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What Are Global Supply Chains?
Global supply chains are the networks between manufacturers, distributors and international markets. They are the backbone to production and the delivery of products and services around the world, something that previously seemed so seamless but now is the root of numerous shortages and delays. Prior to the COVID-19 pandemic outbreak, there were cross-border dependencies around the globe that allowed countries to specialize in the production of a particular good, then trade with one another creating a functional supply chain network.
What Industries Are Most Impacted by Global Supply Chains?
In 2019, the world came to a halt as the coronavirus pandemic impacted supply chains. As quarantines and work-from-home became the new way of life, products that were previously being produced on a daily basis were now scarce and unavailable. Suddenly, port delays, transport aircraft shortages and halts in manufacturing also caused further delays, and the products that were available were being produced in minimal quantities. Delivery times became uncertain, again creating a domino effect of one raw material being delayed and therefore causing delays in the production of the final good. Nearly all industries suffered tremendously from the issues the global supply chain endured, and the ripple effect was more impactful than we ever could have anticipated.
What Are the Risks of Global Supply Chains?
With supply chains now being complex and fragile, strategies came into play to realign how we could correct some of the problems created due to discrepancies between supply and demand. Prior to COVID-19, trends had already been changing as technology advanced and national security heightened causing changes in consumer preferences, purchasing power variants and emerging global markets, as well as geopolitical shifts. However, three prominent issues were coming into play that were placing the global supply chain at high risk:
Labor shortages
Truck driver shortages have been one of the most prominent and impactful changes to labor the supply chain has seen so far since 2019. There had been generational shifts in job preferences occurring before COVID-19 but afterwards, younger generations preferred finding remote jobs. As older generation truck drivers retire, there is no desire to enter the trucking workforce causing delays of crates reaching their destination due to the simple lack of no available drivers. On top of that, now with remote work being the new norm, people are more inclined to find jobs that allow them to stay home versus going to a warehouse, retail store or driving miles on highways. The issue with this is that the workforce is diminishing to a point where production is not even viable with these high labor shortage numbers.
Equipment availability
Playing hand-in-hand with the labor shortages, with minimal workers wanting to be in-person, there is no one to operate machinery and equipment for product production. On top of the lack of machine operation, there is also a chip shortage that is causing dysfunction with the machinery. There has been a direct halt in warehouses because of the inability to produce goods due to no one being present to do the actual production and a lack of technological functionality.
Ripple effect of global bottlenecks
The global bottleneck that occurred after the pandemic outbreak did not happen overnight. This was a gradual reaction that worsened over a period of time and still exists today. It was a combination of factors that led to the incredible supply chain bottleneck we have seen globally for the last four years that has fractured the global economy.
Now more than ever, consumers desire and expect products to be produced at an affordable price in available quantities when they want to purchase them. With this still as the expectation and the focal point of demand, competition needs to remain high to keep prices down, even amidst a dysfunctional global supply chain.
How Can Global Supply Chain Issues Be Mitigated?
With the groundwork of issues laid out, the question is now how can we begin to solve these problems and how can we ease the dysfunction of the current global supply chain? The easiest response would be to hope that either production capacity increases or demand simply decreases. But again, that is an easy answer and not very realistic. Just-in-time (JIT) inventory was previously the norm a company would rely on to have just the right amount of stock when needed, knowing they could restock and have new products delivered quickly when inventory was running low. JIT inventory was ideal to avoid spoiling for perishables, as well as excess stock.
The first way we can begin to change some of the current global supply chain issues is by boosting domestic production in North America by means of onshoring and nearshoring. Pre-pandemic, the U.S. relied heavily on manufacturing raw materials abroad because they could guarantee low labor and energy costs. This meant they could keep prices low and demand high when importing the supplies back into the U.S. But now with transportation delays and the security concerns discussed previously, strategies for receiving inexpensive supplies have had to change.
The first option is to adopt onshoring, eliminating any foreign production at all. Production occurs on U.S. soil and this way all production can be monitored for health and safety standards. The issue with onshoring is that we are already lacking labor numbers, playing into the domino effect of the current supply chain. Nearshoring could also be potentially adopted, but it means bringing foreign adversaries back into the picture. Nearshoring would utilize neighboring countries, such as Canada or Mexico that the United States has good relations with, to handle raw material production. With all foreign business, though, North America would lose some control over the production standards.
The next possible way of mitigating global supply chain issues is easing transportation jams. With the increased number of port holdups, container box shortages and price increases, supply transportation has been bound for failure. All these factors virtually make it impossible for the expectation of on-time delivery to be viable. Since the pandemic outbreak, there has been a four to five times increase in prices. This has made goods extremely unaffordable for most consumers. In order to ease some of these jams, transportation tracking has begun to be a new strategy. Digital tracking monitors the movement of loads and will anticipate, track and alert the company of any delays. This allows companies to plan ahead and anticipate how to deal with the delays in comparison to having no idea when or where their goods are.
One of the biggest factors that could shift the state of the supply chain is to prioritize public health globally. Workers were getting so sick from COVID-19 that warehouses and ports were not functioning as they previously were because there was simply a lack of help. Many sectors of production came to a halt as the key components fell into the domino effect of one item being delayed, therefore all other following items also became delayed. There was no decline in ecommerce and consumer demand, even during the pandemic, so this continued pressure on manufacturing and distribution centers prevailed. Goods can no longer be produced without the backbone of the production process – the workers, so how can we help ease the stress and sickness they have been facing and motivate them to come back to work?
Worldwide, there needs to be an investment in contact tracing and treatment to protect against diseases, like what they did with the coronavirus, as well as invest in general health infrastructure protocol. With these extra precautions set in place, hopefully workers will feel more supported and feel safe to come back to work, to eliminate this trend of negative workforce shifts. Humans are already battling digital transformation and artificial intelligence to keep their demand as workers, but we need to place more value and importance of the work they are doing to help get people back to work.
Finally, tensions must be minimized among countries in order to allow transglobal movement of products. Fighting anti-competitive practices is a huge contributing piece that could alleviate some of the pullback for global business. If we allow large firms to hold all the industry power, prices can be moved however high they choose. Keeping competition flowing is key for a balanced supply chain with reasonable prices. Limiting market competition is fueled by the current supply chain state, but we must fight to restore the open line of trade we once had. Conflict abroad makes it challenging to maintain an open supply chain, and with high economic and security risks, countries must make wise decisions on how to run their barriers to entry.
Current Issues in Global Supply Chains
There are numerous factors affecting the global supply chain that are not rooted from just one problem. Transport costs, chip shortages, labor shortages, raw material shortages and shipping costs have all created together to form an incredible level of supply chain disruptions. The COVID-19 pandemic was the initiator of the larger disruption and now we face further problems with the China trade wars and the Russia-Ukraine conflict. These issues will not go away on their own and it will take a group effort to restore the functioning supply chain network the world once had.
enVista’s supply chain consulting team consults and implements solutions that transform and optimize networks, warehouses and labor to improve profitability and create a long-term supply chain strategy for success. Through our supply chain consulting services, we generate a competitive advantage through reduced costs, improved service levels, reduced overall cycle times and streamlined processes and systems to generate supply chain resilience. Let’s have a conversation.™
