In the middle of 2021, supply chain managers seemed optimistic that supply chain woes brought on by COVID-19 lockdowns would soon be over. A chaotic holiday season, plagued by supply chain shortages, has shown that the challenges of global supply networks are far from over.
However, the silver lining to the supply chain issues of 2021 is that they have highlighted how crucial supply chain operations are to almost every facet of our modern life. And there are valuable lessons for SCMs about managing supply chain shortages that could add resilience to future operations. Here are six takeaways from 2021.
1. Shorter ROI adds value to investments in supply chain visibility.
The need for supply chain visibility is a truism in the industry. Yet, while companies have made significant advances in visibility, fostering communications among both in-house and third-party manufacturing, transport, logistics and fulfillment operations often falls short of the ideal.
Before 2020, investments in technology to facilitate end-to-end supply chain visibility may have fallen outside the budgets of supply chain managers. However, enterprises that put systems in place to gain supply chain transparency have been able to lower risk by seeing and adjusting for disruptions quickly.
Supply chain visibility requires an investment of time as well as money. Supply chain managers need to view third-party fulfillment and logistics providers as partners rather than vendors. Creating a culture of shared information, goal setting and planning can give you vital allies to help prevent or alleviate supply chain shortages.
2. Disruption at any point in the chain can cause shortages.
One of the biggest lessons of 2021 is that supply chain shortages can occur even when factories operate at full capacity. The year’s disruptions, from the Suez Canal blockage to backed-up ports, have shown how crucial transportation is to the smooth functioning of supply networks.
While some delays are inescapable when interconnected global logistics networks slow down, savvy companies can mitigate supply chain shortages with advance planning and creative sourcing. Limits on carrier capacity that slowed deliveries to customers within the U.S. during the 2020 holiday season led some fulfillment providers to diversify their delivery options. In 2021, a shipping container shortage and higher prices for container shipping demonstrate the importance of creating redundant systems for every element of your supply chain.
3. Supplier diversification is essential.
The past two years have been extraordinary, but even once COVID-19 recedes, supply chain disruptions are likely to be more frequent. Extreme weather events and civil unrest are just two in a long list of factors in a turbulent world that add fragility to global supply chains.
If 2020 made you think that diversifying your suppliers was a good idea, 2021 made it clear that diversification is essential. For some companies, that could mean re-shorting or near-shoring manufacturing to mitigate transportation issues. But global suppliers will remain crucial, and some raw materials must be sourced across borders. Working with multiple suppliers is an excellent way to prevent supply chain shortages.
4. It’s time to rethink your inventory management plan.
Just-in-time inventory has been a crucial driver of lower costs for consumers, allowing businesses to reduce their inventory expenses. However, the supply chain shortages of 2021 may have put an end to JIT inventory management.
Whether JIT returns in 2022 and beyond or a new model takes its place remains to be seen. For the time being, many businesses have replaced JIT with JIC: just-in-case. JIC involves holding more safety stock to protect against supply chain shortages. However, the increased holding costs of JIC inventory management can drive up consumer prices and reduce operational efficiency.
Supply chain disruptions call on companies to improve their inventory forecasting and planning. Inventory forecasts can be based on past sales and projected demand, plus external factors such as consumer confidence and price sensitivity. Inventory forecasts aren’t static; you should update them continuously. That will allow you to adjust safety stock and reorder levels to protect your inventory from supply chain shortages.
Among the benefits of inventory forecasting:
- Forecasts allow you to look ahead to periods of peak demand and work with your supply chain partners to ensure that stock arrives in time to fill orders.
- Inventory planning will save transportation costs because you are less likely to need expedited shipping to move inventory or fill customer orders.
- Planning is essential to keeping inventory costs low and freeing your business capital for growth investments.
Inventory forecasts, combined with supply chain transparency, allow organizations to avoid supply chain shortages while keeping costs low in a time of supply chain disruption.
5. AI and machine learning have emerged as key drivers of supply chain optimization.
In the future, AI and machine learning may be the dividing line between supply chain winners and losers. Automation tools allow the SCM industry to adapt quickly as new developments add glitches to supply chains. For example, AI digital twins can model scenarios, tracing the effects of one decision on all elements of a supply chain, giving managers the power to make fast and informed decisions. Companies that embrace the digitalization of their supply chains will have a competitive advantage in an increasingly unpredictable world.
6. Attracting and retaining experienced staff is critical to keep supply chains moving.
The supply chain disruptions of 2021 are about much more than COVID shutdowns, container shortages or sky-high shipping costs. Fundamentally, this year’s supply chain shortages are labor shortages. Ships got backed up at busy ports partly because a glut of orders maxed out the port’s capacity. But a lack of factory workers, dockworkers, truck drivers and warehouse staff has become a major contributing factor in slowing supply chains or bringing them to a complete standstill.
The supply chain industry has suffered from a labor shortage affecting all sectors of the economy. Many of the vital workers who keep supply chains flowing must work in person. Jobs may be going unfilled because of safety concerns or dissatisfaction with working conditions or wages. For example, the sailors who operate the container ships often spend weeks or months at sea, but the pandemic kept some of them ship-bound for months because of quarantines, and now many are stuck offshore waiting for a berth to unload.
In 2021 and beyond, ensuring supply chain continuity must include favorable working conditions. To attract and retain staff, build safety into the workplace culture and processes, provide paid sick time and offer competitive wages.
Will 2021 Make Supply Chains Better?
The pandemic created a perfect storm of supply chain disruption. Like a downpour that finds all the leaks in a roof, it has exposed the vulnerabilities of supply chain operations. Of course, one of the causes of the supply chain shortages was massive and sudden shifts in consumer demand. However, 2021 showed the tenuous nature of practices such as JIT inventory that rely on uninterrupted and predictable supply chain operations.
Lean supply chain management and something resembling JIT will probably return in the future, but supply chain operations won’t be the same. The pressures of 2020 and 2021, some of which will surely extend into the future, will force the adoption of new technologies and procedures. The process will be painful—mainly because the changes have happened rapidly—but supply chains will emerge more resilient.
