Supply chain disruption will persist in 2022, but tech may help
The supply chain problems of the last two years will persist into 2022, but companies can use the opportunity to redesign processes and update technology to solve long-term issues.
Supply chain disruption will continue to affect businesses in 2022 but will also open up opportunities to resolve long-standing weaknesses.
Once a dry and dusty back-office function, supply chains became top of mind for CEOs and consumers alike in 2020 when ordinary consumer goods like toilet paper became scarce and panic-buying ensued at the beginning of the COVID-19 pandemic.
The year 2021 brought on a whole new parade of supply chain disruption issues, from a chip shortage affecting the production of new cars, to the hyperbolic warnings of empty shelves in stores around Christmas. Companies watched helplessly as their goods languished on container ships stranded in the Suez Canal or stuck at the ports of Los Angeles and Long Beach, Calif.
Supply chain disruptions are nothing new, but disruptions at this level are unprecedented, according to many industry experts. Also, while the pandemic undoubtedly was the catalyst for much of the supply chain disruption woes, it was not the only cause. Longstanding weaknesses in the supply chain like inadequate port infrastructure in the U.S., as well as supply chain strategies like just-in-time manufacturing and logistics, combined for the perfect disruptive conditions.
The question on CEO and consumer minds is whether these problems are long-term. Business leaders who once considered supply chain a costly afterthought now want to know how they can mitigate disruptions and what strategies and tools could help to do that.
Most industry experts agree that many of the problems contributing to the supply chain disruption are not going away anytime soon, but some short-term issues could be resolved in 2022. They also contend that the problems provide an opportunity for businesses to set their supply chain house in order by addressing longstanding weaknesses with modern digital technologies and analytics.
Supply chain disruption will continue in 2022
The supply chain disruption is part of a larger global resources disruption that has affected production, business investment and labor, according to Dana Gardner, principal analyst at Interarbor Solutions, an enterprise computing systems consulting firm in Gilford, N.H.
The disruption will likely not abate at least in the first half of 2022, which means that long-term planning will remain subject to short-term unknowns, Gardner said. This impediment to smart supply chain decision-making is made even more difficult and complex by the waves of COVID-19 variants, like omicron.
Complicating matters are the global labor shortages and unpredictable regulatory responses to the COVID-19 pandemic, which will likely undermine the supply chain recovery, according to Eric Kimberling, CEO and founder of Third Stage Consulting Group, an enterprise computing industry consulting firm in Denver.
"What was once a well-oiled, global, massive machine has been disrupted by varying government responses to the pandemic," Kimberling said. "That alone will take quite some time to recover and get back to normal."
Gardner said supply chains will need serious investment in modern digital technologies to help businesses understand and deal with the problems.
"The bottom line is smart technology investments will provide one of the few improvements in labor and supply chain analysis value for businesses," Gardner said. "The ROI on tech investment in better supply chain insight, analysis, automation and optimization has never been higher and swifter."
Dana GardnerPrincipal analyst, Interarbor Solutions
According to analysts, modern digitally transformed supply chains will include transparency, automation, traceability and collaboration through technology like machine learning, AI, IoT, RPA, blockchain, advanced analytics and business networks. These will combine to make supply chains more resilient, flexible and predictive, and can provide a competitive advantage for companies that adopt them.
Businesses should expect more of the same for supply chain disruptions as they head into 2022 due to systemic design and operational issues, agreed Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers, in Longueuil, Quebec.
"The structural issues that have thrown the world's supply chains into a tailspin over the last two years are just that -- structural," Jakovljevic said. "While the number of ships at anchor outside the port of Long Beach might have dipped from its peak several weeks ago, the constrained supply and logistics delays are now the new normal, as are higher costs and prices for all the stuff we consume."
The ongoing and unpredictable COVID-19 pandemic will continue to affect the situation, he said, as consumers buy more goods than services, further straining supply chains rather than relaxing them.
"The harsh reality is that the new normal we find ourselves in is harder than the pre-pandemic times," Jakovljevic said. "I expect that we'll see more of the same in 2022 and maybe even worse, although I hope to be wrong on this one."
Supply chain has a seat at the highest corporate levels
The issues of the last few years have made supply chain a priority at the company board level, according to Polly Mitchell-Guthrie, vice president of industry outreach and thought leadership at Kinaxis, which provides cloud-based concurrent supply chain planning applications.
