The struggles of the supply chain continue in year three of the COVID-19 pandemic, with issues of product shortages, transportation, weather, labor and more. As prices swing one way or another, organizations must acquire a deep understanding of the market and what’s happening in all aspects of the industry.
According to a recent U.S. Bureau of Labor report, wholesale inflation has hit an 8.3 % year-on-year increase, the largest single annual increase in the department’s history. Every part of the chain is a factor, from fuel prices to raw materials such as lumber and steel. The supply chain, meanwhile, is dealing with unreliable projections for revenue or margins. It’s a good time to take an honest look at what’s happening around us, learn from the experience of the past couple of years, and plan accordingly. Here are a few trends that we should be anticipating this year and beyond.
Growing pains linger. As the economy starts to pick up, growth in demand will put a significant strain on already pummeled industries. Shoppers expect their local supermarket to have in stock what they need, but shelves will be emptier more often. Suppliers will struggle to catch up with rising demand for consumer products. The increase in demand that started to show up in 2021 will continue in 2022, as all players in the supply chain strive to recover from the effects of the pandemic, while working to become more efficient than ever before.
Digital transformation separates the pack. This is a cause-and-effect game, marked by an increase in demand, complex logistics, a strained infrastructure and resource scarcity. All of these effects will drive organizations to develop their capabilities to become more proactive in forecasting, planning and executing in advance of the next big disruption to supply chains and the economy. While the concept of digital transformation has been around for a long time, the last two years have brought unprecedented attention to platforms, processes and best practices to enable organizations to do more with the same, if not less.
Tariffs take a toll. Tariff management is a complex issue. The last few years have taught us that how we manage tariffs has a great impact on an organization’s bottom line. This is the year that companies implement the lessons of the pandemic and prior years, putting controls in place and becoming more proactive about tariffs and pricing. The trade war between U.S. and China has impacted billions of dollars worth of goods. The result has been a sharp decrease in imports and exports, reduced options for consumers, and higher prices. We always knew that tariffs have an impact; we now need to understand how to react to them.
Chips fall where they may. The global shortage of semiconductor chips is affecting large numbers of industries, and we won’t see a resolution of the crisis any time soon. The market has no fix for this problem, except to slowly rebuild manufacturing capacity of the main providers. Expect chip sovereignty to take hold, with governments working to diversify sourcing beyond a handful of providers.
Labor woes take the wheel. They will continue across all industries. There remains a scarcity of truck drivers, causing transportation costs to skyrocket. Labor strikes could be in the cards, as carriers struggle to fill the gap by enticing younger people to become drivers, or providing temporary work permits for drivers in Mexico. Such moves can lead to lower wages or mistreatment of workers. The situation could worsen this year, as organizations scramble to reduce the negative impacts.
Covid continues to ravage all aspects of our lives and the economy. This year begins to show signs of labor and industrial fatigue; companies can maintain the cycle of lockdowns and lifting of restrictions for only so long. At the same time, workers are having a greater say in company operations. All of these factors can seriously affect the supply chains of companies in ways that becoming increasingly hard to deal with over the long term.
Jose Paez is solution strategist with Pricefx.
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