The global supply chain has continued to struggle over the course of 2021, with disruption ranging from the pandemic to digital transformation, creating gridlock across operations.
Much leadership attention and media coverage has been drawn to supply chain challenges, and whilst it has been difficult to be optimistic about the future, could we now be seeing light at the end of the tunnel?
Over the past year, the supply chain has metaphorically been chasing its tail, with peaks in demand correlating with event-driven slowdowns seemingly making the situation seem like an unending cycle – backlogs, increased consumer demand and workforce shortages all contributing to the situation. November and December are peak times for large volumes of traffic driven by heightened demand; however with those behind us, now could be the natural opportunity for the industry to take a breath, reset and seek to resolve a number of supply chain issues.
Production – Factories are currently running at full capacity, or with as much capacity as is possible due to the impact of labor shortages. However, with production breaks anticipated in China because of the Lunar New Year, a window of opportunity will open up for port operations to reduce bottlenecks with other suppliers.
Labor – Unemployment in some of the distribution-heavy markets is at near historic lows of 1%. However, much of the recent demand has been driven by large organizations focusing on seasonal hiring during peak periods such as the holidays. As these roles subside, we can expect to see easing in the labor market and more of this workforce readily available, but pressures on wage rates are likely to remain and the shortage of supply chain leadership talent will be slow to correct.
Demand – The highly transmissible Omicron variant is on the rise and will remain a threat for some time and influence another wave of activity slowdown. From a consumer perspective, with the potential reintroduction of lockdowns in the US, we could see spikes in demand for consumer goods, though this demand will likely manifest as smaller household rather than large-scale/industrial items. Increases in interest rates will contribute to softening demand for borrowing.
Sourcing – With higher shipping costs, companies are re-evaluating their sourcing practices and adjusting accordingly. Expect companies to make changes to country-of-origin and leverage shipping lanes in less congested or cheaper ports to allow a more agile and leaner model. US production and near-shoring will see a boost in demand.
Inventory Planning – Many organizations have changed inventory strategy during the pandemic, which is now embedded in their daily operations (Just-In-Time vs Just-In-Case). This should ease some of the 2021 rush to stock up as we get into 2022.
Ocean Freight Rates – Although the spot market continues to be volatile, overall container shipping rates seem to be stabilizing and will slowly decline.
What’s the solution?
There are opportunities across the entire supply chain that companies can take advantage of during this period of activity slowdown:
- Look for opportunities to be stronger partners with transportation providers and suppliers; moving away from a transactional mindset and focusing more on collaborative planning
- Strategically explore risk mitigation strategies that will enable flexibility in changing market conditions – alternative distribution points, sourcing locations, transportation lanes, etc.
- Be the employer of choice in your area. Think beyond just competitive wages to include incentive programs and peripheral benefits that will set your work environment apart
- Don’t panic! Avoid making long-term decisions based on short-term pain.
Delays are only temporary, and during a period of easing, companies can learn and adapt during Q1/Q2 to bring us closer to restablishing a sense of stability across the supply chain.