Global supply chains may have reached stabilization in 2023, but the three previous years exposed hard vulnerabilities within several brands’ logistics.
With bottlenecks in specific industries like electronics and raw materials production, extremely high shipping rates, and congestion in ports, global trade was structurally unprepared for what occurred at the start of 2020, to say the least.
The uncertainty from the pandemic made it challenging for businesses to forecast demand accurately. As a result of disruptions, supply chain systems had to navigate inventory management difficulties, including balancing stock levels, avoiding excess inventory, and clearing dated products regularly.
One of the biggest hurdles in supply chains today remains tied to efficiently transmitting data across multiple enterprise tiers, from the C-level to the logistics team, to production and suppliers, to manufacturers and consumers. The challenge for brands is to have streamlined, well-executed communication between internal teams. It’s also crucial to track supply and demand data and shipments in real-time with ERP (Enterprise Resource Planning) systems and Internet of Things (IoT) devices.
On that note, reaching true supply chain flexibility is paramount to successfully navigating external volatile conditions. This means easily adjusting production levels, raw material needs, and transportation modes based on volatile demand, allowing for fast pivots if unexpected events occur.
Effective forecasting tools (like predictive analytics) and visibility throughout the entire end-to-end process in the supply chain will ultimately determine the performance from when the order is placed to final delivery.
Visibility also applies to regulation. According to internal data from Flexport, up to 25% of customer shipments are affected by delays or missing paperwork. A changing regulatory landscape and volatile geopolitical relationships will continue to affect global trade in the near future. Businesses will have to face issues like predicting how bureaucracy can affect their operations. If they do not, they won’t be able to build regulatory compliance around their procedures.
Overall, analyzing the state of your supply chain and breaking down inefficiencies is key to mitigating market volatility. Even though most of the buzz in the industry is currently around AI and robotics, visibility, transparency, and agility have been the drivers of competitive advantage. Better forecasting tools and shipment tracking technology have been the focal points in e-commerce brands’ latest investments. Today’s supply chain leaders know that investments and incremental improvements in these tools will potentially transform the business’ health for the long term.
Effects of Global Supply Chain Disruptions: Which Industries Got Hit the Hardest
Several industries were negatively impacted by disruptions in global supply chains due to the COVID-19 pandemic.
Automotive and Electronics
Notably, the automotive industry faced complications due to a lack of components. According to a KPMG study, the semiconductor shortage worldwide, paired with geopolitical upheavals, has caused automakers and suppliers to reconsider their supply chain strategies.
After the COVID-19 pandemic subdued vehicle demand, the automotive industries struggled amidst a production slowdown. The Ukraine-Russia conflict has impacted the supply of metals, nickel, palladium, and neon gas used in semiconductor manufacturing, stoking consumer fears about rising automotive costs. The semiconductor shortage has also affected the technology sector, including electronics, IT equipment manufacturers, and healthcare (such as devices like MRI machines, ventilators, and monitoring equipment).
The pharmaceutical sector has also had to deal with its share of hurdles. Labor shortages, low provider sourcing, lousy supplier risk management, regulation differences across borders, and limited visibility are among the most pressing challenges that the industry has faced in recent years. According to a Europol report, pharmaceutical products are the seventh most commonly seized counterfeit products globally.
To mitigate these issues and achieve visibility throughout the supply chain, pharmaceutical companies have implemented SAP Advanced Track and Trace. This solution captures and tracks all necessary data about the cargo, and increases shipping accuracy and expenditure control within one cloud-based platform.
The construction industry also slowed significantly due to shortages and increased building material prices, such as lumber, steel, and concrete. Material shortages forced contractors to find substitutions in building materials, such as reclaimed bricks, to keep up with project budgets and schedules.
The labor shortage situation also hasn’t been favorable. The Associated Builders and Contracts (ABC) report in 2022 estimated that 1.2 million workers left the construction industry searching for other careers. In the long term, this will drive up demand, wages, and cost for skilled labor, incentivizing unskilled laborers to specialize.
What Can Industry Leaders Do About It?
Get Proactive With Automation
Tight labor markets will become a more complicated issue in years to come due to artificial intelligence (AI). This phenomenon explains why supply chain leaders are getting ahead and investing in new technologies to fill the gaps humans can’t manage. According to Flexport, in the last decade, there’s been an increase in AI, robotic process automation (RPA), and warehouse robots to make supply chains safer and more efficient.
In that regard, Supply Chain Brain notes that there are three ways to make use of AI and automation:
1. Building a digital twin: Businesses are creating a digital supply chain replica that includes assets, warehouses, and materials. The main goal is to act out ‘what if’ scenarios to get ahead and improve planning. These scenarios include possible overseas factory closures or political events. The digital twin can then use these scenarios to predict potential implications on a supply chain.
2. Using the internet of things (IoT):With these tools, organizations can maintain better inventory tracking, get real-time data on product locations, build automated warehouses, and optimize loading and unloading goods.
