Chris Kulp, managing director and leader of the Procurement and Sourcing Group of Alvarez & Marsal, lays out the continuing challenges that supply chains are facing today — and what they can expect to be grappling with in the months to come.
Supply chain bottlenecks are still a problem, but their source is shifting. Over the last year, congestion was primarily seen in ocean shipping and port operations, and eventually in ground-based transportation. Now, says Kulp, the most serious issues are occurring in the supplier base, where labor availability and volatility in supply persist.
Also shifting in recent months are inventory levels. During the height of the pandemic, there wasn’t enough product in the pipeline to satisfy surging consumer demand. Now, with a falling off of that demand, there’s too much of it. In response, businesses find themselves focusing on working capital and cash issues. “That’s going to manifest itself in volatility in terms of company stability and financial performance,” Kulp says.
The labor market remains tight, with turnover rates still in the double digits, and employers having to deal with the consequences of having hiked wages to attract recalcitrant workers. “The stickiness of wage inflation is going to be very difficult to get away from,” Kulp says.
When it comes to current inventory levels, “we’re not in a good spot, to put it bluntly,” he says. Part of the problem is the recent tendency of buyers to inflate demand numbers in order to curry favor with suppliers. That has resulted in a flood of product at the very moment that demand is cratering. And that, says Kulp, “is creating a lot of churn in the supply base.”
There’s a lag in the time between when procurement costs are incurred and when they show up on the profit and loss statement, creating an unpleasant surprise for today’s chief financial officers, Kulp says.
Timely, incisive articles delivered directly to your inbox.