The supply chain this year is a thorn in a lot of sides. Despite the pandemic slowly dwindling, giant delivery delays and traffic congestion will not be quickly blotted out. Meanwhile, an ongoing digital transformation moves at its own pace, suggesting more and more disruptive solutions.
While some of these won’t pass the test of time, others are here to stay, signaling a milestone in the way we think about supply chains of the future. This forces a change in management’s approach to supply chain operations, critical procurement, and the flows of values they manage.
In this article, we’ll discuss the current supply chain state, the challenges industries face, and find out how businesses can overcome them.
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The State of Supply Chains in 2022
Global supply chain challenges continue to multiply, retailers have carried on with business despite shortages and delays in the delivery of goods and inventory for their stockrooms. Retailers and small businesses also found themselves in a difficult situation. The market requires advanced logistics and supply chain management, so they have to circumvent problems to ensure that they can remain competitive, meet their customers’ needs, and prevent sales and revenue losses as customers wait longer to receive their orders.
In 2021, the most common supply chain challenges were port congestion, manufacturing delays, and severe weather conditions (such as floods, hurricanes, wildfires, and others). This year, the world merchandise trade faces new risks. According to Sea-Intelligence observations, global schedule reliability reached 35.9% in March and continues to improve slowly compared to 34.4% the month before. However, it remains below 2021 levels.
The current situation is followed by significantly increased traffic jams in Chinese ports due to the zero-Covid policy in China, as well as in the North Sea due to the war in Ukraine. Therefore, business representatives do not expect global schedule reliability to improve much further from here just yet. In the North Sea region, sanctions against Russia and voluntary bans are leading to new congestion, suggesting longer-term supply chain problems. First of all, it is necessary to reorganize the schemes of sailing and air freight, which will inevitably lead to an increase in transportation time.
The economic and business environment became more challenging in general, and here are the most pressing matters companies have to deal with.
Top 4 Challenges Facing Supply Chain Executives
1. Rising inflation
When unsustainable demand meets a disproportionate supply-demand ratio, companies cannot cover the costs while the purchasing power of money is sharply reduced. Prices are rising exponentially and it’s only a matter of time before businesses begin to pass them on to their clients. Managers should be prepared for such cost increases and the upcoming implications.
In 2022, the focus will be on sustainable business performance. How can supply chain managers keep procurement costs low without compromising the integrity of the value flow? The answer lies in technology. Supply chain leaders need to invest in a well-thought digital transformation strategy in the coming year to gain cost-saving insights.
2. Production delays
Production delays during pandemics have become a topical issue. Producers compete for a limited supply of key goods and logistics, resulting in empty shelves and long procurement times for consumers. However, it’s not all doom and gloom. The pandemic has intensified the focus on supply chain digitization, thereby investing in long-term supply chain strategies became a must for businesses to stay afloat in the chosen industry and succeed.
3. Transport costs rise
Trucking and intermodal transport costs reached historic highs in 2020, and it was far from the limit. Both sea and air freight skyrocketed, and prices aren’t likely to stop rising soon. The ever-changing market conditions make it extremely difficult to move cargo in any volume.
If supply chain managers want to succeed in the future, they must understand the mechanics behind the rising transport costs. Labor shortages, rising gas prices, and port congestion all affect the situation.
4. Labor shortage
Material and labor shortages continue to hinder production and transport as well. This adds to existing material bottlenecks caused by the pandemic. At the same time, sharply increased prices make it difficult for manufacturers to calculate accurately for this year and to commit to prices for delivery to clients much later.
What Would Be Better for Business?
Government and industry leaders are seeking to define strategies that build resilience and boost our domestic capabilities, to become less reliant on regional and global supply chains. As soon as the economy begins to slow and the stock market corrects, the pressure to find more savings will increase for most procurement departments, creating a spike in sourcing pipelines.
Companies should look to redesign alternative supply chain flows, build inventory storage capabilities closer to their customers, and determine how to best enhance last-mile deliveries and returned goods.
By automating the inventory management process, merchants can have better insights into real-time order statuses, have software that automatically determines fulfillment workflow rules, and better forecast supply and demand from data gathered about sales patterns. If retailers can proactively prepare their inventories and accurately view them, they will be better equipped to control their flow of goods as we navigate a slower-moving chain.
In a Nutshell
As supply chains move past the initial impacts of the pandemic, likely, some organizations will quickly fall back into their old habits. But with trade tensions still present, it’s almost confident that vulnerabilities to the supply chain will remain and resurface. By taking a proactive approach towards adopting resilience with the aid of multi-party orchestration supply chain platforms, organizations can be better prepared to withstand continuous disruptions.
On a final note, there are some words of hope said by Pete Buttigieg, US Transportation Secretary – “Certainly, a lot of the challenges that we’ve been experiencing this year will continue into next year. But there are both short-term and long-term steps that we can take to do something about it,” and that sounds like a good plan.