When the pandemic started, we all had the feeling that the world was about to enter an age driven by transformation. While it’s certainly true that we managed to overcome COVID-19, things are far from being back to normal, the global supply chain for instance has come a long way since the pre-pandemic days and this isn’t free from challenges.
Despite all the predictions that the supply chain would return to normality in 2023, this year keeps proving otherwise, Big brands and small businesses are still feeling trapped by not only one but many issues that keep the supply chain in troubled waters.
According to a recent survey undertaken by the American Productivity and Quality Center, 84% of the participants have been forced to modify their supply chain strategy due to constant problems.
Pinpointing a single reason seems rather impossible, many say that geopolitical conflicts are to blame, others argue that climate change is responsible, and of course, there’s the matter of labor shortage and financial problems.
Whatever the reasons, there’s no denying that business owners need guidance to overcome the rising problems the supply chain is facing.
And that’s what we’ll aim to do here.
Understanding Supply Chain Issues
Living in a connected world has many advantages, we can order a product from the other side of the world with just a couple of clicks on our screen. But do we ever stop to think about how that’s possible?
Businesses do and the solution is a global supply chain, whether it’s to obtain materials, manufacture the goods to sell, or deliver that amazing phone to our doors, relying on the supply chain is the essence of the world we live in.
But what happens when something goes amiss?
Supply chain issues happen due to the disruption of the sequence between the production and the delivery of goods. Suppose a commercial ship that was supposed to deliver a certain amount of products from India to the U.S. gets strained in the ocean due to bad weather. In that case, the company will see itself failing its customers as it’s unable to fulfill any requests, incurring financial losses and a decrease in its reputation.
The Impact of Globalization on the Supply Chain
As a reminder, globalization means the free movement of services, goods, and people across the globe. For the supply chain, globalization opens the doors for businesses to be connected at an international level. There are certain benefits of a global supply chain like:
- It’s more simple to acquire new customers.
- The sourcing of materials is no longer centered in a single location.
- There’s an increase in the possibilities of services that can be provided.
- Expansion becomes the logical next step.
- Money spending reduces and profitability reaches new heights.
With benefits, however, come downsides, and for supply chain management this equals risks:
- Higher levels of complexity
- Different regulations to comply
- More susceptible to disruptions
- Social and ethical challenges
- Legislation can be difficult to understand
Okay, but what about the challenges? What are the critical points that businesses need to be aware of?
Current Supply Chain Challenges
Materials Scarcity
An increasing absence of available materials was the driving force behind many supply chain challenges during 2023 and the current outlook doesn’t seem to change, shortage of materials like glass, plastics, and metals delays production, resulting in higher prices for businesses and consumers alike.
Rising fuel and energy costs
The ongoing conflict between Russia and Ukraine has tremendously impacted the fuel and energy industry. Since 2022, gas prices have done nothing but keep going upwards. This means that businesses have to pay more to ship their products.
Complex Demand Forecasting
In a world driven by virality and fast-paced choices, determining a pattern for demand has become increasingly challenging. If a business relies solely on historical data to fulfill its stock, and something in consumer preferences suddenly changes overnight, it could lead to an overstock of products that nobody is interested in.
Environmental and Social Impacts
While greenwashing is a common practice nowadays, businesses need to go beyond an artificial eco-friendly public image. As climate change becomes more a reality than a prediction for the future, businesses feel the urge to invest in a sustainable supply chain that allows them to reduce costs and dependence on external sources.
Labor shortages and workforce management
After the pandemic, there was a shift in workforce trends, people were quitting their jobs more and more, hiring became a treasure hunt, and retaining talented staff was no longer only about a rise in salaries. This is prevalent across all industries, but the supply chain is definitely one of the most affected.
Drivers of Change in Supply Chain
Delivering a product from point A to point B is no longer a straight line as it used to be in past decades. In our current times, the more advanced our society becomes, the more complexities surround the processes of the supply chain. Here are the main ones:
Technological advancements shaping supply chain dynamics
Instead of relying on a straight line, supply chain dynamics are now shaped by a rising wave dominated by technology. AI, data analytics automation, blockchain, and many others are here to stay, what we thought was a vision of the future is currently actively leaving the old strategies behind and putting the word smart before any supply chain strategy.
Changing consumer behavior and preferences
Right when we were getting used to buying online, the pandemic kicked in and forced us to make e-commerce our new reality. The simplicity of acquiring what we needed from the comfort of our laptops or phones didn’t come alone. Suddenly, we knew that if we wanted something we could and should get it immediately, prioritizing a sense of urgency. The role of social media and user-generated content means consumers can desire products that aren’t even available on the market.
Regulatory changes
Any change in regulations that wasn’t foreseen will force companies to adapt in a short-time. Naturally this has the potential to disrupt the supply chain. Modifications or updates in regulations are becoming more common in the ESG arena. Businesses must now ensure that all their logistics and partners comply with environmental regulations, promote fair labor practices and make ethical decisions.
