Supply Chain Matters penned previous commentary and a research report noting that increased inbound commodity price increases would one of two of the most significant challenges for global supply chain in 2011.  The need to offset exploding material costs, while insuring the ability to be agile and responsive to demand coming from certain geographic regions were both noted as considerable.

The consumer products sector has been dealing with the more complex aspects of these challenges and has started to turn to price increases as a means of insuring margins and profitability.  But, some of the larger providers are beginning to sense the complexity of the challenge.

In late March, Supply Chain Matters noted a news report out of China indicating that consumer goods manufacturers Procter and Gamble and Unilever had indicated intent to dramatically increase prices of laundry detergent within China because of rapidly rising costs.  However, the government of China, under pressure to control exploding inflation, pushed back on these price increases.  China consumers upon hearing of potential laundry detergent price increases in the magnitude of 15 percent immediately descended on retail stores to stock-up on detergent and soaps before price increases took effect.  Retailer shelves were picked clean in a matter of hours.

China is not the only Asian nation dealing with the effects of high inflation on food and staples.  Inflation rates have also soared in Hong Kong, India, Singapore and Vietnam, and some economists now view inflation driven by higher prices of staple consumer goods as the single biggest threat to the economic growth within the region.

Last week, news came that China’s policy makers have now imposed a fine of two million yuan on Unilever for talking publically about planned price increases and disrupting market dynamics.  According to an article appearing in the Wall Street Journal, a P&G spokesperson declined to comment on whether that company had been asked by the government to refrain from any price increases on laundry detergent.

What’s interesting is that if some U.S. multinationals had encountered these fines within the U.S, they would surely gripe about big government’s anti-business policies. But alas, China and other emerging economies represent a far larger market.

China’s unprecedented actions send a clear message to foreign manufacturers and will most likely lead to push back from other emerging economy countries dealing with high consumer anxiety for rising prices.  They also place consumer companies in a rather tight bind, having to now turn to other areas of the supply chain to reduce costs.

These events continue to also have implications for many other industry players hoping to pass along price increases in 2011.  As noted, tough decisions continue to be in store for the remainder of 2011.

Bob Ferrari