The past two years have served to demonstrate how globally integrated our commerce has become, especially when seen through the rise and fall of the global supply chain. The highly visible and palpable supply chain issues being experienced worldwide have applied pressure on nearshoring and “deglobalization” as suppliers rethink their priorities.
Recent events have unleashed a storm on the global supply chain, testing its age and fragility, and highlighting its inability to cope with stress. Countries around the world are experiencing different rates of Covid recovery and relapse: Consumer demand roars in the U.S. and Europe, while manufacturing hubs across Asia remain stunted by the pandemic’s latest wave.
Another challenge is the reshaping of the global workforce. Government assistance and rising stock markets have emboldened employees to resign or retire early, slow their return to work, and demand better pay and conditions — leading to labor shortages in key sectors.
This demand and supply imbalance has affected every part of the global supply chain:
Planning. Poor visibility into upstream conditions has led companies to devote significant precious capital to stock reserves. The same bullwhip/hoarding behavior befalling consumers extends to businesses, challenging their capability to respond.
Sourcing. Finished goods cannot be manufactured without key components and raw materials. Asia, the largest provider of these supply chain commodities, suffers from power disruptions and workforce shortages and is not keeping up with global demand.
Manufacturing. Product completion and commit times are impossible to predict based on production line disruptions from labor and component shortages. Production lines often sit idle waiting for supplies to arrive.
Delivering. Employee and equipment shortages at critical parts of the logistical chain — e.g. ports and trucks — have caused severe, highly visible backups. Trade imbalances have also given rise to regulatory constraints slowing the movement of imports and exports through the system.
Surviving disruption requires flexibility. Such flexibility can come from traditional levers such as large cash reserves that permit ramp-ups and slowdowns, shaping of demand in favor of available products, or targeted reduction of general administrative expenses. It can also come from non-conventional means, such as forging relationships with new partners, investing in new shipping lanes, temporarily insourcing where sensible or permanently as a strategic move, or pivoting products into adjacent markets. Sadly, many companies who are either limited financially or have not developed timely contingency plans are not able to survive. This churn creates disruption, but also opportunities for those that embrace the changes as strategic levers.
Outlook:
The outlook is tentatively positive as more regions slowly return operations to pre-Covid conditions. Consumer demand will remain high as more countries and regions come back online and supply disruptions begin to normalize. The road to recovery will be bumpy — with continued shortages, workforce challenges, price hikes and interest rate increases to cool inflation.
