What agencies should learn from computer chip and carbon dioxide (CO2) shortages

The long slow stagger out of Covid!

As the UK economy recovers from the recessive effects of the Covid epidemic, rather than walking a straight line and making steady progress, it seems more like a drunk staggering down the road after closing time!

Shortages of labour in general, gaps in specific skills and record numbers of vacancies are well documented, and are no doubt causing executive stress. It’s also highly likely that business leaders up and done the country are more than a little exasperated about the precarious situation caused by shortages of various essential items.

Road fuel is quite literally the lifeblood of the economy, and the shortages at the pump caused by the industry’s lack of delivery drivers and the public’s compulsion for panic buying is one obvious example. But there are others that hold powerful lessons for recruiters and businesses in other sectors alike.

• Chip shortages – Integrated circuits and semi-conductors are found in almost any product that runs on or utilises electrical power. Cars, washing machines, even iPhones and the SONY PS5 games console are currently experiencing or are predicted to run into supply problems.

There are some complex market dynamics in play here. There has been a general increase in demand for chips due to growth of 5G mobile technology and the IoT. There has also been a global spike in consumer demand during and post-Covid. There was some stock-piling (AKA panic-buying!) by manufacturers that anticipated supply problems. And logistics costs have increased by more than 10x for shipping a 40 foot container from Asia to Europe. The handful of players in chip manufacturing are increasing production, but facilities take time to build and costs run into billions.

• CO2 shortages – Food grade CO2 is used to do a variety of things including carbonating water, soft drinks and for pouring some beers in pubs, growth promotion in greenhouses, stunning livestock in abattoirs, packaging foods and dry-ice refrigeration.

The market dynamics are rather simpler here. CF Industries produces CO2 as a by-product of manufacturing fertiliser. The wholesale rise in gas prices forced the company to halt production, reducing the availability of food grade CO2 by 60%. To avert a food supply chain crisis, the UK government was forced to make an intervention in the shape of picking up the tab for the full operating costs for CF’s Teesside plant for at least 3 weeks – a taxpayer bill running into tens of £millions.

Some risk lessons for recruitment agencies

Both of these demonstrate the need to look for weaknesses in the supply and demand chain. The global chip crisis may be beyond the control of any single government or company. However, it is simply staggering that the UK food production industry relies so heavily on one company for food grade CO2.

Just-in-Time ordering and production underpins supply chain efficiency, as stock or components do not accumulate. On the downside, it also makes the chain highly sensitive and any disruption may bring things to a grinding halt.

The takeaways for recruitment businesses include:

• Avoid the risk of overexposure – Don’t rely on only a handful of clients. The supply of vital components that are produced by a handful of very large global manufacturers demonstrates a serious weakness. Recruiters that rely on filling roles for only a handful of clients should try to diversify as much as possible. It’s business 101!

• Identify at risk clients – Examine your client database to look for any that may be at risk because of specific uncertainties in the operating environment. Food production is a good example here. With CO2 supply under threat, agribusinesses could potentially force agencies to lay-off food production workers.

Agency back office efficiency without risk from ETZ

The drive for supply chain efficiency may be risky. However, transforming agency back office efficiency with ETZ carries no downside. ETZ’s timesheet processing and invoicing solution is super-efficient and integrates with accounting and other key elements of the RecTech software stack that are critical to today’s recruitment businesses. To find out more about how we simplify the complexity of RecTech for agencies like yours, call us on 0800 311 2266 or book a demo.