Transportations constraints
You probably have heard it. The Panama Canal has been forced to restrict the usage of its trade route about a 40% per day. This in the light of the severe drought the area is facing. But beyond the specific reasons, there’s a pattern across transportation services. Between higher levels of demand and social issues, the transportation industry has seen itself surpassed.
Bottlenecks
Believe it or not, our word is still grappling with the consequences of what COVID-19 left, retailers for instance have yet to recover from the aftershocks. The huge demand from customers that reached new levels during lockdowns and the shortage of workforce remains complicating the global supply chain. Undoubtedly, leading to delays and cancellations in the shipment of products.
The impact of natural disasters and climate change on supply chains
A few years ago, when climate change was discussed, people used to say that we could fix it, with the hope that climate change was something that could be stopped. Unfortunately, we now know that’s impossible so instead of strategies to stop its impact, we use the word adaptability. For businesses, however, this implies that with more frequency, the sourcing of materials, the shipment of products, and the whole supply chain will be face to face with rising sea levels, hurricanes, floods, and wildfires.
Strategies to Mitigate Supply Chain Disruptions
Have more inventory
But this wouldn`t lead to that dreaded overstock? Not exactly
Hold more inventory doesn’t mean acquiring products that nobody is going to buy. Yes, there’s a fine line between making sure your company has the stock needed and overstocking your inventory, fortunately, a solid mastery of your data can help you to keep the right balance. By knowing what are the current predictions and issues surrounding your market, what’s the behavior of the consumers, and what could possibly go wrong with your supply chain, you can know with certainty how much stock you must cover.
Data-driven supply chain
As we’ve seen above, there’s a necessity for businesses to be better predictors of consumer preferences. Historical data and instinctive guesses is not sufficient to manage an effective supply chain. Managers must now turn to numbers, figures, patterns, and insights based on computational analysis to understand the what’s, how’s, and when’s of consumer demand.
Overcome high return dates
Businesses not only must lead now with unpredictable customers and viral cycles of consumption, but they also have to come up with ideas to tackle high return dates. While there might be a long list of reasons why customers are returning products, the bottom line is just one: Unhappy clients.
To avoid this, companies should set a list of strategies like:
- Set clear expectations from the very beginning: Nobody wants to be lied to.
- Rely on reviews: People listen to people, that’s how society works.
- Provide total transparency: Include demonstration of the product whenever possible
Diversify sources
Some of the challenges that impact the global supply chain might not be simple to reverse, but it’s special to note that the stronger a supply chain the more resilient it can be. One of the key methods to achieve this by diversifying your sources of supply. It’s pretty logical if you think about it, in the case that something happens to the place where you get your supplies, you can simply turn to an alternative supplier, reducing the possibility of a disruption. Having more than one supplier is becoming more common, as Shopify research indicates that 29% of merchants are already getting their supplies from multiple locations.
Higher supply chain visibility
By knowing exactly what’s happening from the moment you place an order to get a product from a supplier up to the second it’s delivered to your customers could change entirely the pattern of businesses only reacting but not proactively acting before a problem or change happens. This can be achieved by relying on advanced technological tools like supply chain management software or artificial intelligence.
The Future of Supply Chain Management
Although it seems like the pandemic was the biggest driver of change for the supply chain, the upcoming future will keep testing managers in more than one area.
A hint? There’s going to be a huge focus on sustainable practices.
Sustainability initiatives and eco-friendly supply chain practices
Following ESG-Environmental, Social and Governance commitments, used to be a bonus for companies, a touch of good public relations. That’s not the case anymore, governments and consumers alike are now more than ever establishing new waves of eco-friendly behavior, requiring businesses to go beyond their profit and focus on the social impact of their trade.
Robotics and automation
The adoption of robots in warehouses, replacing human labor has stopped being a thing of the future. New technologies are at the core of every process in the supply chain, To keep this in their favor, leaders must learn how to use automation in the best and most efficient way, so mistakes are minimized and productivity levels are increased.
A different workforce
Robots might now be part of the production cycle, but the human workforce is not disappearing. It’s up to managers to cultivate human talent, blending their unique abilities with the power of automation. Providing life/work balance is a must that many employees won’t negotiate.
Conclusion
Across history no transformation has happened without obstacles, the supply chain industry has a long road ahead, mostly beneficial with the surge of AI and a more conscious approach to sourcing and shipping practices. To make the most of this, however, leaders need to be willing to adopt new strategies and prioritize adaptability to stay resilient in the face of the many challenges global supply chains face and most certainly will keep facing during this year.
While there’s a prediction that 2024 might be slightly better than the previous year, problems like the scarcity of materials, the implementation of new regulations, geopolitical conflicts, and labor shortages aren’t disappearing anytime soon.
Key Takeaways
- Since the pandemic, the global economy has shifted into a new paradigm, affecting the supply chain's behavior positively and negatively.
- Leaders face many challenges in sourcing and shipping their products: Lack of raw materials, labor shortages, rising fuel prices, and a constantly evolving consumer demand.
- Companies need to use technology to their advantage to maintain a competitive edge.
- Sustainability will be at the forefront of the new era for supply chain management.