3. Machine learning: These systems analyze large volumes of data, recognizing patterns and trends to make it easier to make necessary adjustments. For example, determining the most cost-effective transportation routes in a region, the best vehicle to use, fuel costs, or the risk of damage on the route.
Automation is an unavoidable trend and will open the door for new business models such as trucking, Capacity-as-a-Service (leasing storage capacity on a pay-per-use basis), and a Hardware-as-a-Service model, where you pay for automated robotics as a service. As for software, experts highlight the importance of SaaS (software as a service), end-to-end visibility, and predicting milestones in supply chains.
Re-shoring and Near-shoring
Outsourcing production in other countries and shipping back to the U.S. used to be easier. Now, there are more complicated since the old logistics model has demonstrated that it’s more vulnerable than people thought.
In recent years, companies experienced how complicated it can be to do the cross-border movement of materials and goods. As a response, some changed their approach. For example, luxury retail provider Louis Vuitton built a 100,000-square-foot factory in Texas to regionalize manufacturing and reduce the travel necessary to ship products to the American market.
Relocating production is worth considering as reshoring and nearshoring gain foothold post-pandemic. Still, it’s a slow developing trend considering Asian manufacturing hubs remain the most cost-effective production alternatives compared to other locations, according to Flexport.
Fully Digitize Your Supply Chain – Invest in Analytics
Digitalization is a much more sophisticated strategy than automation. It means having a real-time, multi-party, multi-tier network operating on a fully integrated data model across all trading partners. Carriers and suppliers also need to be onboarded.
Accessing self-service data on transit times with just a few clicks will help your team plan which routes to use for which stock-keeping units (SKUs).
These days, processes run in seconds as opposed to days. Increasing network density will add value to all brands and services. Vulnerabilities in your supply chain will become clear when you see the data in ‘black and white.’
Policies Governments Can Enact to Protect Domestic Supply Chains
Shifts in demand levels, offshoring reliability, and transportation jams have demonstrated how brittle global supply chains have become in the face of unprecedented international disruption.
Reduce Foreign Dependence
In terms of components, the pandemic revealed a great dependence on Chinese manufacturers for essential items in the U.S., resulting in pinched availability of medical equipment and drug supplies. One of the first steps governments can take is to improve chip manufacturing capabilities to secure technology independence for the foreseeable future.
Other viable alternatives governments can use to fortify the supply chain include writing tax incentives for domestic manufacturers. This approach reduces hard reliance on foreign suppliers and can include tax credits for companies producing goods domestically. Tariffs on imported goods can also make domestic products more competitive.
More avenues governments can take include putting emphasis on sustainability through circularity and collaboration. The latest trends on supply chain recycling consider circularity, where products are used for longer, value is squeezed out of every material, and waste is turned into new products rather than the traditional making, selling, using, and throwing away procedure.
Other initiatives highlight decarbonization for reducing all greenhouse gas emission types. This involves using energy-efficient lighting systems and optimizing heating, ventilation, and air conditioning systems. Transitioning to renewable energy sources, such as solar or wind power, can help warehouses lower carbon emissions. Electric or hybrid-powered equipment can also be used as alternatives to diesel or gasoline-powered machinery.
Striving for Resiliency and Future-Proofing Supply Chains
In the months and years to come, businesses will need to continue to improve their forecasting models and transparency throughout the supply chain process to achieve a digital logistics ecosystem that facilitates easier collaboration between stakeholders, partners, suppliers, and forwarders.
Real-time tracking of product availability and supply and demand data are pivotal for scalability and optimization. In global trade, the most sought-after innovations include accurate real-time data for packages on cargo ships (SKU) and the ability to predict critical milestones.
As for improving supply chain management, experts stress the use and development of cloud-based record systems using SaaS for real end-to-end performance of existing companies. Through this software, users can access the same data and applications from anywhere with an internet connection, allowing them to easily scale to meet the needs of customers, suppliers, partners, and investors.
The entire supply chain must function like a well-oiled machine. Leveraging data to help predict the highest peaks in inventory and demand for warehouse optimization is the best way to maximize efficiency in operations and ensure strategic allocation of stock.
Logistics stakeholders also call attention to the need for decarbonization to reduce emissions by analyzing the transportation of goods, manufacturing, packaging, energy efficiency, and protection of natural resources and biodiversity. Fleet optimization software for vessels will also add value to the transport process.
For the most part, the coming years will strive to correct past errors and inefficiencies in logistics, but the challenges remain as geopolitical risks and macroeconomic challenges continue to loom. There is a high probability that top-tier enterprises will continue to evolve from previous models to stay ready for future black swan events like natural disasters or war. Other less resourceful businesses will stick with the ‘old formula,’ which can result in short-term savings but long-term vulnerability.
Want to learn more ways you can strengthen your supply chain? Contact us for a consultation.