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Supply Chain Problems in 2021: How They Impacted the Economy and What’s Next?

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Supply Chain Problems in 2021: How They Impacted the Economy and What’s Next?

Supply Chain Problems in 2021: How They Impacted the Economy and What’s Next?

Supply chains are networks — ways to source and supply various goods and services across the globe. Unfortunately, due to complications resulting from the pandemic, both businesses and consumers have learned firsthand how vulnerable these networks are, and how critical they are to deliver what we and others often desperately need.

Here’s how the supply chain impacted the economy this year — and also what the future may hold.

Why Did the Supply Change Shortage Occur?

Supply chain shortages first began back in the first quarter of 2020 — at the beginning of the pandemic. Factories all over the world were forced to slash or halt production due to the spread of COVID-19 and the resulting lockdowns. Because factories were not shipping as many goods — or any goods at all — shipping companies responded accordingly by clearing their schedules.

Shipping companies were subsequently called to action to ship personal protective equipment around the world. Unfortunately, many of those containers were unloaded in destination countries, emptied of goods and not returned, which led to a shortage of shipping containers.

How Do Supply Chain Shortages Affect Businesses?

“Most consumers don’t truly understand how astoundingly intricate today’s supply lines are,” said economic expert Monica Eaton-Cardone, owner, co-founder and COO of Chargebacks911. “Corporations might import some parts from China, other parts from India, maybe some rare-earth elements from elsewhere — and if there are any delays at any point, it limits how quickly these products can be sourced, assembled, packaged, shipped and sold.

“As we’ve recently seen, this causes prices to rise because all the efficiencies that were so carefully built into the supply chain have collapsed. Eventually, this leads to scarcity, shortages and lots of unhappy consumers — especially during the holiday season. A broken supply chain is unpredictable, and the system cannot function without reliability in sourcing and predictability in shipping.”

Why Does the Supply Chain Make Such a Difference for Our Overall Economy?

“To compete in the global economy, businesses must outsource and create supply chains,” said Dr. Tenpao Lee, professor emeritus of economics at Niagara University. “The success of a supply chain is based on tremendous collaboration, coordination, and communication. Any small disruption would ruin the whole supply chain system. For example, car manufacturing cannot proceed without simple computer chips. Port congestion can paralyze many related industries.”

What’s Potentially Next Regarding Supply Chain Issues?

“At some point, our supply chain crisis will subside and return to normal,” said Carlos Castelán, managing director of The Navio Group, a retail consulting firm that advises businesses on how to navigate supply chain challenges.

“But until then, the key going forward is inventory,” he said. “For business retailers, inventory could be the difference between success and failure during early 2022. The first and possibly second quarter of 2022 will be a test of retailers’ supply chains and operational capabilities. With shortages of many key components for manufacturers as well as labor shortages – or stoppages in the global due to COVID – retailers are facing a variety of different headwinds across different fronts.”

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What’s the Next Phase of Supply Chain Evolution?

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What’s the Next Phase of Supply Chain Evolution?

What’s the Next Phase of Supply Chain Evolution?

The reworking of supply chains has a simple purpose of fitting the new world economy’s needs and demands. And freight data sharing platforms had already started before the mess of 2020 began. Additionally, the shift towards digital media and reinvented processes of global supply chains continues still today. Supply chain evolution is highly focused on market sub-segments, especially on those within the middle class. According to Supply Chain Management Review, “this matters a lot in a world where the population of middle-class consumers will reach 5.5 billion or over 60% of world population by 2030—a phenomenal growth from 1 billion middle-class people comprising 20% of world population in 1985. Middle-class consumption will soon comprise one-third of global GDP. Five-and-a-half times as many middle-class consumers means far too many consumers to be efficiently served by a global factory.” These figures hint at why supply chain evolution is essential. It ensures shippers can meet consumers’ needs and demands to keep up with the global market shift.

The Driving Forces of Digital Transformation

The move towards digital processes and platforms is essential for supply chain evolution, and behind the movement are four driving forces that necessitate such a transformation. They include the following:

  1. Competition. Competition drives innovation and keeps businesses on their toes, especially within the supply chain network.
  2. E-commerce. There has long been a steady push towards virtual processes for supply chains, and recent world events make it all the more necessary to embrace e-commerce.
  3. Visibility. Another critical part of supply chain evolution and growth in the modern age relies heavily on improving the network’s visibility.
  4. Speed of delivery. For most supply chains and transportation management teams, accurate and timely delivery is the ultimate way to keep customers satisfied.

The Digital Twin Is Getting Smarter and Adaptive

There is a digital side for every aspect of life, which is often unseen and largely ignored. It is the digital twin, the virtual symbiote, that exists for just about everything in existence. The digital twin is a large part of the supply chain evolution process. Think about it. Shopping and purchases have a face-to-face component as well as a virtual component. Deliveries and shipments can be managed with a physical paper trail or with a digital and automated platform. The digital twin can no longer be ignored and will no longer be relegated to the corner as it is becoming more and more essential for the success of supply chain evolution.

