What's the plan for procurement as the price of raw materials soars?

In recent months, the epidemic hits mainland China again. China has tried its best to control the outbreak of the new variant of the covid-19 Omicron. However, production activities in the areas where the epidemic occurred are still greatly affected. Supply chain watchers are concerned that the changes in supply chains in China would affect business globally.

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The price of smartwatches raw materials soars

To date, the areas that occurred with outbreaks include Xi'an, Henan, Tianjin, and Shenzhen, which have attracted the attention of international trade practitioners. “And it just so happens to be that the cities and provinces are a major supplier for chips, tech products. There’s a lot of ports that are being disrupted,” said Brendan McKenna, international economist for Wells Fargo Securities. Affected by the pandemic, the prices of raw materials for smartwatches, such as battery cells, chips, and magnets, continue to rise.

Some lithium insiders put forward that the domestic mainstream battery companies have notified their potential customers to re-negotiate prices, and the offer may be revised by about 20%. This round of price hike among battery companies have been in line with market expectations. Lithium materials prices have increased significantly in 2021, such as battery-grade lithium carbonate prices, which have risen to 200,000 yuan/mt from 63,000 yuan/mt from the beginning of January, an increase of 228%!

As reported on 18 January by DigiTimes, TSMC, the Taiwanese-based semiconductor manufacturer, has informed its largest customers, including tech giants such as Apple, AMD, and Nvidia, that it plans to raise pricing quotes of its nodes by up to 20%. The leader on the market has set the tone for its followers, so the price of chips is likely to rise up in 2022.

Besides batteries and chips, the magnet is also the important raw material on the soaring price in smart wear manufacturing. According to a smart wear industry insider, the price of magnets has spiked up 20% compared to the price on Oct. 2021.

Smart wear has gained popularity among consumers in recent years, especially smartwatches that become a nice gift for yourself or loved ones at a festival. As the Chinese new year is approaching, the demand for smartwatches is soaring, which also makes the shortage of raw materials and leads to the price climbing. In this situation, the price of smartwatches is most likely to rise in the coming days, which is bad news for manufacturers and dealers.

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A better way to respond to the challenge

The original work style of isolated functions and lack of cooperation is not suitable in facing future uncertainties. Hence, breaking down silos and enhancing visibility among functions will be even more important.

A company would pay an expensive price for failing to coordinate across functions. Here is an easy example, although one procurement department stockpiles raw materials from various suppliers in anticipation of further price increases, it doesn’t coordinate with the supply-chain team. The warehouse may have not enough space for the extra raw materials, which leads to interest damage for the company.

Smartwatch manufacturers and dealers can build an infrastructure that enables rapid collaboration and execution on many initiatives at once. In this era of upheavals, procurement departments play a more important role and have an opportunity to reinvent their function and broaden their mandates to promote greater resilience.