There is a variety of events that can result in disruptions of Supply Chain. But within the last 12 months, there are three that make the top of my list: Global pandemic, Geopolitics and Consumer Behaviors.
Supply chain is the term used to describe the process of sourcing, producing and movement of goods from its original state to the consumer. The term covers the process from the very start - from where materials required for the manufacture of goods are originally obtained- right through to the distribution of the finished items.
The steps comprising any one supply chain can be many, varied and fraught with dependencies.
If disruption occurs within the supply chain, sales could be adversely affected, and this in turn could negatively impact profits. Hence, the supply chain is the lifeline that drives the success of any business whose activity includes a multi-step process to achieve a commercial deliverable.
Given its importance, let onlook at the three main ways the supply chain has been significantly impacted recent years.
1. The Global Pandemic
The coronavirus pandemic has been the biggest supply chain disruptor of the decade. It has created logistical and material supply nightmares that have thrown global supply chains into chaos and disarray.
Even now, over 18 months into the pandemic, from paper products to microchips, supply chain issues persist.
Essentially, the transportation network screeched to a halt in time with the progress of the pandemic. It has since restarted but it is now dealing with a massive backlog. For example, the backlog at China’s Shenzhen's Yantian port drags on, creating a shortage of Chinese exports just as the demand for them in Western countries is surging.
But problems arising from the coronavirus pandemic have not necessarily peaked. The virus in the guise of so many variants could flare up again. The only way to deal with that eventuality is to somehow perfect the ability to mobilize extra workforces at short notice, alongside a system of tight Covid precautions.
It seems that as coronavirus itself evolves and mutates - and given that it is unlikely to be the last virus to cause a global pandemic - supply chain uncertainty may well continue for the foreseeable future.
A specific example of how coronavirus impacted the supply chain can be seen in the global semiconductor shortage. It started when there was a temporary delay in semiconductor manufacturing when the coronavirus forced factories to shut down.
Since then, production has returned to normal, but the pandemic initiated a shift in global habits when so many consumers were asked to stay at home. Next came a surge in demand for semiconductor chips. This was because the coronavirus prompted a boom in demand for electronics in general, but specifically for items like TVs, home computers, games and 5G enabled phones .
Flex Electronics predicts that the semiconductor shortages will continue through most of 2022. To mitigate this, some companies, such as Samsung, are investing in increasing chip manufacture in the United States.
2. Geopolitics:
Second only to the pandemic, geopolitical risks have played their role in disrupting the supply chain. For example, Trump’s increase in steel tariffs as part of his “America First'' economic policy was intended to encourage the purchase of American produced steel in preference to steel made elsewhere.
While the desired effect of tariffs is to reduce imports and increase domestic production, another outcome is normally an increase in prices for consumers.
For example, the effect of steel tariffs slowed down construction and created a housing market frenzy which will most likely last through 2022. Some of it due to the increase in cost but also due to limited domestic capacity.
Further to this, Chinese export custom duties, US import custom duties, Brexit, and the fluctuation of oil prices have all created instability in the flow of goods.
Tension in International Relations has increased supply chain costs and, in many instances, shut down or delayed the movement of goods across borders.
Some companies have opted to find workarounds such as transferring their suppliers to countries like Malaysia and Vietnam to escape the tariff and duties impact. Hundreds of British companies have moved offices and/or headquarters from the UK to the EU at huge cost, to mitigate against the cross-border supply chain issues caused by Brexit.
The use of third party logistics services (3PLs) has also helped to expedite the movement of goods across borders.
But these strategies also result in unplanned incremental costs to the supply chain.
3. Consumer Behaviors
The third supply chain disruptor is consumer behaviors. Where hopes that the pandemic is a temporary disruption, and geopolitical issues should eventually level out, this is not the case for consumer behaviors.
The evolution of consumer behaviors will always be a continuous journey whose only constant will be change.
There are three phenomena influencing consumer behaviors: 1 - Younger Generations:
Millennial and Generation Z consumer populations are those born roughly between 1984 and 2014). A wide variety of needs and values characterizes this group of consumers. But specifically, they are highly likely to pursue interests and products aligned with their values and their viewpoints.
2 - Minorities:
The US Census Bureau projects that minority purchasing power will increase to $3 trillion by 2030. The minority consumer base will become a strong voice in shaping consumer needs and expectations.
3 - Globalization: When entering new geographic markets, globalization will require customization and personalization of products and services to meet specific market needs.
With the addition of multiple wants and needs, the complexity of the supply chain increases too. To manage such complexity, predictive analytics is being used in some cases to help anticipate consumer trends and proactively manage demand and inventory fluctuations.
In Summary
The coronavirus pandemic, geopolitics, and consumer behaviors have increased the cost, level of risk and complexity of supply chains worldwide.
As a result, the need to implement proactive risk mitigation strategies, predictive analytics, and technology is at the key for many companies to help mitigate some of these impacts.
Though we will continue to see some level of uncertainty and instability in the upcoming months, I am hopeful that by no later than the end of 2021, normality will start to replace the chaos that has haunted us for way too long.
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