The past few years have been turbulent for global supply chains, as they were hit by material and labour shortages in additional to global shipping issues. Shipping prices soared astronomically as goods sat in shipping yards due to a shortage of containers. Goods sat in warehouses due to a lack of haulage drivers to transport them by road. Now, as the world slowly moves on from the COVID-19 pandemic, what trends can we expect to shape supply chains this year?
Ongoing disruption and delays
Firstly, the disruption that has characterised the past few years as the world has battled with the fallout of the COVID-19 pandemic and, closer to home, the impact of Brexit, is set to continue into 2022. An article published on the World Economic Forum website argued that as a result of recent events, the economic environment has become more challenging. And this means that “customers can expect to see shortages of products on shelves and price increases of those products”. We’re already experiencing this in our everyday lives, with price increases on a wide variety of foodstuffs, fuel and other everyday items noticeably adding to our bills. We will also continue to see disruption due to shortages of crucial workers such as HGV drivers and warehouse workers, with a recent ONS survey showing that 37% of businesses are still struggling to hire enough staff.
A recent New York Times piece concluded that this is not a problem that can be solved by time alone. The pandemic and global trade tensions have exposed the weaknesses in the current global supply chain, resulting in the need for a total overhaul. “It will require investment, technology and a refashioning of the incentives at play across global business,” reads the article. “It will take more ships, additional warehouses and an influx of truck drivers, none of which can be conjured quickly or cheaply. Many months, and perhaps years, are likely to transpire before the chaos subsides.”
Compounding these existing issues is the invasion of Ukraine and the country’s ongoing conflict with Russia. Together, these two countries are leading exporters of wheat, corn, oil and gas, metals and other commodities. The invasion of Russian armed forces into the country has also caused many companies to close factories in Ukraine and temporarily cease operations. With the situation changing daily, it has yet to be seen just how great the impact on supply chains will be.
Despite this gloomy outlook and the worrying global political situation, other supply chain trends set to dominate 2022 show that businesses across the world are already rethinking their strategies and preparing for a more resilient and sustainable future.
If we had to choose one watchword on everybody’s tongues this year, it would be sustainability. Over the past few years especially, climate change has risen to the forefront as one of the most urgent crises threatening our world today. And this means that businesses the world over are looking to increase sustainability within their own supply chains. Major past scandals have exposed well-known companies using suppliers who dumped toxins in rivers and oceans, or whose working practices have involved modern slavery.
Despite the current wave of good intentions, though, there is a lot of room for improvement in this area. For example, an Oxford Economics survey of worldwide supply chain decision-makers found that, although 88% of respondents had a clear mission statement around sustainability or were currently writing one, just 52% had actually put these words into action and only 21% had clear oversight of their suppliers’ sourcing of sustainable products. With customer demand for sustainable products increasing in intensity since the onset of the COVID-19 pandemic (45% of respondents to an Accenture survey in May 2020 said they were making more sustainable choices when shopping and almost a third in a 2021 Deloitte survey said they’ve chosen to purchase from brands that have environmentally sustainable practices/values over the past 12 months), there will be considerable pressure on supply chain leaders to take decisive action this year.
Reducing over-reliance on individual suppliers
Going into the COVID-19 pandemic, many firms had strong relationships with one major supplier, who might subcontract out to numerous third-parties (who may also outsource work). While most businesses had visibility into the first or maybe second tiers of their supply chain (48% and 21%, respectively, according to a McKinsey survey of 71 companies published in November 2021), just 2% had visibility into the third tier of their supply chain and beyond. Clearly, this exposed businesses to significant risk.
During the pandemic, then, the dual issue of a) an over-reliance on a single trading partner (without whom the business would struggle or cease to function) and b) a lack of visibility into the whole supply chain, left many firms extremely vulnerable and often led to the partial or total shutdown of operations when a main supplier was hit by COVID-19 restrictions. It was certainly a wake-up call for many supply chain managers; for them, the focus in 2022 will be on equipping their supply chains with a broader range of suppliers, in addition to increasing their visibility into their supply chains and better managing third-party risks.
Investment in technology such as smart manufacture, cloud computing, AI and cyber-physical systems is expected to ramp up in years to come, as supply chain leaders leverage new digital solutions to speed up processes, reduce inefficiencies and improve supply chain visibility. These technologies are part of what is being called ‘Industry 4.0’, or the fourth industrial revolution, which will see industries across the globe become increasingly intelligent, automated and interconnected through investment in advanced digital solutions.
According to KPMG, 2022 will particularly see increased business investment in solutions to enhance supply chain forecasting, such as AI-driven predictive analytics and cognitive planning.
Building a more resilient supply chain
The events of recent years – from the COVID-19 pandemic to Brexit, and from global political upheaval to the increasing urgency of the climate crisis – have exposed the global supply chain’s vulnerabilities in an unprecedented way. With so much work and investment now being channelled into resolving these weaknesses and building a more resilient, risk-averse and efficient supply chain, we can hope that 2022 marks the beginning of the end of the global supply chain crisis.