What are the Challenges and Risks for the Supply Chain Industry?
There are a lot of risks and challenges involved in the supply chain industry. There are not only driver shortages, labor crises but also lack of manpower that can disrupt the supply chain industry. It can wreak havoc when it comes to supplying materials on time. It not only affects the delivery time but also changes the consumer’s demand as when the product is not delivered as per schedule it can create a bad impact.
Labor and Product Shortages
The year 2022 was marked by widespread shortages. It was initially caused due to the COVID crisis. The effects of this shock resulted in a crisis. It also badly impacted the industrial production capacities that caused the demand to remain strong.
As a strong demand was created by the Internet of things, supply has not kept pace because of shortage of raw materials from Ukraine and Russia. Because current tension in the labor market is causing an increased turnover, the employees would like to find better work conditions. This will continue for several years.
Higher Costs
The covid pandemic has disrupted supply chains and added the cost of logistics in many industries. The companies are now taking a look at the risks in inventory planning. The pandemic has caused major supply chain disruptions. When the pandemic hit, containers, trucks and ships were in the wrong place that caused an increase in the administrative cost.
Cyber Attacks on Supply Chain
Cyber attacks remain a major threat to companies. If large companies have invested in the security of the information systems, small businesses and supply chain partners become vulnerable and lack visibility on cybersecurity maturity.
Geopolitical Crisis
After the pandemic, the supply chains of many sectors have been affected by the Russian invasion of Ukraine. There is also rising tension between China and Taiwan. The island provides a link for many global supply chains, especially those using semiconductors. A conflict will result in a crisis situation and will have more consequences in the world than the Ukrainian war.
Logistics Crisis
The logistics industry faced many challenges including disruptions in sea freight, packaging and road transport. The maritime freight sector faced strikes and port closures. This impacts the global supply chain and causes delays. Additionally, freight rates dropped due to decline in consumption. There was a shortage of qualified drivers. There was a spike in packaging prices. The delivery time also increased due to shortage of workers. The global system remains disrupted and fragile.
Demand Volatility
There is a gap between supply and demand. When you have to predict consumer behavior and the level of inflation becomes uncertain, traditional business planning models prove to be outdated. Demand volatility means variations in demand for products that include an unpredictable market. Demand volatility has grown because of many reasons and it usually comes down to changing consumer expectations. They must expect companies to provide a wide variety of products that are available for purchase at the right price.
Driver Shortage
There was a shortage of around more than 60000 truck drivers last year. In 2020, the trucking industry employed around 1.95 million tractor trailer truck drivers. Since the last couple of years, the trucking industry has faced challenges that have created a downward spiral. The industry must hire new truck drivers over the next decade to help fill the widening gap.
Germany, Argentina, Italy, Mexico and China all report a shortage of drivers in the past year. There are various technologies and data analytics that can tighten the gap so that the operations continue to run with or without a driver.
Limited Warehouse Capacity
Earlier this year, the Association for Supply Chain Management launched the Supply Chain Stability Index, which provides indicators in assessing how the US supply chains deal with the ups and downs of market volatility. Logistics was considered as the predominant cause of stress. It is important to minimize the impact of rising logistics costs by revisiting the logistics strategy and checking out opportunities to optimize the network. It is important to understand how the network is currently designed.
Where do you ship the logistics from? Are the warehouses in the optimal location given the needs of the customer base? The expansion could help optimize the distribution. It is important to understand if you are using third party vendors or doing everything on your own. You might outsource the logistics when the transportation cost goes down. Just like car insurance, you can requote your transportation network every two to three years. The annual increases are typical so you can find a less expensive option.
Impact of Covid on supply chain industry
A recession not only impacts retailers, wholesalers but also consumers and homeowners. When Covid hit, there was a spike in food spending because of the environment that encouraged work from home opportunities. At the time of lockdown, the GDP rose to more than 6 percent. Since people spent more time indoors, they would spend more on food consumption and hence it greatly impacted the supply chain industry. The impact of Covid was great on the economy and it caused a recession.
These are the supply chain threats that have impacted the industry in 2023 because of the spread of Covid.
