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May The Force Be With Your Supply Chain in 2023
January 9, 2023
By Hannah Kain, ALOM President and CEO
“I felt a great disturbance in the force.” I am reminded of this famous Obie Wan Kenobi Star Wars movie quote when pondering the future of supply chains. As I meet more business colleagues face-to-face, they invariably ask: “Supply chains are “fixed” now, right?”
Supply chain professionals can testify to the fact that our very own Great Disturbance is very much still there. Let’s review some of the hurdles and entrenched uncertainties keeping supply chain pros up at night:
Zero COVID policy and associated disruptions in China on and off. Even organizations that are not manufacturing in or buying directly from China are impacted by the disruptions caused by factory/city/region close downs. As China now is reversing this policy, the crisis may be averted. Yet, the thought of civil unrest or inability to ship product keeps supply chain professionals sleepless. As I am writing this, it is estimated that 18% of the Chinese population is hit by COVID.
Move from China to other South-East Asian countries with weaker infrastructure. The attempts to move away from China manufacturing started years ago. Yet, the COVID uncertainties accelerated efforts. This movement should, however, leave supply chain professionals concerned about the lack of sufficient infrastructure in new manufacturing locations.
Demand uncertainty. In 2020, the pandemic caused unprecedented demand fluctuations. Today the fluctuations may be related to the overall economic outlook which has a high degree of uncertainty. As lead times are longer, we need better visibility into the future. We simply do not have that luxury. This is why organizations very well may be stuck with ample inventory – but the wrong inventory in the wrong location. Procurement professionals and company executives are doing little better than throwing darts at the dart board to determine future demand. The inventory positions may come back and bite organizations in Q1-2023 when it is time to write-off those bloated inventories.
Spotty shortages. While availability may have increased, it is not across the board. I hear this more and more – that manufacturers are missing that single pesky part that prevents them from completing the product. It takes 2,500 parts to make a car, but only takes one missing part to not make a car.
Geo-politics. When Putin sent the Russian forces into Ukraine, the impact on global supply chains was immediate. Brexit is still creating havoc. The budding cold war between China and the U.S. is scaring supply chain professionals. If you want to see them blanch, just ask them about the impact of a possible – and hopefully theoretical – China invasion of Taiwan.
Regulatory environment. I would venture a guess that supply chain compliance costs have doubled over the last decade. Disjointed rules and regulations, reporting, and new areas of concerns add to the cost. We are now seeing some client cybersecurity and privacy agreements exceeding our main agreement in page count.
It is correct that the line of containerships waiting to be unloaded at U.S. West Coast ports have decreased dramatically. But a recent survey shows that supply chain issues are still the number 1 concern of manufacturers, outcompeting staffing issues. Cost of warehousing is still not hitting the top concern list, but one can question whether that should be factored in. Of course, some news media have started following the cost of transporting a container from Asia to the U.S. as a benchmark for the health of supply chains. As grateful as many of us are to see the prices reaching more reasonable levels, one can hope that no supply chain professional is giving any credence to using container prices to measure “supply chain health”.
So: when will the supply chain issues get “fixed”? I hold out hope for some issues improving with better technology. It was one of the silver linings of the recent focus on supply chains that supply chain technologies start-ups received more funding opportunities. I expect that some of these companies will provide commercially usable and exciting solutions within a 5-10 year timeframe. In the immediate future, I also expect that 2023 will become the year when supply chain organizations develop more redundancies and contingency plans, as well as truly start executing on near-sourcing.
Reality is that we keep baking more complexities into the supply chain. As long as we do so, the disturbances will only get more frequent. There is no “fix”. We are back to basics to make it through the next years: To hire and retain great staff, deploy technology that solves problems and creates visibility, and design deliberate risk mitigation. Supply chain uncertainties and cost will keep at high levels for the next years. But, then again, citing Yoda from Stars Wars, “Difficult to see. Always in motion is the future.”