The global supply chain is under a lot of pressure right now, with everything from the global pandemic to the labor shortage to emerging world events taking yet another stab at the world’s critical supply networks. And while the semiconductor chip shortage tends to garner the most attention, raw materials like aluminum, a range of different industrial plastics, building materials and even paper have all become more difficult to source in 2022.
“The last few months have made the phrase ‘supply chain’ part of everyday language,” according to Newsweek. Citing a recent Oracle survey, it says 45% never even thought about how products were delivered prior to the pandemic. “Now, 87% percent say they have been negatively impacted by supply chain issues, with 60% unable to buy items due to shortages and 51% canceling orders because of delays.”
Solving for the Now, Preparing for the Future
Various forces have combined to stress supply chains, starting with pandemic-related manufacturer and shipper shutdowns. “Those pressures revealed weaknesses in the way goods are made and delivered that long predate the pandemic,” Newsweek adds.
To both cope with the current situation and plan ahead for future potential disruptions, procurement professionals are using strategies and tactics that they may not have thought of just 2-3 years ago. When placing orders for electronic components used in their companies’ final products, for instance, buyers are thinking less about price and more about availability and lead times.
Buyers are also thinking more about risk mitigation these days, understanding that even if an order is placed, priced right and scheduled, a new COVID variant that impacts the factory where those components are made—or the carrier and logistics operations that are transporting those goods—could temporarily derail the whole plan. And while risk can exist in any business environment, Murphy’s Law is coming into play more than usual right now.
“Several years of pandemic, rising demand, materials shortages, and the lack of flexibility built into modern just-in-time manufacturing processes had all combined to ensure that getting anything from point A to point B around the world was becoming increasingly problematic,” RedShark reports. “And getting anything from point A to point B around the world that had semiconductors in [it] was even worse as there were just not enough to go around. And that is still the case.”
Managing Continued Uncertainty
According to SupplyChainBrain, manufacturers and retailers alike are facing difficulties fulfilling current consumer demand and “domestic distribution systems are struggling to meet a 25% rise in demand for durable goods over last year.” Companies are replacing their just-in-time (JIT) stocking strategies with inventory buffers in anticipation of even more future supply disruptions. In fact, the publication estimates 75% of economic growth in the fourth quarter of 2021 can be traced to inventory-building.
With the Chartered Institute of Purchasing and Supply (CIPS) predicting that Russia’s invasion of Ukraine will impact supply chains for “at least the next 12 months,” procurement departments should be reassessing their strategies and finding new ways to ensure reliable sources of supply amidst the current volatility. They should also be working closely with their suppliers, keeping them up-to-date on demand forecasts and collaborating to find new sources of supply (e.g., different manufacturers, alternate products, more varied countries of origin and so forth).
“We’re well positioned to help buyers by either fulfilling their orders with our ample stock or securing new sources of supply for them, but we really need to be in on the front end of those conversations,” says AJ Hozen. “It is an extremely challenging market to be dropping last-minute orders for hard-to-find parts or components on your distributors and expecting them to consistently come through for you.”
Collaboration Counts
To buyers who are dealing with production delays, extended order lead times, logistics disruptions and other challenges right now, KPMG says the focus should be on building flexible, resilient operations that can adapt and adjust in real-time. Use technology and automation to reduce operating costs, gain supply chain visibility and generate data that supports good decision-making (e.g., demand forecasting that looks to the future versus relying on historical data for procurement decisions).
KPMG also tells companies to build networks of “trusted vendors” that can help them manage disruptions and support good business continuity. “Collaboration and supplier partnerships, and ongoing risk monitoring are all needed to de-risk the supply chain,” it adds. “Cultivating a resilient supply chain means that the organization can be better at anticipating, reacting and planning against the unexpected by enabling cross-functional integration and collaboration with its ecosystem of vendors.”
