Supply chains across the board have been disrupted over the last three years. A problem initially spurred on by pandemic-related “panic buying” only accelerated as the world’s economies fired back up and consumer spending increased. As the labor shortage drags on, recruiting and retaining workers has been difficult for companies in most industries. This and other factors are creating an environment that’s ripe for even more disruption.
While the situation has eased in certain sectors, even as of late December manufacturers were having difficulties keeping up with high demand for children’s cold and flu medications. And while that high demand is playing a role in the problem, companies like Walgreens cite “supplier challenges” as another driver.
“Due to increased demand and various supplier challenges, over-the-counter pediatric fever reducing products are seeing constraints across the country,” Walgreens announced. “The limits were put into place in an effort to help support availability and avoid excess purchases.”
These situations were fairly uncommon prior to the pandemic, but have since become commonplace. And as soon as one issue is solved—the toilet paper shortage of 2020 or the lumber shortage of 2021, for example—another one quickly pops up in its place.
“We are in an era where the best-built plans of business are waylaid by forces beyond their control,” AlixPartners points out in its 4th Annual Disruption Index, which found that three out of four CEOs are running companies that are facing a “high amount” of disruption. And, 72% of CEOs admit that their executive teams don’t have the agility to deal with that disruption.
Everyone is Changing their Models
AlixPartners defines disruption as the “displacement of businesses, markets and value networks as the result of economic, societal, environmental, political, regulatory or technological changes.” It says that technological innovation and adoption, in particular, can catalyze and accelerate other disruptive forces.
Some of the key findings from the company’s latest disruption report include:
- 53% of executives expect a severe or major impact on revenues from a recession.
- 44% expect supply chain issues will become less of a challenge for their company in the next 12 months.
- 82% expect a recession or economic downturn in their region to last more than a year.
- 48% say their company has been severely or very impacted by interest rates and the inflationary environment.
- 18% say COVID has created or accelerated fundamental change in their industries.
The report also found that 45% of executives run companies that were either very or extremely impacted by environmental and social concerns—an 18% increase over 2021’s findings. Also, 47% are leveraging technology to increase productivity in face of workforce shortages; 56% say advancements in technology are happening at a rate their company cannot keep up with; and 88% of CEOs have shifted their approach to supply chain management in the past 12 months.
In response, 98% of companies are changing their business models now or expect to change them over the next three years, and 31% are changing their business models this year. The latter number rises to 57% among growth leaders. Some of the headwinds that companies expect as they make these shifts include a lack of labor (32% of CEOs cite this challenge), a lack of executive team agility (72%), and a lack of available resources to invest in new technologies and digital solutions (95%).
Thinking Outside Your Four Walls
In its report, AlixPartners warns executives that recession-proofing cannot stop at the company door. Supply chain disruptions have faded in the headlines but not in the executive suite, it says, where 52% of business leaders say supply chain disruption is more of a challenge for their company than it was a year ago.
“Unlike last year, when companies were struggling to keep up with demand,” AlixPartners’ Marc Impieri told CIPS’ Supply Management, “now the challenge is multifold.”
“Customer demand is dropping, recessionary pressures are being felt, the supply situation has not improved much and sticky high costs are coming down slowly,” he continued. “It’s difficult to balance both and stay profitable in this environment. The main issue is related to timing and how slow supply chains are to react to volatile customer demand."