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What are the Biggest Supply Chain Management Challenges for 2022?

 

The Covid-19 pandemic, subsequent lockdowns, closed Chinese port terminals, and events like the Suez Canal blockage wrought unprecedented disruption to global supply chains. Months on, there is still a fair amount of risk to manage across the supply chain.

This really doesn't come as a surprise with continued uncertainty, (some) restrictions, safety protocols, and the many challenges related to Covid-19  across different economies. 

For example, an increase in shipping costs, commodity prices, and the vast differences in the recovery rate of economies around the globe can threaten the free flow of products and raw materials around the world. 

However, the last couple of years weren't all that bad for everyone. For example, the burgeoning e-commerce industry saw a dramatic rise during the pandemic. 

According to UNCTAD, the online share of retail sales grew from 16% in 2019 to 19% ($26.7 trillion) in 2020. However, this surge has also highlighted the vulnerabilities in the supply chain.

According to a recent Gartner study, 76% of supply chain professionals cited increasingly disruptive events in the past three years. A further 72% stated that the impacts of these events have also increased considerably.

When such disruptions occur in an already-stressed system, we end up with a massive problem. This is because there's really no extra capacity or spare time to make up for these delays.

So, what challenges can we expect to face in 2022? Let's take a look.

 

1. Acute Labor Shortages at Factories and Warehouses

With pandemic-induced lay-offs and relocations in search of better opportunities, organizations now face significant challenges in getting workers back. The lack of a labor force, in general, threatens to be an ongoing issue. 

For example, a FedEx distribution center in Portland, Oregon, was operating at 65% capacity because of a labor shortage (which led to delays and unhappy customers). The pandemic and Brexit also led to severe shortages of truck drivers in Europe (especially in the UK), leading to chaos across the continent. 

 

2. Quarantine Regulations Lead to Bottlenecks

Strict quarantine rules have resulted in delays in docking and turnaround times. It's actually taking twice as long for ships to dock and leave ports with fresh goods from 60% of the world's ports.

While most don't expect a repeat of 2020, we can expect to see similar delays in 2022 (or at least until we win the battle against COVID-19 for good).

 

3. Skyrocketing Prices of Goods and Services

Pauses in production have driven input prices so high that the poor performance of supply chains is magnifying it. For example, ships carry as much as 70% of world trade by value. The lack of synchronized recovery due to vaccine inequality has created congestion resulting in ocean freight rates doubling.  

Container costs aren't immune to price hikes either. The average cost of a 40-foot container is up 323% over last year. 

The same is true when it comes to warehouse space demand. According to the Logistics Managers' Index, the warehouse vacancy rate is pretty tight at 4.8%. It also drops dramatically in areas near ports and is known to go as low as 1.7%. 

Furthermore, businesses seeking warehousing in metropolitan areas must contend with a lack of capacity as firms fight to position their goods close enough to their customers to benefit from just-in-time inventory management and more. 

 

The Way Forward

Manufacturers must be highly resilient in a post-pandemic world and expect the same from their partners across the supply chain. They must strategize and develop a robust plan to overcome potential hurdles in the new year. 

For example, companies practicing agile supply chain management and best practices will seek dual sourcing options for raw materials. They might also hold a significant amount of inventory onshore or nearshore. Some may even find viable alternatives to current production sites and distribution centers to ensure uninterrupted operations in 2022 and beyond.


To learn more about our manufacturing, prototyping, and our supply chain management experience, reach out to our in-house expert, Connor!

 

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Connor Lamb

Sales Manager (Midwest)

231-780-7354

  clamb@michmfg.com

 

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