9 Nov 22

“Supplier strategy is changing, and fleet sizes are stagnant or shrinking”

Times are changing, and so is the way of doing business in the APAC region. Amid the ongoing geopolitical issues and rising energy and fuel prices, there are a lot of developments in the APAC region to account for the coming year. Ng Yit Ming (Ming), Regional Procurement Manager of Nestle Group for Zone Asia, Oceania and Africa, places one aspect on top of others while the region prepares for a challenging 2023: Suppliers. 

Increasing prices are a growing issue for Europe and America and for the APAC region, too, as OEMs worldwide start to pass the extra cost to customers. In the last 12 months, OEMs have increased their price twice, which has made purchasing/leasing more costly. 

According to Ming, the prices will continue to rise due to a lack of stock, while the demand outweighs the store and supply. The chain reaction of problems; first, the pandemic, then the supply chain, and now the chip shortage is forcing manufacturers to increase prices. Additionally, the war in Ukraine also hurts the APAC regions, says Ming, because Ukraine is a major producer of electrical wiring harness for vehicles while Russia is the world’s 3rd largest nickel producer. Nickel is a key component for battery production. Thus, supply issues emerge along with rising prices. 

When will prices calm down? 

It’s going to take some time, according to Ming. “Besides all the issues, interest rates are going up; pricing will remain high at least for 2023 and maybe 2024. It should start to ease depending on developments in Russia-Ukraine. I would say suppliers are improving as they have learnt how to adapt their supply chains to the ‘new normal’ post covid while investing in new factories. Furthermore, most countries except for China are relaxing covid restrictions, which has allowed business and life to resume normally”, says Ming. 

How the price war in China affects the region? 

While many manufacturers have been increasing prices in China, Tesla made a bold move to do the opposite. Tesla stands as a luxury brand, much like Apple does in the smartphone industry, says Ming. So, dropping prices has narrowed the price gap with other manufacturers. Ming believes this won’t make a significant change as there are already long waiting times from the customer’s point of view. “Because the competition doesn’t rely solely on the price,” says Ming. For many organisations globally, the lead time ranges from 6 months to 24 months. In the worst-case scenario, manufacturers have stopped taking orders due to the inability to fulfil the demand, so Fleet Managers are forced to consider a multi-supply strategy instead of standardisation. Also, China’s zero-Covid policy is not helping this issue." 

How are the prospects for 2023? 

“I don’t think 2023 will be so much different from 2022,” says Ming. He believes price stabilisation will show itself from 2024 onwards. Many big brands are investing in China and diverting their attention to other regions mainly to overcome supply chain issues. The ongoing tensions between China and Taiwan are also playing a role in this, Ming adds: "Attractive government incentives are impacting the decisions OEMs are taking from an investment standpoint."

On the other hand, many suppliers have changed their bonus/rebate structure which is a challenge, Ming says he is working with them to find the best solution possible to ensure business continuity. Nevertheless, he expects the situation to stabilise from 2024 onwards. 

NewALD could be a game-changer

“2023 will be an interesting year with the acquisition of LeasePlan by ALD, which will form NewALD. This will change Fleet Managers’ strategies on a regional and global scale,” says Ming. 

“I believe each organisation will be reviewing what it would do from a strategic point due to this development, but I believe supply and cost will continue to be the focus for now.”

Fleet sizes are stagnant or shrinking

Based on observations and speaking to peers, Ming believes that most organisations’ fleet size remains stagnant or has shrunk. This is due to economic factors, organisational restructuring, and new work-from-home policies. In addition, the fear of an economic recession in 2023 is making people much more conservative in investing. Organisations have also considered other options, such as offering allowances instead of vehicles. "Long waiting times are another factor. If you don’t get your vehicle on time, you extend the existing lease contract, get a temporary short-term vehicle, or provide public transport cards to employees. I believe the worst of covid is over and humanity has accepted living in the “new normal”, but 2023 will bring itself a whole new set of challenges for us to navigate." says Ming.

Main image: Shutterstock.
The in-article photo shows Ng Yit Ming (Ming), Regional Procurement Manager of Nestle Group for Zone Asia, Oceania and Africa.

Authored by: Mufit Yilmaz Gokmen