When the pandemic hit two years ago, it did more than close offices, business and national borders. It also put the global supply chain under enormous strain like never before. Due to everything being closed, people couldn’t spend their money on services or travel, which led to it being spent on goods. As all the physical shops were closed, the shopping was done online. The demand started increasing exponentially. On the other hand, the thing that we’ve long depended on to move things cheaply and efficiently around the globe started moving much slower, as both factories and suppliers couldn’t work on full capacities.
What happened in 2020-2021
The supply chain disruption
1- As most factories couldn’t work using their full capacities, the suppliers couldn’t meet the requirements. To add to that, the supply chain also for the same reasons couldn’t distribute to its full capacity. This led to delays and in some cases cancellation of orders. Consumers saw more than 2 billion out-of-stock messages while browsing online in October, according to Adobe Analytics.
2- The boom in online shopping quickly congested every link in the supply chain. Ship/plane/truck capacities became constrained, and some places suffered from a shortage of containers. Cargo facilities also ran out of room to store unloaded containers before they were picked up. And with no room to store a newly arrived supply, the ship couldn’t unload it even if a berth was available.
Inflation is normally a sign of a growing and expanding economy. As people find themselves with more money in their pockets, they are more willing to spend it on luxuries as well as necessities.
This was however not the case in this period. Prices rose at the fastest pace in four decades, increasing 7% over the same period a year ago, and cementing 2021 as a year marked by soaring inflation wrought by the ongoing coronavirus pandemic. On an annual basis, 2021 saw the fastest price inflation as broken supply chains collided with high consumer demand. Consumers around the world are seeing higher prices for goods and services. It is everywhere but in different sectors and different times since it comes from supply chain disruptions and that depends on when demand normalizes in each country and that depends on the pandemic.
Changes in the supply chain since March 2020
The failure of critical links in the supply chain has led to new alliances and co-development ventures between original equipment manufacturers and suppliers. More broadly, there is a recognition that resiliency is impossible unless buyers, suppliers and other parties along a value chain are willing to share data and collaborate.
Bold companies are not waiting for supply lines to untangle themselves. They are using alternative ports, reformulating products, shifting to air freight, boosting in-house trucking, taking advantage of off-peak port hours, and diverting resources from low-margin products to moneymakers.
What is to be expected for the rest of 2022?
In terms of inflation, global growth is projected to slow to 4.2% in 2022. Just as the 2021 rebound was broadly based, most regions will experience a deceleration in 2022. Worldwide inflation will likely remain near 5.0% in early 2022 before gradually easing in response to declines in industrial and agricultural commodity prices, as with the world slowly opening again, more money is projected to be spent on services and travel than in the previous years.
What’s clear is that nearly two years after the world first learned of COVID-19, the supply chain is still experiencing an unfortunate series of firsts – a historic level of carrier unreliability, record high freight rates, all-time low warehouse vacancies and more. The supply chain shortages in some everyday products may happen again, but it shouldn’t be as bad as the early pandemic days. Though some reports have suggested the different supply chain players could better integrate and share information to handle disruptions, the supply chain depends on fixed resources that can’t be expanded overnight.
Supply chain fixes
Everything was about shortages in 2021. Some were resolved quickly, others still linger. This is what happens when demand temporarily changes. The effect magnifies with each tier of the supply chain as every supplier adds an extra buffer to their order to be on the safe side.
- Transportation problems:
Labor shortages in the transportation and warehousing sectors have been among the most significant contributors to the strains in supply chains around the world as cargo unloaded at ports is unable to reach their destinations on time. Waves of layoffs in production due to lockdowns resulted in labor shortages when demand picked up. The sector already struggled to recruit and retain drivers because of pressures of rising demand, an aging workforce, and worsening working conditions. Working conditions for truck drivers should be improved by investing in infrastructure.
- Shipping problems:
Containers were left in wrong locations as trade shifted, shipping capacity was reduced, and vessels couldn’t land where and when they intended. Coupled with congested ports and problems with timely unloading and onward transportation, a typical container now spends 20% longer in transit than before the pandemic. Shipping rates have soared in this environment. Prices on major trade routes have increased by 80% year on year, which is bad news for economic recovery.
- Just-in-Time Manufacturing:
It involves ordering just enough components at just the right time for production. This cuts down on the costs of excess inventory and warehousing—and raises profits. it is the dominant mode of manufacturing worldwide. However, there is no room for error; a single delay jeopardizes the whole process. This has proven to be a risky strategy, as there are always factors outside the supplier’s control (especially with the pandemic). What is gained in terms of supply chain efficiency and speed is lost in resiliency. Even after the current crisis passes, companies should rethink this model and keep stockpiles to increase resiliency, even if it is at the cost of short-term profits.
- Material scarcity – Diversify sourcing:
The pandemic also placed renewed focus on the hot-button issue of diversifying supply chains and reducing reliance on China, which has been the “factory of the world” for decades. When COVID-19 first emerged in China, the country’s factories shut down, causing massive supply chain disruptions for companies dependent on Chinese production. Though the virus eventually spread to the rest of the world, forcing factories everywhere to halt operations, the initial months of the pandemic were still a reminder of the risks of overdependence on one country or region. The goal is not to shut China out of global supply chains, but to diversify supply and reduce overreliance on any one country.
- Improve demand forecasting:
The best way to improve forecasting is by using automations to calculate these metrics. eCommerce sellers are always looking for a balance between their inventory levels, warehousing costs, and the demand from their customers to prevent stockouts or inventory shortages. With automated inventory alerts, forecasting tools, and cash on hand, merchants can stock up with confidence based on predicted product demand and/or sales. What’s more, making forecasting a priority can streamline inventory counts and reduce excess overhead fees.
- Risk-Based Understanding:
The understanding of supply chains is incomplete, often fragmented across an enterprise and viewed through a “cost” perspective. As a result supply chains can be major vulnerabilities for companies. Modern tools such as scenario analysis, probabilistic and stochastic modeling, and industry-wide event cataloguing can all play roles. Companies should consider adopting formal supplier risk-management policies akin to those that have been a staple for financial services firms for decades. The goal of this work is to develop not just the lowest-cost supply chain, but rather the optimum supply chain, one that is adjusted for risk and uncertainty.
All in all, the global economic expansion will continue at a moderating pace in 2022 alongside a transition from pandemic to the new normal. With supply disruptions continuing, inflation will remain elevated in the months ahead, leading to monetary policy tightening. As demand growth cools and supply chain problems are gradually resolved, inflation will subside. The success of an eCommerce business is intrinsically linked with the effectiveness of its supply chain network. When a company institutes a well-managed supply chain, it can optimize efficiency, reduce fundamental operating costs, and ultimately, translate to increased profits in both the short and long-term.