Problems in the supply chain not yet solved

SAP SE has released a new survey showing senior business decision makers believe the unprecedented supply chain issues and disruptions that US companies have been grappling with for years are not over.

More than half (52%) of respondents believe their supply chain still needs major improvement, and nearly half (49%) expect current supply chain issues to persist into late 2022. One in three say the problems will continue until the end of summer 2023.

Findings are based on a survey of 400 U.S.-based senior logistics and supply chain strategy decision makers at small, medium and large companies conducted in late August and early September 2022. Here’s what they had to say.

The Impact of Global Unrest

Global political unrest is the main factor causing current supply chain problems. Business leaders say their current supply chain issues are primarily due to global political unrest (58%), raw material shortages (44%) and rising fuel and energy costs (40%). Only 31% named inflation as a key factor.

Looking ahead, the top three supply chain disruptions business leaders expect to see in 2023 are:

Reduced availability of raw materials in the United States (50%)

A slowdown in new home construction (44%)

Disruption of public transport due to lack of drivers (44%)

Cost remains an issue

Costs remain an issue as companies catch up on lost revenue from the pandemic. Unprepared for the drastic changes in consumer buying behavior during the pandemic, businesses have felt the financial strain. About half of business leaders have seen the financial impact of supply chain issues since the pandemic began, including:

A drop in revenue (58%)

Necessity of new financing measures, e.g. B. Business loans (54%)

Inability to pay employees (50%)

Missed Rent Payments (42%)

To cover the additional costs of supply chain problems, more business leaders say they have had to implement wage or hiring freezes (61%) and downsizing (50%). Only 41% have chosen to increase the price of their product or service.

Another holiday season

The 2021 holiday shopping season has been anything but normal as supply chains have been stretched beyond their limits. Although many companies have started preparations, there are still questions about how this year will play out.

Let’s start with consumers. A separate SAP study of 1,000 US-based consumers found that nearly half (45%) say price is the most important factor they weigh when making purchasing decisions, and a whopping 73% say it’s one of the top three factors is. With the rising cost of inflation and a potential recession worrying consumers, it’s no surprise that 65% plan to cut their holiday spending budget. 54% expect inflation to affect their Christmas gift shopping, with 39% shopping more online.

Executives anticipate the online shopping trend, with 73% expecting a year-over-year increase in e-commerce volume this season. To sell their own products, business leaders plan to meet these differentiators:

Delivery speed (64%)

Excellent customer service (57%)

Availability of products (52%)

Proof of sustainability (47%)

Price reductions (42%)

Made in the USA (38%)

Supply chains need to be improved

Every company said their supply chain needs some improvement and they are making big changes to prepare for future disruptions and strengthen their supply chains. Business leaders plan:

Use new technologies to overcome challenges (74%)

Implement new emergency response (67%)

Prioritize supply chain solutions in the US (60%)

Find new green supply chain solutions (58%)

Nearly two in three companies (64%) are transitioning from a just-in-time supply chain to a just-in-case supply chain by increasing inventory levels. In fact, 63% think the United States should take this approach to overcome potential supply chain crises this year.

“Moving to just-in-case means companies will stock more inventory to meet customer demand, but it also means higher costs,” said Scott Russell, member of the SAP SE Executive Board, Customer Success.

“Supply chain management is a constant balancing act. In recent decades, the “just-in-time” approach has traded resiliency for efficiency and lower costs, which in turn has left the supply chain vulnerable. The pandemic and the snowball effect of related disruptions have exposed this fragility, causing organizations to refocus on resilience. Still, cost remains a factor, especially in the current economic environment. Technology can help organizations find the right balance by enabling more real-time collaboration between trading partners,” added Russell.

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