How supply chain disruption will hurt you

A shopper at a supermarket in Embakasi, Nairobi. [Wilberforce Okwiri, Standard]

Duncan Lungonzo who runs a wholesale in Kajiado county makes brisk business selling essential goods.

However, for the better part of Wednesday when protests rocked the area, he was shoving away customers who flock to his shop because his prices are lower than the supermarkets and retail stores.

During the few minutes I was in his shop in the mid-morning, his lips literally dried up from repeated explanation to customers who sought to know why the commodity they were seeking was not in stock.

Most of the customers had come to buy sugar. A kilo goes for Sh225 in most supermarkets and retail shops while he sells the same at Sh210.

“There is no sugar. The supplier is not willing to release the lorries because of the protests,” he kept explaining to customers.

Some wanted to know when sugar will be restocked.

“I am not sure but for the whole of today, as long as the protests are on, no one wants to release their lorry to supply anything,” he said.

The protests called by opposition leader Raila Odinga affected the Nairobi Metropolitan including Mlolongo and Kitengela. At least 14 people were killed in the protests meant to pile pressure on the government to lower the cost of living. 

Suppliers and traders are however hard hit by the demonstrations and if they persist it could lead to spike in the prices of commodities.

Suppliers Association of Kenya Chief Executive Ishmael Bett told Sunday Standard that in the short run, suppliers of finished products may opt to cushion the customers from the risk-based cost of distributing the products.

“But if it (protests) persist and gets to the breaking point, they will have to pass to pass it to the consumer,” he said.

Mr Bett said the country’s economy is not at its best considering consumers’ buyer power. As a result, price hike is the least a business person can think off at this moment.   

“The customers we are dealing with today are wallet sensitive. You increase a little bit and they opt for an alternative. It’s a real challenge,” he said. “Do you increase the price, loose the customer or part of them or do you maintain the price and absorb the shock?”

He acknowledged that some shocks are too huge to be absorbed by businesses.

According to Kenya Private Sector Alliance (Kepsa), the economy losses Sh3 billion daily during protests. This is from traders who choose to close their shops for fear of looting and destruction of property by goons.

“For a struggling economy, reeling from the effects of a prolonged drought, General Election and economic slowdown last year and compounded by general global (economic) challenges, Kenya can ill afford the political activities currently at play,” read the statement from Kepsa.

Kepsa said businesses provide goods and services to all Kenyans and must be protected from political mechanisation.

“By considerable measure, they are also a barometer of our economic stability and their closure is an affront to Kenya’s national economic aspiration,” read the statement.

Bett said the protests, which the opposition leader has announced will resume on Wednesday will worsen the situation citing the macroeconomic factors like the US dollar shortage.

“When you add protests, it is salt on injury and the business person has to make some decisions. And some decisions are so hard,” he said.

While it may take some time before suppliers of fast-moving consumer goods pass the risk-based cost of supply to customers, he said those supplying raw materials and fresh produce, have no choice.

“There are products whose prices might change almost instantly like fresh produce because they are highly perishable. If they do not deliver today; tomorrow is a different story,” he said.

The cost of fresh produce is also likely to go up because of the brokers involved in the business. Bett explained that the chaotic protests force suppliers to seek alternative routes to get the products to the traders. This means an additional cost.

He said because of the situation many suppliers, would rather choose not to supply. This then will affect supply and cause prices to shoot up.

“The shortage of these products in the market especially fast-moving consumer goods such as bread will affect prices because they are needed the most and on a daily basis. This is something that needs to get to the consumer almost daily if you affect that chain you cause shortage and this will hike the price,” he said.

Such changes in prices would then put pressure on the inflation rate that dropped to 7.9 from 8.0 per cent per cent as a result of reduced food prices due to improved rains.