Industry Giant Consolidation Period, How Can Small and Medium Brands Avoid Supply Chain Disruption and Price Increase Risks?

The industry reshuffle is accelerating, and the drama of big fish eating small fish is being staged repeatedly. Small and medium brands, stop standing by! Once the supply chain is broken and prices rise, the survival of enterprises is in jeopardy. In the wave of industry consolidation, small and medium brands face the dual challenges of supply chain disruption and price increases. This article will delve into these risks and provide diversified suppliers, lean inventory management, early price locking and other response strategies to help you stand out and even grow against the trend.

Industry Consolidation: New Challenges for Small and Medium Brands

Industry consolidation refers to the process by which companies in the industry achieve resource integration and concentration through mergers, acquisitions, restructuring, etc., thereby improving industry concentration and competitiveness. Behind the various dramas, the pushers are very complex: technological innovation, you have to die if you don't transform; market competition, you're done if you don't stick together; and there's also the invisible hand of policy.

Industry consolidation is a coexistence of danger and opportunity for small and medium brands.

Of course, there are opportunities: maybe you can be spotted by a large company and directly "fly to a branch and become a phoenix"; maybe you can take the opportunity to seize market share. But there are more challenges! With fewer resources and a weak foundation, the ability to resist risks is poor. A wave may directly capsize the ship.

Take the IVD (in vitro diagnostics) industry as an example. According to EvaluateMedTech data, the value of global IVD market mergers and acquisitions has repeatedly reached new highs in recent years, reaching a historical peak in 2023. The domestic market is no exception. Leading companies are rapidly expanding through mergers and acquisitions, and the survival space for small and medium enterprises is further squeezed! Don't you feel the crisis approaching?

Supply Chain Disruption Risk: How to Deal with It?

Industry consolidation, the most direct risk is supply chain disruption.

Why?

• Suppliers go bankrupt or are acquired: The supplier who called you brother today may become the "younger brother" of your competitor tomorrow and directly kick you out.
• Raw material shortage: Large factories take delivery first, and small factories can only stare blankly.
• Logistics blocked: Don't think that logistics is just a matter of time. Epidemics and geopolitics, just one, and your goods will have to "drift" in the port.
• Geopolitical risks: In recent years, the international situation has been changing rapidly. Who knows what will happen tomorrow?

In 2023, a small IVD kit manufacturer suffered a big loss. The only overseas enzyme supplier they relied on was acquired by Danaher and directly stopped supplying them. The result? The production line was shut down, customers were lost, and it almost went bankrupt! This is not alarmist!

In the face of this "catastrophic disaster", what should small and medium brands do?

• Diversified suppliers: Don't put all your eggs in one basket! Choose at least two to three alternative suppliers, and conduct strict qualification evaluations to ensure that their production capacity, quality control and financial status meet the requirements. Sign long-term cooperation agreements with suppliers to clarify the rights and obligations of both parties and establish a mutually trusting and mutually beneficial cooperative relationship. How to find it? Participate in industry exhibitions, ask around, and don't be afraid of trouble! How to evaluate? Conduct on-site inspections, ask for qualification certificates, and even ask a third-party organization to evaluate.
• Optimize inventory management: Don't hoard goods blindly! Adopt lean inventory management, and accurately control the inventory level according to actual needs. JIT (Just-In-Time) inventory management can be used to reduce inventory levels as much as possible and reduce capital occupation and inventory backlog; or VMI (Vendor Managed Inventory) can be used to let suppliers manage inventory for you. Have you calculated how much money this can save?
• Establish an early warning mechanism: Keep an eye on your supply chain at all times! Use professional supply chain management software to monitor logistics information, supplier dynamics and market changes in real time. Early warning signals include: worsening supplier financial conditions, abnormal fluctuations in raw material prices, and adjustments to policies and regulations. Once you find any disturbance, immediately activate the alternative plan.

I know a POCT (point-of-care testing) company that is not large in scale, but its supply chain management is quite excellent. They planned ahead and established cooperative relationships with many suppliers. Last year, the prices of major raw materials soared, but they were not greatly affected because they had alternative solutions, and they even grew against the trend! The secret of others is: Always have a Plan B!

Price Increase: Survival Strategies for Small and Medium Brands

In addition to the supply chain, price is also the Sword of Damocles hanging over the heads of small and medium brands.

With industry consolidation, large factories have stronger bargaining power, and rising raw material and labor costs will eventually be passed on to product prices. Small and medium brands either raise prices, and profits are squeezed; or they don't raise prices, and survival is difficult.

According to industry data, the average production cost of IVD reagents has increased by more than 15% in the past three years, but the market price has basically remained unchanged. What does this mean? The profit margins of small and medium enterprises are being eroded! Can we only sit back and wait for death?

Is there still a way out for small and medium brands in this situation? Of course there is!

