Until two years ago, the global supply chain was humming along pretty well. Purchase Operations Managers had high confidence that they would be able to control their supply chain sufficiently to maximize just-in-time shipping, and minimize losses from late shipments, defective products, and cost overruns. It often felt like the procurement process ran as well as the machinery producing the end products.
And then a global pandemic struck. It caused massive supply chain disruptions and product shortages that the world had never experienced before. Now, as economies struggle to recover, it’s time to reexamine supply chain management strategies. In this article, we’ll take a look at the current top supply chain issues, and provide tips to overcome them.
Global Supply Chains Face Unprecedented Challenges
During the pandemic, the news media constantly highlighted the supply chain disruptions. There was endless footage of shipping bottlenecks as container vessels full of parts and raw materials were stuck at sea, unable to unload their cargo in ports. Even if the shipments finally made it to shore, ground transportation wasn’t available to move them to the next destination. Manufacturing facilities and warehouses closed down, while distribution centers and retailers couldn’t obtain (or move along) the materials they needed. Consumer demand shrank as people stayed at home or struggled with their own financial difficulties.
In its April 2022 insights on overcoming global supply chain challenges, McKinsey & Company reports “three critical challenges facing global supply chains: labor shortages, equipment availability, and the ripple effect of global bottlenecks.” Volatility caused by the Ukraine-Russia war and natural disasters are other factors drastically altering global supply chains. McKinsey also predicts that “container freight rates will remain elevated, while the containerized logistics disruption persists.”
Some highly-publicized shortages in consumer markets included items as diverse as toilet paper, baby formula, food products, and home building supplies. In these areas, University of Rochester economist George Alessandria predicts at least another year of supply chain problems.
For digital manufacturers, it is estimated that the global chip shortage crisis, exacerbated by tense relations between the U.S. and China as well as the lockdown of factories in China, could last well into 2023. Aluminum shortages could also make it difficult to produce products as wide-ranging as cans, home goods, appliances, electronics, and aircraft components. Reuters also reports that J.D. Power’s 2022 Initial Quality Report will show that new car quality declined sharply this year due to supply chain problems.
Managing all of these challenges will require new technology and risk management strategies to optimize production management and minimize supply chain risk.
What Are the 7 Biggest Supply Chain Challenges?
Supply chain management is at the core of manufacturing business success. To be successful, a supply chain strategy needs visibility, reliability, and predictability. Below are the seven major issues we see ahead, along with possible mitigation techniques.
1. Material Shortages
Supply & Demand Chain Executive cites material shortages as the one of the most significantly disrupting elements of 2021. Their article references a Hubs report which finds that 56% of businesses experienced more supply chain disruptions in 2021 than in 2020.
In one example of how material shortages are heightening supply chain issues, Forbes reports that, “Wineries around the country and world are reporting shortages in packaging and production materials, while simultaneously experiencing logistics headaches as they work to get the resources they need to transport their wine to consumers.”
How To Overcome Material Shortages
In a study by Supply & Demand Chain Executive, 57% of companies surveyed believe that the best way to prevent future disruptions in material supplies is by diversifying the manufacturing supply. However, other strategies include:
- Monitor trends and integrate the latest advancements in supply chain automation.
- Expedite parts when necessary.
- Improve supplier collaboration.
- Focus on inventory management to identify potential shortages in advance.
2. Lack of Supply Chain Visibility
Supply chain visibility is the ability to pinpoint the location and track the movement of individual components from raw materials and individual parts, to the final products as they are delivered to suppliers and consumers. A high level of visibility enables the company to know when goods will reach their destination, and when they will be available to move on to the next step. All-too-real examples of supply chain visibility during the pandemic appeared in shortages of personal protective equipment and ventilators for COVID patients, as well as initial distribution problems for the vaccines.
How To Improve Supply Chain Visibility
To improve supply chain visibility, first analyze your current supply chain and identify the pain points where bottlenecks occur. Prioritize remedies for these areas based on what is most important to meeting the company’s goals and objectives. Eliminate siloed technology systems that don’t work well together, and implement full-featured supply chain management technology.
Anvyl software is designed for transparency and collaboration across the entire production process, and provides both production visibility and logistics visibility.
3. Demand Forecasting Complexity
The ability to accurately gauge customer demand and prepare for future needs can be critical to efficient supply chain management. It’s essential for business profitability and growth, and ensuring strong customer relationship management. Factors that can complicate the accuracy of demand forecasts include:
- Corporate changes to the product mix
- Seasonal variations
- Adaptation to competitor activities
- Changes in end-user requirements
- Seasonal swings in supply and demand
- Changes in supply channel and vendor requirements
- External factors
Some of the methods businesses use to forecast demand include exponential smoothing, moving average forecasting, an auto-regressive integrated moving average, bottom-up forecasting, and multiple aggregation prediction algorithms.
How To Simplify Demand Forecasting
The University of Tennessee Knoxville Global Supply Chain Institute suggests that the components of a successful demand forecasting strategy include:
- Clean, reliable data
- Actionable input from affected stakeholders
- Robust analytics
- Flexibility to find and correct potential errors and change course as needed
- Building strong collaboration with supply chain partnerships
The Institute cites the example of Amazon for its work in demand forecasting. They report that Amazon has sophisticated supply chain planning, which allows it to accurately anticipate demand and efficiently move its ecommerce products to warehouses close to customers most likely to order them. Powered by AI, Amazon uses demand forecasting to follow through on its one-hour delivery offer.