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April manufacturing output feels impact of COVID-19

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While March began to show how the coronavirus, or COVID-19, began to truly impact the economy, things came into even starker perspective in April, based on data in the Institute for Supply Management’s (ISM) Manufacturing Report on Business, which was released today.

The report’s key metric—the PMI—at 41.5 (a reading of 50 or higher indicates growth)—declined 7.6% from March’s 41.5, falling for the second straight month, which was preceded by two months of growth. The April reading was 7.5% below the 12-month average of 49.0 and is also the lowest reading over the last 12 months and the lowest reading going back to April 2009’s 39.9. What’s more, ISM reported that April marked the first month that the overall economy contracted after a stretch of 131 consecutive months of economic expansion.

ISM reported that two of the 18 manufacturing sectors it tracks saw growth in April, including Paper Products; and Food, Beverage & Tobacco Products. And the 15 industries reporting contraction in April, in order, are: Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Textile Mills; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Wood Products; Miscellaneous Manufacturing; Computer & Electronic Products; Primary Metals; and Chemical Products.

Each of the report’s key metrics saw declines in April.

New orders, which are commonly referred to as the engine that drives manufacturing, saw a steep 15.1% decline, to 27.1 after a 7.6% decline, to 42.2, in March. This marks the third straight month of declines and is the lowest reading for new orders since December 2008’s 25.9. ISM said that two industries—Food, Beverage & Tobacco products and Paper Products—saw growth in April, with the remaining 16 all seeing declines.

Production—at 27.1—was down 20.2%, contracting for the second straight month and is the lowest figure since numeric ISM Report On Business index records were first issued in January 1948, with the 20.2% decrease from March representing the largest one month decline going back to January 1984, when it was down 20.7%. ISM said that two manufacturing sectors—Paper Products and Food, Beverage & Tobacco products—grew in April.

Employment—at 27.5—was down 16.3% compared to March, falling for the ninth consecutive month, and is its lowest reading since June 1949’s 27.2 reading, and represents the largest one-month percentage-point decrease going back to January 1948, when ISM began keeping numeric records. ISM said that each of the top six manufacturing sectors saw employment contraction driven by the furloughs and layoffs, due to a lack of new orders, with social distancing mandates also factoring into the number.

April inventories—at 49.7—headed up 2.8%, while contracting at a slower rate for the 11th consecutive month. The report explained that inventory contraction slowed as was expected, due to supply chain disruptions and the lack of labor to convert material, with 10 manufacturing sectors reporting higher inventory readings in April.

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Making sure it’s business as usual, whatever the weather

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The UK was recently subjected to an extreme cold spell that saw widespread disruption across the UK. Dozens of rail services and flights were delayed or cancelled, thousands of schools were closed, a raft of homes were left without power in certain parts of the country and many people struggled to get to work in the snowy and icy conditions.

This short spell of disruption would have come at a cost to the UK economy, but in reality we should be thankful we’re not subjected to the extremes of weather that can impact other parts of the world. Anyone remember the scenes we saw on our TVs in the wake of Hurricane Irma in the Caribbean and Florida? In addition to the devastation caused to thousands of families’ homes, businesses were left in turmoil too. Florida, for example saw the price of its diesel soar and shipping and trucking capacity was severely limited in the region. It is estimated that the economic cost of the storm which has caused significant damage to homes, businesses and crops could be as much as £227bn.

The knock on effect of the storm’s impact is still being felt, especially for any businesses with suppliers based in the storm-damaged regions. This event highlights the increasing risks businesses face when they have a supply base in a region that could be affected by adverse weather or other environmental factors such as earthquakes, or volcanic eruptions.

No matter where in the world your critical supply base is located it is essential that businesses ask their suppliers the right questions from the start of their relationship. Even with non-business critical purchasing activity, adopting a proactive approach to on-boarding/supplier evaluation and supplier contracting means that you can assess your suppliers and ask questions about disaster recovery, insurances, and best practice around handling large scale environmental events from the outset. Sounds obvious, but it’s very easy to overlook this line of questioning, especially if purchasing is being done on a decentralised basis.

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Supply Chains in Advanced Markets Should Become More Agile, Says Atradius

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Atradius, a consultancy specializing in trade credit insurance, surety and debt collections, maintains that the global economy has continued to gain momentum over the past months, with a 3.1% expansion projected for this year.

Higher inflation, falling unemployment, and strengthening Purchasing Manager Indices (PMIs) all suggest higher GDP growth in advanced markets.

Atradius analysts observe that the U.S. economy leads this trend while the recovery in the eurozone becomes increasingly entrenched. The outlook for emerging markets is also brighter, as Brazil and Russia are emerging from recession, and access to finance remains favorable. While the global economic outlook is more robust than in previous years, political uncertainty remains a downside risk to stability.

