How electrical suppliers are handling the cost of living crisis
How are Gemcell suppliers handling the cost of living crisis, and how is it impacting their businesses? We speak to two to find out.
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| OUR PANEL |
NICHO TENG Founder, Haneco Lighting |
Ben Mills Executive General Manager, Energetic Lighting |
| How has the cost of living crisis impacted your business? |
Domestic freight prices have increased significantly, as have energy prices, which have increased costs. Staff shortages, too have had a major impact – every supplier needs warehouse staff, but the price of labour is going through the roof, and will keep increasing over the next couple of years, too. |
Transport and warehouse lease cost increases have had the largest impact on our business. The transport increase has led us to review our logistics partners and, as a result, we now have a new transport company that has helped keep costs down and added additional services such as consignment tracking. |
| What’s behind product price increases? |
Oil and gas prices make everything more expensive – the price of fuel goes up, the price of freight goes up, and you never see it come down. Longer lead times and the cost of raw materials makes purchases more expensive, and there’s more capital cost to purchase components. |
Putting transport aside, product increases have been directly related to raw materials. For example, LED lighting is mainly electronic components and, during COVID, many electronic manufacturers closed factories. This led to longer lead times to procure components and IC chips. Demand outstripped supply, which in turn increased finished goods costs. Supply chains and now returning to normal. |
| As a business, how are you approaching it? |
We need to communicate with our wholesalers about what is happening behind the scenes, and try to drive efficiency together to overcome the cost rises. For example, if wholesalers bulk order, there are fewer freight costs and therefore, it becomes more efficient. |
Profit margins are always under pressure, and getting a market price increase is not easy. We always look to review operating costs and how to become more efficient. Improving stock forecasting, project pipelines and managing working capital all help to cost. The last option is a price increase. |
| What are you forecasting in the longer term? |
Costs should become more and more stable – we can see inflation has reduced to half in the US compared to its peak last year, and overseas freight costs have reduced too. But, of course, labour cost increases will continue. I think over the next three years we’ll see an average 2-4% wage increase become the norm. |
We are a manufacturer, so our engineers are always reviewing the latest technology or next generation of componentry. The manufacturing team have a continuous improvement program to ensure quality assurance and efficiency KPIs are met. |
| What’s the key message for contractors? | Some suppliers will try to cut corners to offset the cost increase and use more easily available materials. But this is a major risk. Contractors need to understand the cost increase is still far cheaper than quality compromise. Choose suppliers and products that provide consistent materials and designs – in difficult times, it is not about who can make more profit from individual products or a single job, it is about who can survive – and a lot of those suppliers who are cutting corners to cut costs will face challenges. |
We are certified to ISO9001 and are a member of Lighting Council Australia – contractors should always look to trade-recognised brands and purchase products within the wholesale trade channel. This way, if any product support is required, they will be sure to receive it. |
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