Supply Chain: the COVID-19 Pandemic & MOTIS Brands

Supply Chain: the COVID-19 Pandemic & MOTIS Brands

Written by: Gigi Manganya 

Throughout the COVID-19 pandemic, the U.S economy faced several hardships, including sudden cyclical unemployment and shocks to the supply chain. When the supply chain faces an externality -- whether negative or positive -- the impact of these externalities is most visible to consumers once it starts affecting their spending habits. Most infamously, the toilet paper shortages during lockdown are a prime example of this, and certain items being unavailable are still unavailable to this day. Nevertheless, the hypervisibility of these disruptions to consumers often ignores the impact they have on participants in the supply chain, long before it reaches consumers.

Usually, consumers are seen at the forefront of the supply chain; although, this is not the case. The supply chain of a product is more of a series of events, a cycle, in the following order: raw materials are sold to suppliers, the suppliers provide the materials to manufacturers, and manufacturers build the product to send to distributors; either domestic or international, who then distribute the product to retailers for sale to consumers. With this cycle in mind, the impacts these parts of the chain will face can be either environmental (natural disasters), geopolitical (trade agreements), economic, or technological. Let’s take a deeper look at how disruptions in different parts of this chain affected a local business, MOTIS Brands.

Eric Grunewald, Vice President of Sales and Chief Marketing Officer at MOTIS Brands was a guest instructor for the Insight GB class last week. During his presentation, Mr. Grunewald informed us of his business’s diverse portfolio of goods and services, mainly centered around vehicle & accessibility ramps. MOTIS Brands has several international raw-material sources in east-Asian countries, like China and Taiwan. Geopolitical conflicts in these countries over the pandemic like lockdowns and abrasive trade agreements, as a result, faced MOTIS Brands with a 25% increase in the raw material cost of aluminum. Grunewald’s reported increase in aluminum costs is verified by the following aluminum price performance graph from London Metal Exchange:

Alongside this, currency fluctuations, an economic shock to the supply chain, also caused issues for MOTIS Brands. Before COVID, the cost per shipping container used by MOTIS Brands was $4,500/container, but 6 months into the pandemic, it rose to almost $20,000/container. Keep in mind that MOTIS Brands uses 250 of these containers a year -- this is just below a $4 million increase in production costs in such a short period.

These faults in each role of the supply chain lead to one question: what does a business do to mitigate these supply chain disruptions? Eric Grunewald explained to us that there are two options a business has: either absorb the cost increase or raise the price of the product. Product price determination is complex -- it considers the initial cost of the product from the manufacturers, shipping, customs, insurance, and other socioeconomic factors. Eric Grunewald advises that if the product is more of a want, less than a need; a business has a greater gross margin to increase its prices to make up for the production cost increase. However, if a product won’t do well in competition, or is an accessibility tool for handicapped people, a business should absorb the production cost increase to avoid shortening its lifespan in the competitive market or negatively impacting consumers. 

Works Cited

Barrera, Priscila. “Aluminum Outlook 2021: Surplus Expected, Lower Prices Ahead.” INN, INN, 8 Mar. 2022, investingnews.com/daily/resource-investing/industrial-metals-investing/aluminum-investing/aluminum-outlook/. 

Exchange, The London Metal. “Statistical Analysis of LME Markets - Part I: London Metal Exchange.” Lme, www.lme.com/en/Education/Online-resources/LME-insight/Statistical-Analysis-of-LME-Markets---Part-I. 

Graffeo, Emily. “Aluminum Prices Hit 10-Year Highs as Supply-Chain Woes Fail to Meet Surging Demand.” Business Insider, Business Insider, 30 Aug. 2021, markets.businessinsider.com/news/commodities/aluminum-prices-supply-chain-demand-metals-china-commodities-futures-2021-8.