• Lock in prices in advance: Don't wait until the last minute! Sign long-term contracts with suppliers and set the prices of raw materials in advance. The contract should clearly define the price adjustment mechanism to avoid suppliers raising prices arbitrarily.
• Optimize product structure: Don't just make low-end products! Improve the technical content of products, increase added value, and make customers feel "value for money". Consider developing differentiated products and focusing on niche markets.
• Find alternative materials: Don't hang yourself on one tree! Actively look for cheaper and more environmentally friendly alternative materials. For example, you can use domestic substitutes for imports, or use bio-based materials.
• Improve operational efficiency: Don't waste a penny! Optimize production processes, reduce management costs, and spend every penny wisely. You can introduce automated equipment to improve production efficiency.
• Cooperation and win-win: It is risky to fight alone! Jointly purchase with other small and medium brands to increase bargaining power. You can also jointly carry out market promotion to reduce marketing costs.
• Differentiated competition: Don't compete head-on with large factories! Focus on niche markets, provide customized products or services, and avoid direct competition with large brands.
• Brand building: Don't ignore the power of the brand! Create a unique brand image and enhance brand premium capabilities. Win customer trust and loyalty through high-quality products and services.

A senior expert in the medical device industry once said: "If small and medium enterprises want to survive in the cracks, they must work hard on product innovation and service. Only by making differentiation can they get rid of the quagmire of price wars." These words are definitely golden rules!

Case Analysis: Brands That Successfully Avoid Risks

It's useless to just talk without practicing. Let's get some real stuff!

Case 1: A Successful Case of Diversified Suppliers

Company A is a small gene sequencing company whose main business is tumor gene detection. They know the importance of the supply chain and have attached great importance to the selection of suppliers since its establishment. They did not put all their eggs in one supplier, but chose three suppliers from different regions to provide different reagents and consumables. They signed long-term supply agreements with these three suppliers, stipulating the supply quantity, price and quality standards. At the same time, they also regularly evaluate suppliers to ensure their stability and reliability.

In 2022, one of the suppliers was shut down by the government due to environmental issues, resulting in a shortage of some reagents. Company A immediately activated the alternative plan and purchased from the other two suppliers, ensuring the normal operation of the production line and avoiding customer loss. The key to Company A's successful response to this crisis is that they planned ahead and established a diversified supplier system.

Case 2: A Successful Case of Optimizing Inventory Management

Company B is a POCT production enterprise, and its main products are blood glucose meters and blood gas analyzers. They adopted a lean inventory management model and precisely controlled the inventory level according to market demand and sales forecasts.

They also introduced an advanced ERP system to realize real-time monitoring and early warning of inventory information. Through the ERP system, Company B can understand the inventory quantity, inventory turnover rate and inventory cost in real time. The system will also automatically generate purchase plans and production plans based on historical data and market forecasts. By optimizing inventory management, Company B reduced inventory costs, reduced capital occupation, and improved operational efficiency. According to statistics, after the introduction of the ERP system, Company B's inventory cost decreased by 20%, and the capital turnover rate increased by 15%.

Case 3: A Successful Case of Locking in Prices in Advance

Company C is an in vitro diagnostic reagent manufacturer, and its main products are immunodiagnostic reagents. They signed a long-term supply contract with upstream raw material suppliers, locking in the raw material prices for the next three years. They agreed with the supplier that the raw material price would be adjusted once a year, and the adjustment range would not exceed 5%.

In 2023, raw material prices rose sharply, but Company C faced relatively small cost pressure because it locked in prices in advance. They also took this opportunity to actively develop the market and seize the market share of competitors. In 2023, Company C's sales increased by 30% year-on-year, and the profit margin increased by 5%.

Case 4: A Successful Case of Brand Building

Company D is a start-up company focusing on the POCT segment market, and its main product is miniaturized molecular diagnostic equipment. Due to its small size, Company D is difficult to compete with large enterprises in the traditional market. Therefore, they chose a differentiated competition strategy, focusing on providing customized molecular diagnostic solutions for small clinics and community hospitals.

In order to enhance brand influence, Company D actively participated in industry exhibitions and published articles in professional media to share their technological innovations and application cases. They also cooperated with some well-known experts to jointly promote their products. Through continuous brand building, Company D has gradually established a good reputation in the segmented market and won the trust and loyalty of customers.

Practical Tools and Resources

It is better to teach a man to fish than to give him fish. Here are some tools, you're welcome to take them!

• Self-assessment tool for supply chain risks of small and medium brands:

  Want to know how fragile your supply chain is? Scan the QR code below, fill in the company information, and get a customized risk assessment report and response suggestions for free!

  (A QR code image should be inserted here, pointing to an online risk assessment tool)

• Industry Analysis Report:

  • 《2023 China Medical Device Industry Development Report》(China Medical Device Industry Association)
  • 《Global IVD Market Research Report》(MarketsandMarkets)
  • (Report links should be inserted here, make sure the links are valid)

• Risk Management Consulting Institutions:

  • Deloitte Risk Management (provides supply chain risk assessment, risk early warning and risk response services, contact information: [link])
  • Ernst & Young Risk Consulting (provides enterprise risk management, internal control and compliance consulting services, contact information: [link])
  • (Institution information should be inserted here, make sure the contact information is accurate)

Industry consolidation is an inevitable trend. Instead of sitting back and waiting for death, small and medium brands should take the initiative and plan ahead. Remember, you must be strong yourself to forge iron. Only by practicing internal skills can you stand firm in the wind and waves! Remember, innovation is the way to survive!