COVID-19 was nothing short of a Black Swan event for supply chains, causing rippling disruptions that continue to affect global markets. While some of these struggles will play themselves out over time, others are more permanent, signaling a paradigm shift in the way we think about supply chains of the future. It’s forcing a change in the way leadership addresses supply chain ops, critical procurement, and the value streams they power.
While 2020 and 2021 have been nothing short of chaotic for supply chain managers, 2022 won’t be the reprieve they’re hoping for. Secretary of Transportation Pete Buttigieg has already commented that U.S. supply chain issues will ‘certainly’ continue into 2022. Here’s what supply chain executives face in the year ahead.
1. Port Congestion
Throughout 2020 and 2021, there have been historic wait times for ships headed into ports across the world. In October 2021, more than 50 container ships amassed outside of Long Beach and Los Angeles waiting to unload cargo from China. Meanwhile, gridlock at ports overseas creates additional delays as ships seek to obtain cargo. Bottlenecks at both ends result in extrapolated lead times for import-export operations, which is throttling domestic supply chains.
Port congestion isn’t a new problem. The National Customers Brokers & Forwarders Association of America (NCBFAA) has decried port congestion for years. Now, in 2022, it’ll culminate in historic wait times and supply chain bottlenecks that, according to the NCBFAA, could’ve been avoided with proactive policy. And while the NCBFAA has proposed solutions to address port metrics, labor disruptions, demurrage, and infrastructure, action on any front is still years away.
2. Rising Freight Costs
Trucking and intermodal transport costs reached historic highs in 2020. From 2020 to 2021, spot prices leaped by double digits across the board: van (+18%), flatbed (+27%), reefer (+25%). The price for sea freight skyrocketed alongside them, and air freight followed close behind. A perfect storm of variables are making it tremendously difficult to move freight in any capacity.
As supply chain executives look into the future, they need to understand the mechanics behind rising freight costs. Labor shortages, rising gas prices (which shot up +40% from 2020 to 2021), and port congestion all factor in. To combat them, executives need to reevaluate, restructure, and re-forge partnerships with carriers. While new terms may come with higher rates, it’s the price to pay for freight that’s on time and handled with care in 2022. This is certainly one of the biggest Challenges Facing the Supply Chain.
3. Restructuring Supply Chains
Time will heal some global supply chains. For many, however, the time to restructure has come. 2022 will be a year of pivoting for companies seeking more reliable means of procurement. Whether that means reshoring, diversified suppliers or new carrier agreements depends on the nature of the supply chain and the intent of the company. Leaders need to be decisive in recognizing the need for change and be willing to break down and rebuild partnerships that no longer serve as reliable.
As they restructure supply chains, executive leaders need to look broadly at the chain of custody and the struggles of the business. Do you need to bring supply chains closer to home? Leverage multiple suppliers for a single material good? Strategically align with partners who can control more of the supply chain? Procurement remains complex in a globalized marketplace, and companies need to focus on orchestrating solutions rooted in reliability and sustainability.
4. Labor and Material Shortages
The United States’ labor market is in flux. The rollercoaster from layoffs and quarantine to flex work and work exodus in 2020 and 2021 will assuredly spill over into 2022, putting supply chain executives at the mercy of delegation woes. Trouble staffing key positions within procurement and supply chain ops will force leaders to lean heavily on technologies and automation to create cohesion. Prepare to shift focus to smaller, more concentrated procurement teams who thrive using de-siloed supply chain data, made actionable by machine learning innovations. And, of course, companies need to hire qualified supply chain executives to front these teams.
On the other side of this token are materials shortages that will persist into the year ahead. According to the Institute of Supply Chain Management (ISM) Report on Business, virtually every key commodity is either up in price or scarce, driving shortages and introducing complexities to supply chain management. While these variables will eventually level out, expect persistent problems through 2022. Supply chain executives can adapt by adjusting lead times, building inventory, and diversifying suppliers.
It doesn’t take an economist to understand what happens when unrelenting demand meets unsustainable supply. Though most executives don’t want to think it into existence, we’re entering a period of inflation. Prices are already shooting up and it’s only a matter of time before companies begin to pass them on to consumers. Executives need to prepare for these cost increases and the ramifications that come with them.
Focus in 2022 will be on the bottom line. How can supply chain executives keep procurement costs low, without compromising the integrity of the value stream? Here again, the answer lies in technology. Supply chain leaders need to invest in better technologies in the coming year, to mobilize data insights that lead to cost savings. While passing on inflationary costs is inevitable, companies can mitigate that burden by cutting extraneous costs along the way. The key to keeping COGS low in 2022 and beyond is an investment in smarter procurement.
The past 24 months of forecasting data is, for all intents and purposes, unreliable. 2020’s global shutdowns skewed supplier data beyond recognition and 2021 saw rebounding and elastic data that makes it relatively unreliable as a standard for future forecasting. The result? Supply chain leaders have no true benchmark for looking ahead. And while unprecedented demand continues, moderating that demand amidst workflow parameters remains a challenge.
Supply chain leaders need to lean heavily on trend data to predict the year ahead while paying mind to former benchmarks for everything from inventorying levels to budgeting and pricing. While higher costs will continue into 2022, procurement experts can contextualize them by observing forward-looking projections based on long-term trend analysis. This will be a departure for many that rely on prior-year or two- or three-year trailing data to inform demand forecasting. Nevertheless, it’s an adjustment that requires forethought as Challenges Facing Supply Chain.
Get Demand Forecasting – The Ultimate Guide
Leadership in the face of uncertainty is paramount
All these challenges facing the supply chain add up to a tumultuous 2022 for supply chains. And while the persistent struggle isn’t something companies relish, it breeds opportunity for smarter assessment of critical procurement ops.
Now’s the chance to rebuild supply chains, reassess budgeting and planning protocols, invest in new technology and, of course, identify and retain leaders who understand the changing dynamics of the current economic environment. Supply chain challenges will continue into 2022, but they’ll become more predictable and manageable for those willing to tackle them head-on.
This is our list of Top 6 Challenges facing Supply Chain Executives in 2022, if you think we have missed any, please add in the comments.