Overcoming Supply Chain Disruption in 2022
Supply chain disruption is not uncommon. But COVID has exposed the full extent of its fragility. Currently, demand continues to drive up supply chain costs. For a while, the economy was more or less put on hold. Now that things are opening back up, demand is outpacing supply and that’s causing major disruptions.
What Does Supply Chain Disruption Look Like?
Everything is connected. When you buy a TV, it arrives at the store at the long end of a journey where it was assembled with parts built and collected from multiple different factories.
When COVID happened, a lot of factories were shut down. Demand for goods slowed with uncertainty.
Now that the world is opening back up, people all over are sitting on disposable income they’re ready to use. And with the holidays approaching, demand is outpacing supply.
As a result, goods are no longer moving smoothly through supply chains. Instead, bottlenecks are everywhere. Truck drivers, shipping containers, and space on boats are all in short supply.
But it gets worse.
To try and get ahead of supply issues after the fact, many businesses initially increased their orders to stock up. Unfortunately, all that did was increase the instability in the supply chain. As a result, goods are moving from one bottleneck to another.
The resilience of the supply chain has come into question now more than ever in the wake of COVID. The post-pandemic economy has highlighted just how fragile supply chains are. Events major and minor can have a drastic, lasting impact on markets all around the world.
Production’s fragility can be seen when revisiting the example above. Building a TV requires multiple parts from many different manufacturers in different countries. If you have everything but one component, you still cannot finish production. Everything stops.
Without a steady supply of goods and services, businesses are unable to meet customer demands. They miss sales targets. They lose customers. They risk going under.
Where Is This Supply Chain Disruption Coming From?
Current supply chain disruption can be traced back to the pandemic. Factories were seen as areas where COVID could spread quickly. Add to that decreased demand and these places closed down to reduce costs.
Shipping and transportation companies also reduced staff and hours. Ports became understaffed. In short, supply chain movement functioned at decreased rates through the pandemic.
Fast forward to today and the market has swung the other way.
People are gearing up for the holidays, eager to buy. Both consumers and companies are ordering goods in volume. And the supply chain is struggling to keep pace.
Still, there are other factors to consider as well.
Warehouse costs eat into cash flows. So, businesses tend to keep inventory lean to reduce those costs. Unfortunately, that means that with increased demand many businesses don’t have the supply to fulfill those orders.
The way people buy (and what they buy) has also shifted. More people are buying online than in stores. They’re spending more money at home. And despite vaccines, many people are still hesitant to venture out into the world.
Add the holiday season and Black Friday, and you have skyrocketing consumer demands and a supply chain struggling to keep up.
Identifying Supply Chain Weak Points
The supply chain has many moving parts. And at every stage, from sourcing to manufacturing to distribution, there is the potential for disruption to cause it to break down.
These are major supply chain weak points:
- Transportation issues: Whether by sea, ground, or air, rising gas prices, increased demand, and other unpredictable events can create major bottlenecks.
- Political Changes: Goods moving across borders (whether state or international) are subject to impacts from legislative changes.
- Cyber Crime: Cyber attacks are less one-off instances and more a general occurrence.
- Climate Changes: Unpredictable weather events can cause lasting delays that cause ripples throughout the entire supply chain.
- Manufacturing Issues: Companies producing goods are just as susceptible to supply chain issues that cause the production of goods to slow or stop.
- Shifting Demand: Consumer needs shift faster than ever before, making supply and demand shifts increasingly unpredictable.
Current Supply Chain Forecasts
Supply chain disruption is so backed up, in fact, that it could take well over a year before it all sorts itself out. That means consumer goods will be in short supply over the holiday season and throughout next year.
Plus, the costs of these goods will be higher due to increased shipping costs:
- U.S. Consumer Price Index for energy was up 24% in September 2021.
- The average cost of gasoline had also risen $1 per gallon year over year.
- Spot rates for shipping containers increased 236% between July 2020 and 2021.
- 40% of CFOs state that supply chain costs and shortages have increased company costs by over 5%.
- 60% say that supply shortages will impact their bottom line by the end of the year.
Meanwhile, ships full of cargo wait in line to dock and unload supplies. Businesses struggle to keep supplies on the shelves and adjust to price increases on goods and services. And they pass these costs down to impatient, frustrated customers looking for businesses that can better meet their needs.
It’s not a pretty picture. And while many businesses will adapt, not all of them will. Small businesses, especially those that took a hit after the pandemic (those struggling to get their momentum back), are at greater risk.
The key to overcoming these disruptions, both now and in the future, is to take a more proactive role in securing your supply chain. To secure your business, you need a new approach to your procurement process, a more agile one.
How to Make Your Supply Chain More Resilient
Manual processes slow businesses down. Data stored in spreadsheets is almost useless when you need to rapidly shift sourcing in your organization.
Without the real-time insights that integrated systems provide, you’ll be stuck with instinct and hunches to lead your business through sudden market shifts.
And that puts business at unnecessary risk...
The key to navigating supply chain disruptions is to ensure your procurement is more resilient. Agile businesses that leverage automation and integration have access to real-time data that can make navigating unpredictable markets easier.
Procurement automation is an easy start to giving your organization more visibility into its supply chain. By automating processes like vendor relations, invoicing, and inventory management, you can quickly get a snapshot of your sourcing against radical shifts throughout your supply chain.>
For example, if a major political event impacts one of your vendor’s ability to ship goods to your business, you need to find an alternative supplier quickly.
With an automated vendor management system, you can quickly compare alternative vendors, negotiate pricing, and submit new contracts. As a result, your business can remain agile and ensure your customers get what they need.
Without an automated and integrated supply chain, you’re forced to be more reactive than proactive. And that will leave your business trying to catch up to trends after they happen instead of preparing for them. Investing in a streamlined supply chain is the only way to keep your business from being at the mercy of the market.
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