to look for improvements in your supply chain processes to make it more efficient and less costly. Think of reducing the number of steps it takes before a plan is final, optimise the inventory levels and implement a planning platform with an AI engine to allow for fast and resilient planning (like Pigment).


If you want to know more, please get in contact!
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