4. Supply Chain Fragmentation
Supply chain fragmentation is when the supply chain is spread over multiple suppliers and manufacturers. While this may allow for some price or quality advantages, managing the supply chain can be challenging. Apple’s iPhone may be assembled in China from parts made in factories across the world. Motor vehicles may be assembled in the U.S., Mexico, or Canada, with parts delivered on a just-in-time basis from various manufacturers.
Once again, the pandemic showed how fragile the fragmented supply chain can be when factories closed in one country, or borders were closed completely, preventing the delivery of needed parts.
How To Identify and Avoid Supply Chain Fragmentation
The most efficient way to overcome the challenges of supply chain fragmentation is through better data management. Eliminate siloed systems that are not capable of communicating with one another. Actively search for any disruptions to the supply chain and analyze their possible impact on your operations. Use predictive analysis to predict the best course of action based on the available data.
5. Congestion at Critical Ports
Congestion at critical ports can be caused by factors beyond those exemplified during the pandemic. Other critical issues that can lead to congestion include:
- Old, outdated, malfunctioning, or insufficient equipment
- Weather delays and natural disasters
- Labor strikes or slowdowns
- Lack of yard space to handle container shipping from modern super-sized carriers
- Insufficient transmodal capabilities
- Regional conflicts, wars, or port blockages
Although the Port of Los Angeles is the busiest port in the United States, CNBC reports that ports currently causing the most congestion in the global supply chain include Oakland, Savannah, Charleston, New York City, Houston, LA, and Seattle.
How To Source New Suppliers to Mitigate Port Congestion
Tips for businesses that want to overcome the challenge of congestion at critical ports include:
- Increase supply chain visibility as it relates to supplies moving through the congested ports.
- Extend lead times as much as possible.
- Search for onshore suppliers to serve as backup alternatives.
- Investigate possible rerouting options through non-congested ports.
- Adjust inventory policies to meet port-sensitive variants.
- Improve logistics visibility to track shipments and consider implementing a three-way matching process.
- Read the white paper from SupplyChainBrain on this topic.
6. Increasing Transportation and Freight Costs
Another impact of the pandemic, worldwide social upheavals and increasing inflation can be seen in transportation and freight costs. The costs of fuel have skyrocketed, impacting every mode of transportation by land, sea, or air. According to Foley & Lardner LLP, “The cost of shipping a container on a transoceanic trade route increased seven-fold in the 18 months that followed March 2020. Further, within the last couple of years, several large railroad companies have significantly raised rates and demurrage fees.” This leads to higher costs for suppliers, which are then passed on through the supply chain to the final end user.
How To Reduce Transportation Costs
Tips to overcome the challenge of high transportation costs include:
- Consolidate shipments whenever possible.
- Search for suppliers in closer geographic proximity and prioritize domestic suppliers.
- Consider dual sourcing to have a more stable supply of materials.
7. Digital Transformation and Integration
Improved digital technology is necessary to collect, analyze, integrate, interpret, and manage high-quality, up-to-the-minute data. This data can then be used to support the automation and forecasting tools that will be necessary for today’s supply chain management. Some of the various types of technology that can aid in supply chain management include:
- Supply Chain Management Software: This type of software is used to oversee and integrate activities across the entire supply chain. It can be used to manage supply chain transactions and control the associated business processes.
- Supply Chain Relationship Management Software: This tool is used to assist in supplier selection, performance tracking, and document management. It can also be used for new project collaboration.
- Inventory Management Software: This software system tracks inventory levels and follows orders, sales, and deliveries.
- Supply Chain Invoice Processing: Anvyl’s production management system is the perfect automation solution for AP automation. Users can streamline ordering and accounts payable processes, while keeping data accessible for the entire team.
How To Integrate Technology into Your Day-to-Day Operations
The steps to integrate technology into your day-to-day supply chain operations include:
- Conduct a supply chain audit. Assess your current situation and prioritize needs.
- Investigate possible technologies that may be able to meet your needs. Obtain product demos to see the technology in action.
- Assemble an implementation team consisting of representatives of all affected stakeholders.
- Conduct a test implementation.
- Establish standard operating policies for the new technology.
- Train all users.
- Update all suppliers and customers as to how the change may impact your relationship with them.
- Launch, assess, communicate and fine-tune.
According to Harvard Business Review, technology can benefit your supply chain through:
- Enhancing supply chain visibility
- Optimizing supply chain resources
- Managing the supplier network efficiently
- Supporting relationships throughout the supplier network
- Improving billing timeliness and accuracy
- Serving as an early warning system of potential disruptions
Overcome Supply Chain Challenges With Anvyl
Anvyl is a production management software that allows supply chain leaders to centralize their data, automate processes, and facilitate collaboration. Located in New York City, we have extensive customer experience in helping companies manage their supply chains better to gain the competitive edge.
Take control of your production process when you centralize data, automate processes, and facilitate collaboration across your supply chain. Contact us today to schedule a demo or to learn more about how Anvyl can help your company overcome today’s supply chain challenges — and get goods produced on time and on cost, every time.
