It’s the golden quarter for retail. But, once again, news headlines are taking the shine off the Christmas bauble. Ongoing supply chain issues resulting from port congestion, freight delays, soaring energy prices, and staff shortages, amongst others, are hampering economic growth despite surging demand, with the tabloids warning of shortages of everything from chicken and milkshakes to crisps and cosmetic products on an almost weekly basis.
The news isn’t ‘new’ – it has been at the forefront of the global agenda for months – and shortages were felt most profoundly in the UK by consumers during October’s fuel crisis, with gridlocked petrol stations and many pumps running dry.
The pent-up demand experienced over the last 18 months is now generating huge spikes in spending, which is having a knock-on effect when it comes to global shipping capacity and availability of commodities. As a result, overall cost of materials and shipping has been extremely volatile – and this isn’t forecast to slow down any time soon.
How did we get here?
Whilst inflation was inevitable, this was all happening against a backdrop of labour shortages across a range of sectors with HGV drivers being a particularly prominent example. According to a recent Road Haulage Association (RHA) survey, there is now a shortage of more than 100,000 qualified drivers in the UK. While some argue it has been a direct result of the pandemic, others suggest that it is a cliff-edge caused by Brexit that has created an employment gap – particularly across the haulage industry and warehousing sectors.
Nevertheless, whether it is a labour shortage or the ongoing impacts of COVID lockdowns, or an imperfect storm created by the two, we are now living in an increasingly volatile world where disaster proofing has become the norm.
While each of these black swan events may vary in specifics, the consequences are much the same, begging the question: Does the concept of the unforeseen extreme event actually exist anymore?
Preparing for the unpredictable
Rather than seeing these events or circumstances as a one-off, organisations must adapt their business models to ensure resilience across the entire supply chain. This, for many, will require a change in mindset.
Whilst a business model based on pursuing revenue and squeezing costs may have worked in a low-risk world, this approach no longer makes sense. Instead, organisations must focus on building in resilience where they can. This may require sourcing multiple contracts and diversifying suppliers or onshoring manufacturing operations to ensure production takes place closer to the customer. While this may be less cost-effective initially, these considerations can limit disruption if more of these events arise. Rather than pursuing revenue for its own sake, businesses would be wise to pursue good margins that factor in these additional costs and make way for a more resilient supply chain.
Along with this change in mindset, there also needs to be an infrastructure investment to keep pace with growth and a rebounding economy. Until now there has been a lag, and investment is needed urgently in order to catch up.
As we move towards a more complex supply chain, companies need to get smarter at understanding changes to demand, and this requires smarter data and analytics. Previously, where port operators, for example, were geared around big seasonal trends, demand has become much more complicated, and we are seeing the demand for peak-like volumes at unpredictable times. Unfortunately, traditional forecasting models are not as predictable in this new normal. To keep up, global supply chains need to adapt.
Supply chain 2.022
The impact of a global pandemic and the extent to which it is amplifying pre-existing trends means that companies need to accept that the one-size-fits-all supply chain model is no longer valid.
In order to overcome adversity, businesses need to understand that a shift has taken place. Supply chain managers and procurement teams must work together and act now to review their models and determine whether they are fit for purpose in this new world. Those that arm themselves with the tools to mitigate risk and the infrastructure needed for agility will be those that succeed.
