The COVID-19 pandemic has been nothing short of a Black Swan event for the world economy—namely the many supply chains that power it. Challenges facing Supply Chain executives across every sector have found them pivoting in the face of numerous headwinds and consistent downstream demand.
Unfortunately, these struggles don’t end with the pandemic. Ripples of disruption will continue long after.
As we look into the coming year ahead, supply chain leaders face new and significant challenges. How they respond to them will dictate how the companies they represent—and the world at large—reestablishes its economic foundation after COVID-19.
Here’s a look at the top six challenges on the horizon, and how supply chain executives can embrace them.
1. Rising fuel and freight costs
Crude oil prices are a simple litmus test for economic performance—namely in how they affect the cost of fuel prices, which affect freight rates. Safe to say, the cost of fuel is high and growing higher. Over an 18-month timeframe—April 2020 to September 2021—the cost per barrel of crude has more than tripled from $20.10/bbl to $68.50. Fuel rates have responded in kind, with spot rates for freight hauling reaching decade-plus highs in 2021.
While time might bring some relief from constant record-setting spot prices and inflation, supply chain executives need to brace for continued high costs in an inflationary period. Cost-saving initiatives will become paramount, such as investments in TMS platforms, contract negotiation, and strategic load and route planning.
2. Material shortages and scarcity
Supply and demand are in prolonged imbalance, and will continue to rock out of equilibrium in 2022. As suppliers struggle fulfill backlogged orders and meet current customer demand, supply chain managers need to remain nimble. Expect shortages of critical materials to continue—including building staples, petrochemicals, electronic components, plastics and more.
Supply chain executives will need to work closely with production and operations leaders to prevent bottlenecks caused by material shortages. Upstream, prepare for rising costs and new contract negotiations as supply chains diversify.
3. Renegotiation of contracts and terms
Contract negotiations will become commonplace as tensions between customers and suppliers flare. Expect to negotiate on everything from new delivery terms and timelines to price hikes and contingency agreements. Suppliers will seek to capitalize on scarcities and demand; supply chain leaders need to insulate themselves against these same factors.
Great supply chain executives will leverage long-term partnerships to maintain favorable terms. More important, they’ll strive to create favorable relationships for both sides, giving suppliers a reason to trust them. In return, they’ll reward transparent suppliers with consistent business and fair pricing.
It’s important to engage in negotiations with empathy, yet hold firm on key terms and rates to prevent liabilities and to solidify supply chain ops for the future.
4. Consistent and rising demand
Supply chain executives face a double-edged sword in consistent demand. Orders coming in mean revenue through the door; unfortunately, due to materials shortages, it likely also means a growing backlog of projects. This bottleneck is something supply chain managers and operational executives need to coordinate on together.
Supply chain executives can mitigate the situation by leveraging consistent and rising demand into improved supplier relationships. Use larger or more consistent order volumes to secure priority from suppliers—or to keep costs controlled during periods of volatility.
Leaders can also explore expanding their supplier pool and strengthening the supply chain with the promise of strong demand to compel new partnerships.
5. Increasing demand for supply chain visibility
The numerous headwinds, obstacles and challenges following COVID-19 are all easier-managed with better visibility. The ability to see a problem and its contributors in real time means the ability to pivot and adapt just as quickly.
Moreover, supply chain visibility brings transparency and accountability to the chain of custody, no matter how broad it may be. In short: knowledge is power, and supply chain visibility is the crux of knowledge.
Supply chain executives need to embrace the Internet of Things (IoT) and sophisticated supply chain management dashboards to gain deep insight into their supply chains. Alongside these investments, there needs to be a critical shift to de-siloed management. The supply chain is more than the sum of its parts, and broad visibility creates an avenue for action.
6. Reshoring and supply chain reconstruction
One of the biggest buzzwords of 2021 was “reshoring,” thanks largely to President Biden’s heavy push toward an infrastructure bill. Passed in its intended capacity, the bill will stimulate tremendous domestic production, which inherently necessitates the need for some level of supply chain reshoring. Pending the passage of the bill, supply chain managers will find themselves looking close to home for critical goods.
Bringing supply chains back home represents a number of unique challenges in and of itself. Expect to navigate the untested waters of new domestic partnerships, with new costs, terms and processes to decipher.
The reshoring process won’t happen overnight, which means supply chain leaders need to be stewards for the months, quarters and even years it takes to reconstruct these value streams.
The leadership to deliver supply chain solutions
There is no silver bullet for dealing with any of these challenges. Every organization has its own unique supply chains, and the executive leadership governing them needs to contextualize solutions. Those who identify, embrace and overcome these challenges will find themselves building a strong, more resilient supply chain, ready to weather the next Black Swan event.
It starts by finding supply chain executive leadership that acknowledges the challenges facing Supply Chain Executives listed here and takes a proactive approach to addressing them.