However, the main challenges to the global outlook – the threat of deflation, negative bond yields, austerity, and low commodity prices – are slowly phasing out.

Global trade is supporting this recovery. After a 1.3% expansion in 2016, trade growth (12-month rolling average, y-o-y) has picked up to 3.3% as of July 2017. The stronger-than-expected expansion is being driven by intra-regional trade flows in Asia and strong import demand from North America.

Despite political uncertainty, most high-frequency indicators point to sustained growth: the global composite PMI posted held steady at 54 in September, pointing to a solid and stable rate of expansion. This has motivated some dramatic upward revisions of trade growth forecasts in 2017. The WTO raised its 2017 forecast for merchandise trade growth to 3.6% from 2.4%.

Read more at Supply Chains in Advanced Markets Should Become More Agile, Says Atradius

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Could Your Supply Chain Be The Weakest Link In Risk Management?

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Supply chains are a vital component of every organization’s global business operations and the backbone of today’s global economy. However, security chiefs everywhere are concerned about how open they are to an abundance of risk factors. A range of valuable and sensitive information is often shared with suppliers and, when that information is shared, direct control is lost. This leads to an increased risk of its confidentiality, integrity or availability being compromised.

Data Protection

Security is only as strong as its weakest link. Despite organizations’ best efforts to secure intellectual property and other sensitive information, limited progress has been made in effectively managing information risk in the supply chain. Too often data breaches trace back to compromised vendor credentials to access the retailer’s internal networks and supply chain. Mapping the flow of information and keeping an eye on key access points will unquestionably remain crucial to building a more resilient information.

Take a moment and think about this: Do you know if your suppliers are protecting your company’s sensitive data as diligently as you would protect it yourself? This is one obligation you can’t outsource because, in the end, it’s your liability. By looking at the structure of your supply chains, determining what information is shared and accessing the probability and impact of potential breaches, you can balance information risk management efforts across your enterprise.

Organizations need to think about the consequences of a supplier providing accidental, but harmful, access to their corporate data. Information shared in the supply chain can include intellectual property, customer-to-employee data, commercial plans or negotiations and logistics. Caution should not be confined to manufacturing or distribution partners. It should also embrace professional services suppliers, all of whom share access, often to your most valuable assets.

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Risk management in an evolving global supply chain

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Risk management in an evolving global supply chain

The festive season has ended, and the retailers can breathe a collective sigh of relief. Their busiest time of the year means their operations have had to be resilient and robust. The supply chain is at the heart of this and it has been used to plan the Christmas period for months. But what lies at the success of this supply chain and what lessons can be learned?

Managing a supply chain in today’s global economy is fraught with difficulties. Supply chain managers have to maintain a balance of cost, agility, and sustainability, as well as manage the logistics and the manufacturing footprint. All these issues come with their own problems, but overall the trade-off is cost versus risk.

To strike a chord between cost and performance, supply chains have to be inventive. That means essentially going out into new markets, using new local suppliers, and accessing new customers. Invention comes at a cost, as these are new, unexplored areas of risk. So risk management is an important part of supply chain management in a global context.

As organisations strive for new opportunities for a more effective supply chain, so risks are more prominent. Who is that new local supplier? Can they be trusted with your product? The new country you’re now operating from – what are the geographical risks? The political risks? The legal risks?

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Balancing Financial Settlement and Inventory Levels Remain Key Concerns For Supply Chain Managers

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Balancing Financial Settlement and Inventory Levels Remain Key Concerns For Supply Chain Managers

U.S. companies made only marginal improvements in their ability to collect from customers and pay suppliers in 2013, while showing no improvement in how well they managed inventory, according to the 16th annual working capital survey from REL a division of the Hackett Group, Inc.

“For inventory, the global marketplace has made issues like demand planning more important than ever before,” says Analisa DeHaro, Associate Principal for REL. “Companies need to factor in lead times that may not have been an issue when manufacturing was done closer to home. The best companies are becoming more savvy about this, and are more effectively balancing the various elements of inventory management.”

The amount tied up in excess working capital at nearly 1000 of the largest public companies in the U.S. is over a trillion dollars, according to the REL research.

The U.S. economy was slow but stable, with gross domestic product increasing by 3.2 percent in 2013. But at the same time, the REL research found that gross margins decreased by 0.3 percent, indicating that companies are spending more internally to generate revenue.

The researchers also found that companies are continuing to borrow, using low interest rates to improve their cash position, with cash on hand increasing by 12 percent, or $110 billion. At the same time, companies continued to ramp up capital expenditures, which have risen by 43 percent over the past three years.

The value of total net working capital rose by 3.2 percent in 2013, and days working capital improved by less than 1 percent. While days sales outstanding and days payable outstanding improved only slightly, days inventory on hand showed no change at all.

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