Following the widespread lockdowns of 2020, the supply chain was thrown into disarray, alerting businesses to the fragility of this much relied-on network. Increased demand, trade restrictions, factory closures and ‘just-in-time’ inventory systems led to global shortages which greatly impacted the economic stability of countries worldwide. Since then, the supply chain crisis has been aggravated by ongoing geopolitical tensions with more than 6 out of 10 global organisations expecting this instability to have a detrimental impact upon supply chains in the next three years.
Russia’s invasion of Ukraine has alerted companies to the vulnerability of such an interconnected supply chain network and paired with renewed Covid lockdowns in China, compounded an already distressing global supply chain situation. Furthermore, rising levels of inflation and the cost of living crisis are increasing pressures on supply chain planners, as prices of materials, labour and transport rise whilst it becomes increasingly difficult to predict the goods required by financially struggling consumers.
A recent Gartner Survey has found that 76% of supply chain executives feel that their company is facing more frequent disruptions than three years ago. There is an evident need to increase the stability, agility and visibility of the supply chain network to resolve shortages and ensure companies are better prepared for the fluctuations characteristic of this volatile environment.
Impact of the supply chain crisis on the logistics industry
Supply chain disruptions detrimentally impact the logistics industry, which faces new challenges as the global economic downturn continues to unsettle supply, demand and the labour force. Labour shortages combined with social unrest reduces the efficiency of supply chain operations and the ability of the logistics industry to take real-time action to match shifting consumer needs, a skill which is more in demand now than ever given the shortage of materials.
Multiple bottlenecks disrupting the production, transport and delivery of goods threatens to greatly reduce the capacity of the logistics industry. To lessen the impact of material shortages, companies are forced to be selective in their choosings making on-time performance a pressing focal point, as organisations must continually forecast demand and consumer needs to predict forward-looking product mixes and source the required raw materials.
Additionally, the growth in environmentally-aware consumption is increasing the pressures on organisations to act ethically. A recent Gartner Report shows that 67% of organisations expect supply chain leaders to be accountable for environmental and social sustainability with 54% of customers doing business only with companies that practise this. Thus, amidst delayed deliveries and reduced resources, logistics businesses must also factor in their ability to access sustainable materials.
The impact inflation is having on supply and demand across Europe
Inflation continues to aggravate the supply chain. According to Extensiv 2022 Report, 92% of transportation, supply chain and logistics stakeholders claim that the current inflation problem has negatively affected their business. It drives direct prices of materials, labour, energy and transportation, making it more costly to manufacture, store and ship goods. Furthermore, the goods themselves have increased in price. According to the International Monetary Fund, the All Commodity Price Index increased by 49% across 2021.
Rising prices are leaving consumers with less disposable income, which in turn shrinks the demand for goods and services. With goods more expensive, this demand is further reduced. This heightens the need for an active, agile supply chain to provide products which appeal to consumer needs, elevating the importance of quick insights within the logistics industry to ensure that organisations can meet changing consumer demands.
To improve performance in a high inflation situation, the logistic industry must act faster by adjusting prices quickly when costs rise, enforce discipline by implementing necessary price increases with clear concrete cause, and make nuanced price changes, differentiating increases tailored to customer situations. This could reduce the impact of the supply chain crisis, as products are more tailored to consumer needs, improving effective sourcing of materials and their accessibility to the public.
The need for software and the role this will play in anticipating supply chain issues
In order to optimise the speed, accuracy and agility of the logistics industry, organisations must quicken the pace of determining consumer demand and resource requirements,
and can do so by utilising and investing into information. Technology can be used to transform the vast bank of data generated by logistics operations into real-time insights that can accelerate decision-making and guide next best steps during periods of disruption.
Supply Chain Planning software enables identification of real-time indicators driving demand fluctuations, using ML and AI to forecast demand and advanced analytics to improve market knowledge, thus driving predictions and creating solutions for supply and demand issues. Automation and data lineage can also resolve labour shortage issues, with Garner Predictions suggesting that by 2026 75% of enterprises will have adopted some form of intralogistics smart robots into warehouse operations.
The benefits of integrating software into the supply chain are already evident. According to a survey conducted by IBM more than half of Chief Supply Chain Officers are already using AI, with 87% enforcing execution management and 77% using process mining. Technology can optimise the supply chain in a time and cost efficient manner. By facilitating predictions of specific supply chain issues, how to best approach them and how they may impact consumer needs, its adoption is a clear way forward in coping with an ever-changing and often unstable supply chain.
2023 poses significant challenges for the logistics industry, and external crises such as the economic downturn and supply chain issues will undoubtedly create bottlenecks for many businesses over the course of this year and beyond. But it is clear that technological advancements will be the key to navigating our way out of this ongoing storm.