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What factors are likely to affect global supply chains in 2022?

1 February 2022

Unpredictability is here to stay. What factors are likely to affect global supply chains in 2022?

 

Never has the issue of supply chain management been so prominent.

The question we’re all asking now, is what challenges can we expect in the year ahead?

Supply chains were already complex & multifaceted. The impact of COVID-19 and the subsequent series of lockdowns & restrictions placed unprecedented pressure on global supply chains. Geographical shifts in supply & demand, driver shortages, challenging business environments, additional red tape, border checks & increased globalization only added to the complexities. Uncertainty has ultimately become a characteristic of the international business landscape in which supply chains operate and unsurprisingly, companies are becoming strongly focused on supply chain risk management.

The big question remains, how can this complexity be handled – particularly in terms of design, planning & execution. In many respects, the challenges we’re now faced with are new, limiting our ability to rely on past experiences as solutions.  As The Economist well-worded just recently, ‘The era of predictable unpredictability is not going away’. We’re slowly realizing that the new normal is already here, the question now is how will we get used to it?

The arrival of new COVID-19 variants is providing timely reminders of the unknown of the pandemic. Experts across the world are clear that the next variant is just around the corner. Dr. Andrew Freedman, an infectious disease academic said, ‘Until the whole world is vaccinated, I think we are going to remain in danger of new variants – some could be more virulent than Omicron’. The mantra no one is safe, unless everyone is safe has often been heard from the WHO, and in this context, it demonstrates the need of companies worldwide to be aware of these implications, risk-mitigating their supply chains as quickly & efficiently as possible.

So, what potential issues should we be aware of?

High international shipping costs

In the current situation, many importers and exporters are wondering when they can expect freight and shipping prices to go down. The answer? Not yet. Despite some easing in recent months, international shipping costs are likely to remain high in 2022. As more environmentally sustainable practices are adopted throughout 2022, freight transportation and supply chain processes will continue to change – everything from transport vehicles to relocating distribution centres to minimize travel distances. Shipping containers move some 1.9 billion tonnes per year by sea alone. Containers being left in wrong locations as trade shifted, reduced capacity & vessels were unable to land where intended. Coupled with congested ports and problems with unloading & onward transportation, a typical container now spends 20% longer in transit then pre-pandemic.

Workforce and labour

Production and delivery still relies heavily on people. Waves of layoffs in production due to lockdowns & infection rates rising, resulted in labour shortages, especially where demand picked up. Worker shortages were particularly evident with truck drivers in the UK and other European countries. There have been early signs of these issues easing, however we shouldn’t expect a swift end to this in 2022. The Omicron variant is leading to more staff shortages & China’s zero-COVID strategy is likely to continue to disrupt both production & transportation of goods, at least for the next few months.

Shortages of raw material

Since economies reopened, the rise in demand for raw materials has far outstripped supply. According to the ISM Report on Business, virtually every commodity is either scarce or up in price – driving shortages & adding to the complexities of supply chain management. Everything was about shortages in 2021. COVID vaccines at the start of the year to empty supermarket shelves becoming a sight we soon had to get used to. Whilst many of these issues have been resolved, as demand continues to vary it’s likely that materials shortages will fluctuate.

Production delays

Since the start of COVID-19, production delays became headline news. Manufacturers have been & are likely to continue to compete for limited supply of key commodities and logistical capacity. China’s no-COVID policy is likely to increase delays – increasing production times and wait times for vessels at their berths. However, the past 2 years have forced companies to intensify their focus on supply chain evaluation and evolution. Whilst production delays are likely to continue as we settle into this new normal, the days of buffering inconsistent supply with excessive stock are becoming a thing of the past.

Conclusion

Businesses have to be resilient & capable of adapting to major disruptions, in view of developing long-term strategies and solutions to these complex challenges. The risks and shortfalls in our global supply chains have been front and center in most company boardrooms for the last 2 years. It’s critical to recognize how supply chains are now recognized as central to business survival, success, and growth – not just an opportunity to reduce costs.

The longer-term issue is to what extent supply chains are changing. A major theme of 2021 was how to make supply chains more resilient, but building additional capacity, holding stock and risk-mitigating disruptions is neither cheap nor easy. Supply chains are ultimately driven by people. As companies and consumers adapt, current knots are likely to untangle. But as the pandemic wears on, and the harsh realities of keeping businesses profitable come back to the fore, a resolution in 2022 is unlikely.

Leadership in the face of uncertainty is paramount. All of the above challenges facing the supply chain isn’t something that any company will relish, however it is breeding opportunity for smarter assessment of critical procurement opportunities. Now is the change to reassess budgeting and planning protocols rebuild supply chains, invest in technology & start to further understand the changing dynamics of the supply chain environment. Supply chain challenges will continue in 2022, but they’re becoming more manageable and predictable for those willing to tackle them now.

How are Santé helping to overcome these challenges?

Santé is a Procurement & Supply Chain Consulting Firm, delivering agile sourcing and supply chain solutions across multiple sectors worldwide. Partnering with our clients, we assess procurement & supply challenges – gaining an understanding of their vision and unleashing it’s full potential. You can read more about our solutions here.

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