In this issue of Tom’s Takes, Tom Stretar, Vice President in enVista’s Technology Solution Group, met with Nate Rosier, Senior Vice President and Consulting Group Leader, to discuss the state of the global supply chain as it relates to the economy. Here is a summary of their discussion in a Q&A format:
Tom Stretar: Nate, how is inflation affecting the supply chain?
- Companies are experiencing significant wage pressures across their entire supply chains. The costs of all labor-related activities from manufacturing through all modes of freight transportation to warehousing and finally to last-mile delivery – are on the rise.
- In addition to increased labor costs, raw materials, packaging and infrastructure costs (such as tractor-trailers, distribution center leasing and fuel costs) have been on the rise over the past 12+ months.
- These cost increases change how companies view supply chains to ensure cost containment. It also impacts the need to continually adjust to these cost pressures in order to meet profitability targets.
Tom Stretar: What are the top 2-3 issues facing today’s chief logistics officers?
- The top issue for most supply chains is forecasting, planning and managing the increasing complexity. E-commerce growth, shifts in demand patterns, shifts in supply and raw material availability, shifting cycle times and increasing demand variability are making it difficult to ensure proper inventory levels throughout the calendar year.
- The next largest issue currently is largely a talent issue; there is not enough supply chain labor available to work in warehouses, drive trucks and to plan and forecast all the above issues cited.
- The third issue we see across all our clients is that processes and systems cannot deal with the increasing complexity and variability in today’s supply chains. This would include enterprise resource planning, order management, warehouse management and transportation management systems.
Tom Stretar: Finally, can you speak to what’s happening with inventory levels in 2023?
- From 2016 to 2019, the global economy experienced very stable years from a demand perspective. The 2020 COVID-19 event created unprecedented changes to supply and demand that very few companies were prepared to deal with.
- For many companies demand significantly rose at the end of 2020 then 2021 was a record year in overall growth. However, supply did not keep up, so most companies over-ordered. Demand slowed in 2022, creating a bullwhip where inventory caught up to ‘previous’ demand forecasts. Therefore, inventory levels have risen dramatically over the past several months in many consumer-related companies.
- High inventory levels have many negative impacts on logistics costs and profitability including increased storage cost, reduced cash on hand and increased probability of product obsolescence for some vertical markets (such as fast fashion), resulting in product markdowns and liquidation strategies.
Tom’s Take – “Thanks to Nate Rosier for his excellent insights on the current state of the supply chain and how inflation, cost and inventory pressures are being addressed firsthand by logistics leaders. Look for part two of our interview in an upcoming issue of Tom’s Takes when we discuss network optimization and the strategies companies are executing in today’s evolving supply chain world.”
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