The COVID-19 pandemic has been nothing short of a black swan event for the global economy – particularly for the many supply chains that power it. The challenges facing supply chain leaders across all sectors have forced them to pivot in the face of numerous headwinds and consistent downstream demand.
Unfortunately, these struggles don’t end with the pandemic. Waves of disruption will continue long afterward.
As we look ahead to the year ahead, supply chain leaders face new and significant challenges. How they respond will determine how the companies they represent—and the world at large—recover from COVID-19.
Here’s a look at the top six challenges on the horizon and how supply chain leaders can address them.
1. Rising fuel and freight costs
Crude oil prices are a simple litmus test of economic performance – namely, how they affect the cost of fuel prices, which in turn affect freight rates. It’s safe to say that fuel costs are high and continue to rise. Over an 18-month period – April 2020 to September 2021 – the cost per barrel of crude oil has more than tripled from $20.10/barrel to $68.50. Fuel prices have reacted in the same way, with spot prices for freight transport hitting highs in over a decade in 2021.
While time may bring some relief from constant spot prices and inflation, supply chain executives must brace themselves for sustained high costs in an inflationary era. Cost saving initiatives such as investments in TMS platforms, contract negotiations and strategic load and route planning will come first.
2. Shortage of material and scarcity
Supply and demand are in an ongoing imbalance and will continue to be imbalanced in 2022. While suppliers struggle to fill backorders and meet current customer demand, supply chain managers must remain agile. Expect shortages of critical materials to persist — including staple foods, petrochemicals, electronic components, plastics, and more.
Supply chain leaders need to work closely with production and operations managers to avoid bottlenecks due to material shortages. Prepare upstream for rising costs and new contract negotiations as supply chains diversify.
3. Renegotiation of contracts and terms
Contract negotiations become commonplace when tensions flare up between customers and suppliers. Expect to negotiate everything from new delivery terms and deadlines to price increases and contingency arrangements. Suppliers will try to capitalize on shortages and demand; Supply chain leaders need to hedge against the same factors.
Great supply chain leaders will use long-term partnerships to maintain favorable conditions. More importantly, they strive to build mutually beneficial relationships and give suppliers a reason to trust them. In return, they reward transparent suppliers with consistent business and fair prices.
It is important to conduct negotiations with empathy while still holding key terms and rates to avoid liabilities and solidify supply chain operations for the future.
4. Constant and increasing demand
Supply chain leaders face a double-edged sword when demand remains constant. Orders coming in mean revenue through the door; Unfortunately, due to material shortages, this is also likely to mean a growing backlog of projects. This bottleneck is something that supply chain managers and operational leaders must coordinate together.
Supply chain leaders can defuse the situation by converting constant and increasing demand into improved supplier relationships. Use larger or more consistent order volumes to secure supplier priority—or to keep costs under control during times of volatility.
Leading companies may also look at expanding their pool of suppliers and strengthening the supply chain with the promise of strong demand to force new partnerships.
5. Increasing demand for transparency in the supply chain
The many headwinds, obstacles, and challenges post-COVID-19 are easier to navigate thanks to better visibility. The ability to see an issue and its contributors in real-time means the ability to pivot and adjust just as quickly.
Additionally, supply chain visibility brings transparency and accountability to the product chain, no matter how broad it may be. In short, knowledge is power and supply chain transparency is at the core of knowledge.
Supply chain leaders need to leverage the Internet of Things (IoT) and sophisticated supply chain management dashboards to gain deep insight into their supply chains. Alongside these investments, there must be a critical shift to management without isolated silos. The supply chain is more than the sum of its parts, and full transparency creates opportunities for action.
6. Reshoring and rebuilding the supply chain
One of the biggest buzzwords of 2021 has been reshoring, thanks largely to President Biden’s strong push toward an infrastructure bill. Passed in its intended form, the bill will boost massive domestic production, which inherently necessitates the need for some supply chain restructuring. Until the bill is passed, supply chain managers will be scouting around for critical goods.
Bringing supply chains back home presents in and of itself a unique set of challenges. Expect to navigate the untested waters of new domestic partnerships, with new costs, terms and processes to unravel.
The reshoring process will not happen overnight, which means supply chain executives must manage the months, quarters, and even years it takes to reconstruct these value streams.
A leader in providing supply chain solutions
There is no silver bullet for overcoming these challenges. Every company has its own unique supply chains, and the senior leadership that drives them must contextualize solutions. Those who recognize, embrace, and overcome these challenges will find themselves building a strong, more resilient supply chain, ready to weather the next Black Swan event.
It starts with finding a supply chain executive leadership that recognizes the challenges facing supply chain executives listed here and takes a proactive approach to addressing them.