The pandemic revealed significant vulnerabilities in supply chains around the world. The challenge now is to build them back — better.
The coronavirus pandemic disrupted supply chains around the world. Almost instantly, we saw lead times and prices jump while availability sunk. You likely felt the impacts in your business and your personal life as halted production lines and backlogged shipping routes made key components and life’s little necessities suddenly very hard to get. The impacts continue. Lumber prices have tripled in 2021, and a critical microchip shortage threatens to snarl computer and car production.
As we emerge from what we hope is the worst of the crisis, no one predicts we’ll go back to business as usual. Manufacturers and distributors will need to adopt new strategies — or even make seismic shifts in their approaches — to keep their supply chains healthy and moving.
What is the current state of global supply chains? What are the problems facing manufacturers and distributors right now and going forward? How can CEOs, CFOs and their teams mitigate the challenges? And how can modern manufacturers and distributors best position themselves to grow and succeed amid uncertainty? We’ll try to answer these questions and more in this series, Supply Chain Challenges and Solutions, starting with an overview of where we are and the challenges we face.
The supply chain shock heard ‘round the world
A supply shock started in China in February of 2020, creating a worldwide demand shock. The Institute for Supply Management in a May 2020 survey found that 97% of respondents said the coronavirus impacted their supply chain and 36% dealt with disruptions.
Other research seems to mirror or amplify the findings. In a McKinsey survey of supply chain leaders, the overwhelming majority of respondents said the crisis revealed weaknesses in their supply chains. For example, 73% encountered shortages or other problems with their supplier base, 75% faced issues in their production/distribution footprint, and a whopping 85% indicated they struggled with insufficient digital technologies.
Not everyone agrees that coronavirus is entirely to blame, however. Some notable industry experts (like EY in this article) argue that the pandemic has not directly created any new challenges for supply chains, rather it accelerated and magnified existing problems. Regardless, the problems are significant for many companies. Severe disruptions affected 57% of companies surveyed by EY, with 72% reporting a negative effect.
Localizing is gaining traction
Temporary trade and travel restrictions during the pandemic combined with an ongoing US-China trade war triggered a rise in economic nationalism. Consequently, manufacturers are under pressure to increase their domestic production, grow employment at home, and localize their supply chain. Whether localizing is an effective part of the solution remains to be seen.
Gartner surveyed global supply chain leaders early in the pandemic and found that 33% had already moved sourcing and manufacturing activities out of China or planned to do so in the next two to three years — a further indication that the pandemic was not the sole factor for localizing production.
What hasn’t changed in all of this is consumers’ demand for low prices. Manufacturers and distributors won’t necessarily be able to charge more because the goods are being made closer to home. The competition will continue to keep the pressure on pricing. The challenge for companies will be to make their supply chains more resilient without weakening their competitiveness.
Resiliency and visibility are top priorities
While resiliency has become something of a buzzword during the pandemic, in reality, it is a trait every manufacturer and distributor strives for. Supply chain resilience refers to a company’s ability to prepare for and adapt to unexpected events that negatively affect their supply chain performance, continue functioning during a disruption, and recover quickly as conditions moderate.
55% of supply chain leaders told Gartner they expect to have a highly resilient supply chain within two to three years, up from 21% that have such a supply chain today. An EY survey conducted in late 2020 found that supply chain resiliency is a top priority for companies over the next three years. The number one priority in the next 12 months, the survey found, is supply chain visibility.
Resiliency and visibility go hand in hand, as visibility provides the metrics and insight needed for companies to grow their resiliency. Together, they could hold the keys to solving many pressing supply chain challenges and we’ll be speaking about ways to incorporate them into business operations in upcoming posts.
Digital technologies hold the key
The pandemic and its continuing aftermath pose unique challenges for manufacturers and distributors. But amid the challenges lie opportunities. The global economy is slated to grow 5.5% in 2021 and another 4.2% in 2022. In just the first three months of 2021, the US economy grew 1.6%.
The companies that will be best able to take advantage of the economic expansion are those that invest in the digital technologies that grow their resiliency and increase their supply chain visibility. Digital technologies, including cloud-based ERP applications, analytic tools, and even CRM software, provide needed visibility into supply chain activities, help increase productivity, reduce costs and risk, automate processes, and increase speed to market.
We invite you to stay tuned for part two of this series, where we’ll take a closer look at the challenges plaguing manufacturers and distributors as they look to capitalize on a seemingly healthy, but still largely uncertain, global and domestic economy.
By Drew Macbeth