Sugar Talk Sugar Talk
How to deal with a tight market: from a buyer and supplier’s perspective
Like many other industries, the sugar industry is currently experiencing significant transportation and raw material challenges. As a result, global sugar prices have increased and market supply is tight. So, how should buyers and suppliers respond to such conditions?
Buyers typically focus on finding synergies between cost, efficiency, quality, supply, and, of course, contractual terms. In a tight market, though, their priorities need to change. Here, we explain how.
No substitute for experience
The most valuable lessons learnt in life are through experience and the same, of course, applies to business. A tight market brings with it high pressure and risk and, naturally, this can lead to some mistakes and errors. Nothing new there. Everyone gets it wrong sometimes, and these mistakes should be allowed because ultimately that is how we learn.
Ragus has managed various supply chain crises in its 90-year existence.
So while a tight market may seem like a threat at first, it can soon turn into an opportunity and lesson that can be reused in future – because there can be no doubts this is not the first time, nor will it be the last, that supply becomes tight. At Ragus, we know this only too well having successfully navigated previous supply chain crises such as the Oil Crisis of 1973 or the Financial Crisis of 2008. The world keeps turning, and resilient businesses keep adapting.
Make decisions quickly
Perhaps this comes with experience, but still, it is vital that decisions are made quickly in a tight market. That is not to say they should be rushed, but with there being less supply available, any hesitancy can be costly.
Waiting for the right time for the price to change does not tend to end well, either. Simply because, it never happens. Things often tend to get worse before they get better and, therefore, slow decision-making and subsequent delays can expose the business to more risk. In sugar terms, this likely translates to further price increases. To learn more about current global sugar prices, read our global sugar market report now at this link.
Focus on quality and security of supply
A buyer’s instinct is to find value, gain competitive advantage and enable business growth. This, however, is not widely achievable in a tight market where there are fewer choices available.
That means buyers may need to re-examine their priorities. In the sugar market, for example, this means prioritising quality and security of supply. In turn, these help the buying business meet production demand and maintain customer expectations. Focusing on these enables the brand to maintain its reputation and market share, meaning they emerge from the supply crisis in a stronger position.
Negotiating with supply chain partners.
Suppliers have many of the same priorities as buyers – they just see the situation from the other side of the coin so to speak. Below we offer some of our advice on how suppliers can support their customers through tight markets.
If supply is tight, buyers will likely want larger orders than usual to mitigate their risk. But for this exact reason, the supplier in question may not be able to meet this extra demand. The worst thing they can do in this situation is overpromise. Agreeing to larger orders and then failing to deliver them to specification will only serve to damage relationships and create friction for any future engagements.
So, in tight markets, suppliers need to be realistic, honest and upfront with what they can deliver and when. Indeed, it is precisely during such difficult market conditions that a customer service function needs to perform at its best. Communicate regularly, whether the updates are positive and negative, and always be prepared to serve customers, as when the pressure is on, they will have lots of questions that need to be fielded quickly.
Some opportunistic suppliers may believe that tight markets provide the conditions to hike prices and widen profit margins. While product demand may allow them to do this, one would recommend this tactic is best avoided.
Prices will of course increase in tight markets. That is to be expected. However, increases must not be exploitative, they should be competitive. Abusing pricing power may allow a supplier to secure business and increase profitability in the short-term, but it will likely lose key customers in the long-term.
Unfortunately, the nature of tight markets means suppliers will not always have the product to meet customer demand. That is perfectly normal, but it should not be the end of the conversation. Just because they cannot provide the product requested does not mean they cannot provide an alternative solution.
In sugar terms, for example, Ragus recommends its customers consider using partial invert sugar syrup instead of glucose syrup 63DE due to shortages of the latter. Discover more about the benefits of this approach in this blog about the glucose syrup supply deficit.
A board member and co-leader of the business, Ben is responsible for our marketing strategy and its execution by the agency team he leads and is the guardian of our corporate brand vision. He also manages key customers and distributors.
In 2005, he took on the role of globally sourcing our ‘speciality sugars’. With his background in laboratory product testing and following three decades of supplier visits, his expertise means we get high quality, consistent and reliable raw materials from ethical sources.