We’ve been through a lot these past few years. After thinking we had operations under control with just-in-time supply chains, leaning out our processes and modernizing our IT systems, we got hit with geo-political tariffs, then shut-downs due to the Covid pandemic, shortages and backlogs, a fast shift to online commerce, omni-channel selling, and remote working just to survive.
Some industries were pummeled, and others never had it so good.
So, what have we learned from all of this, and what is our prognosis? Will Supply Chain improve? We’re still left with a mixed bag of options. Let’s look at where we are.
Delays and Backlogs
Business leaders report that their current supply chain issues are mainly owed to global political unrest and a lack of raw materials. Congestion and backups at various distribution points, such as ports and rail yards, and container shortages, further contributed to backlogs and transportation delays in 2022.
In the U.S, shippers were plagued by railroad service constraints, as well as backlogs at East Coast ports when businesses sought an alternative to the West Coast. Spot rates for containers, tankers and air freight shipments are coming down fast.
While freight congestion has eased and all signs point to transportation delays improving in 2023, it was not long ago that transportation capacity was stretched beyond its limits.
Even if the imbalance has corrected itself, companies must accept that capacity and congestion issues will continue to crop up and should always be prepared or have processes and solutions in place that help minimize impact.
What You Can Do About It
Some companies are becoming intermodal to reduce reliance on drivers or any one specific carrier. Similarly, diversifying partners relieves a business’ reliance on any one supplier and partner, alleviating material shortages and delays.
The alternatives are not quick-fix solutions that will have you resilient overnight; rather, they are part of long-term strategies organizations are realizing as non-negotiable in volatile supply chains.
To ensure a smooth and fast-time-to-value transition, companies are adopting supply chain technology platforms that allow them to onboard and connect with new partners quickly. Multi-modal and omni-modal solutions will be critical for these reasons, offering flexible and cost-effective logistical alternatives as needed.
The record-setting inflation that is escalating with spiking commodity prices and deepening supply shortages is only one dimension of the turbulence that is troubling companies. The rising cost of logistics also impacted service levels for many businesses.
Swelling gas prices alongside congestion and lack of capacity left companies with few cost-effective alternatives. Some paid premiums by switching to air freight while heightened demand caused ocean carriers and freight rail transportation to up their rates as well.
While every mode and geography has its nuances, capacity and rates seem to be generally stabilizing across the board and carrier cycles appear to be normalizing.
However, impacted product and time to market costs have many preparing for the chain of events to follow—namely, consumers cutting back on nonessentials and showing increased price sensitivity as pressure mounts on central banks to raise interest rates, leading to a possible recession.
On a hopeful note, manufacturing executives are still anticipating a 5.5% net increase in revenue growth this year.
What You Can Do About It
Whether logistics costs will stabilize or not, companies would do best to recognize the market’s volatile and cyclical nature and get as much control over partnering under any condition. Invest in a supply chain execution platform that will connect you to a large and diverse carrier network and allow you to rate shop.
Prioritize supply chain software that enables you to optimize order planning and execution across the full order lifecycle to minimize common cost inefficiencies around handling, detention, warehousing, and customs duties to help offset rising costs.
Russia’s invasion of Ukraine led to tight supply and high prices for certain commodities, forcing some companies to overhaul operations and rethink their sourcing strategies. COVID-19 lockdowns in China sent businesses scrambling for alternatives as some suppliers idled production.
According to a CNBC supply chain survey, inventory balancing issues look unlikely to change any time soon. Logistics managers are reporting packed warehouses, and as a result of diminishing space, a 400% increase in warehouse prices.
What You Can Do About It
Companies are rethinking whether to hold safety stocks and back away from JIT methods to ensure product availability. Some companies are planning to invest in onshoring or nearshoring to be less reliant on China. Apple, for instance, has set its sights on India and Vietnam as possible alternatives.
Sourcing from multiple locations will certainly reduce risk but doing so also introduces its own complexities around visibility, data integration into planning, and so on. Businesses are leveraging supply chain planning platforms for instant visibility into their network and also model scenarios in real-time to make confident, strategic decisions.
Forward thinking logistics service provider, AFS Logistics, is partnering with MPO (Multi Party Orchestration platform) and Taulia (a financial technology business) to offer a strategic inventory management solution as an alternative.
Through the partnership, AFS can carry inventory for their customers, using the MPO supply chain control tower for visibility and management, and leveraging the global footprint of warehouses to take inventory off their customers’ and suppliers’ balance sheets.
Gartner names cybersecurity as one of the biggest risks to supply chain. They predict that by 2025, 35% of organizations worldwide will have experienced attacks on their software supply chains, a three-fold increase from 2021. Blockchain seemed to be one way of better managing this risk, but it isn’t catching on and going the way of RFID.
Take the threat seriously. Most companies know the threat is there, they acknowledge the threat exists, but they don’t do much about it. My advice: don’t wait until there’s a ransom.
What You Can Do About It
More third parties have access to your devices, applications, and systems than ever before. Do you have a clear picture of who is doing what, when, and where? Know your attack surfaces and weaknesses. Conduct periodic and regular security audits and be sure your SaaS providers do too.
What Agility and Resiliency Will Mean
“Agility” and “resilience” will be major buzzwords this year (and likely for years to come) as businesses wrestle with ever-changing market and socio-political conditions. For some, it may entail wide-scale restructuring of their infrastructure. But what do these terms really mean?
Agile supply chain management refers to a company’s ability to quickly and effectively respond ahead of time to changes in demand, supply, and other market conditions. Resiliency reflects a supply chain’s ability to effectively and immediately respond to the unknown, to withstand and recover from disruptions or shocks.
A resilient supply chain can adapt to changing circumstances and maintain or quickly restore its operations. Both require a high level of flexibility and adaptability to handle unpredictability, as well as strong collaboration and communication across the supply chain ecosystem for fast response.
Here are five key factors that contribute to agility and supply chain resilience:
- Diversification: Having multiple sources for raw materials, components, and other supplies can help reduce the impact of disruptions to any one supplier.
- Risk management: Implementing risk management strategies, such as insurance or contingency planning, can help mitigate the impact of disruptions to a supply chain.
- Flexibility: The ability to quickly adjust production levels, shift to alternative suppliers, or reroute shipments enables a supply chain to recover from disruptions quicker.
- Supply Chain Visibility: Holistic visibility and traceability throughout the supply chain can help identify potential risks and vulnerabilities, allowing for proactive disruption management.
- Collaboration: Connecting on a unified, single-view platform with suppliers, customers, and other partners can facilitate better and faster communication and cooperation in the event of a disruption, enabling a more coordinated response.
So, what’s the takeaway? Will Supply Chain improve?
While predictions vary and often seem bleak, the question of “will the supply chain improve in the near future?” need not rely exclusively on those forecasts.
The supply chain is comprised of market and socio-economic-political conditions – yes. But it is also comprised of people. The ability for your team to intelligently plan using AI and ML, to see across all systems, people, and processes, and collaborate, orchestrate, and continuously optimize execution across the network is what will enable your company to be resilient.
That is, to mitigate risk, assure supply, adapt and pivot as needed, and save on time and cost to keep service levels high and customers satisfied.
You can’t control logistics rates, inflation, shortages, delays, and backlogs. You can control who you potentially source from and partner with, what mode is ideal at any given moment, whether you are immediately alerted to a problem, how you leverage diverse resources to resolve the issue as quickly as possible, and whether and how you keep your customers informed to minimize frustration.
In other words, if you start diversifying partners, contingency planning, and adopting technology that supports flexibility and network visibility and coordination, your supply chain will improve and get stronger every year thereafter, no matter the future outlook.