A well-functioning supply chain can be a competitive advantage for a company, and the ones that did best were the most efficient and achieved maximum resilience, Mitchell-Guthrie said.
The challenge for supply chain leaders is how to make sure they can speak to the company's bottom line rather than focus solely on traditional supply chain metrics, she said.
"They have to be able to speak about how supply chains can ensure that they can deliver products to customers and generate revenue," Mitchell-Guthrie said. "This is how you can pivot in an agile fashion when you need to."
The supply chain disruption now is a combinatorial set of problems, she said, where long-term issues, like the lack of good infrastructure in the U.S. around the trucking industry, have been compounded by short-term issues, such as demand spiking and raw material shortages and labor shortages at ports.
However, the spotlight on supply chain issues is accelerating investment in their digital transformation with technology like machine learning and AI, Mitchell-Guthrie explained.
"People have seen the weak spots and are starting to drive the changes forward," she said. "We'll see things like using AI in situations where you have limited labor, allowing people to focus on the exceptions that matter [and] that humans can do best, and automate the mundane tasks that people don't have to touch."
Panic-buying creates artificial demand
COVID-19 undoubtedly caused many of the supply chain problems, but some of the decisions made early in the pandemic compounded those problems, said John McEleney, co-founder and CEO of Onshape, a subsidiary of PTC that provides cloud-based manufacturing design collaboration software.
For example, in the early stages of the pandemic, people began to panic-buy goods like toilet paper, antibacterial wipes and paper towels, which led to inflated artificial demand companies scrambled to meet, McEleney said.
This is an issue that should work itself out in the next year, he said.
"We have real demand, and then there's the apparent short-term demand," McEleney said. "This is a transient issue, and the real demand that people are actually building to is actually being influenced by this artificial demand."
Companies have long driven for operational and manufacturing efficiency with strategies like just-in-time manufacturing that delivered critical components only when a product was on the manufacturing line, saving companies from putting parts and components in inventory, he said. This ran into problems when disruptions piled up.
"We're starting to move from a just-in-time system with very minimal inventory to a just-in-case system," McEleney said. "Manufacturers are willing to use their balance sheet now to build up some inventory reserves, because it's painful when you can't deliver product when you have demand."
The immediate supply chain situation is leading companies to rethink almost everything about the products they're building, from design to delivery, he said. This includes reassessing strategies like nearshoring suppliers, reexamining materials used in production and looking at new approaches such as circular economy processes.
Focus on the first mile as well as the last
While much of the attention from businesses and consumers has focused on the last mile of the supply chain, driven largely by the Amazon effect, the first mile should get some long-overdue investment, according to Monica Truelsch, senior director of go-to-market at Infor.
"It's been very clearly since [before the COVID-19 disruption] that companies radically underinvested in their technology for their first mile of the supply chain," Truelsch said. "When we look into 2022, companies are going to focus on shoring up their technology capabilities for the first mile."
There have been so many vectors of disruption and challenges affecting the first mile -- including the ability of suppliers to find labor, to change flight crews for air cargo or to unload ships at the dock -- that companies realized they had little visibility into first-mile processes, she said.
"Companies are going to begin exploring investments not only to address near-term pain, but to prepare them to gain greater supply chain transparency for the first mile -- all the way into suppliers, forwarders and carriers," Truelsch said.
One way to connect the first mile to all the miles that come after it is to start extending the supply chain to all participants and paving the way for better supply chain collaboration, said Etosha Thurman, chief marketing and solutions officer for SAP Intelligent Spend and Business Network.
"Across the board, you hear supply chain and procurement professionals talking about partnering, extending the partnerships with their suppliers, bringing transparency into the relationship," Thurman said. "The ability to extend supply chain visibility outside the four walls is important, and there's been an acceleration of that within the market."
One more trend that will continue in the year ahead is the diversification and localization of companies' supplier base, she said.
"They're looking at having more options when faced with some of the challenges we're seeing now with shipping, labor for manufacturing, labor for offloading goods at docks and warehouses," Thurman said. "Companies are thinking about getting more strategic in where and how they find their sources of supply, and we'll continue to see that."
Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.