Supply chain managers everywhere have spent the past few years weathering disruptions. Now it looks like the storm might be beginning to clear. Here’s Argentus’ take on the current supply chain landscape as we begin 2023.
It’s been a relentless two and a half years for supply chains across the globe. As we’ve written about extensively, and as supply chain leader Mirko Gojic discussed in our recent interview, companies have faced relentless supply chain pressures from the pandemic and other disruptions. These disruptions have had major consequences for businesses. They’ve also rippled out into the wider economy, contributing to the increased inflation that’s affecting consumers.
In 2019, the average layman didn’t know much about supply chain management. In 2022, everyone—from your relatives to the C-suite—knows how important supply chains are. The past few years have revealed supply chains’ critical role in businesses, governments, and to the global economy. And they’ve revealed it often painfully. Through empty store shelves, price increases, and through the stress that supply chain managers have faced as they deal with disruptions.
We’ve entered a new supply chain era. Companies have been forced to adapt, in finding new strategies to become more resilient, upgrading their workforces, and investing in technology solutions that make their supply chains more agile and flexible—a crucial advantage when you don’t know what storm is on the horizon.
But is it possible that the clouds beginning to clear?
Reports are beginning to come out in major outlets—as well as the supply chain trade press—showing that some of the major logistics snarls that have gummed up U.S. supply chains are beginning to ease. A recent article in the Financial Times, titled “US Straightens Out Supply Chains, After Months of Inflationary Snarls,” described the picture on the ground.
A backup in ports, a shortage of truck drivers, and a lack of warehouse space have bedevilled supply chain managers across North America for many months, leading to inventory shortfalls. Now, according to data the FT cited, costs of shipping from Asia to the West Coast have fallen by 87% in the past year, and are now only 7% higher than the same time in 2019. Air freight prices have fallen as well, decreasing by about half in the past twelve months. In the same article, the head of DHL North America said that he anticipates labour costs and equipment availability in the trucking industry to improve in 2023, leading to more supply chain normalization.
Overall, some of these lower costs can be attributed to lower consumer spending on goods, and a dampening in manufacturing activity—which could be harbingers of a possible coming recession. Consumer spending has also begun to revert to a pre-pandemic mix of goods and services after years of lockdowns drove demand for goods through the roof. But these trends are also the result of tireless efforts to straighten out supply chain snafus from the past few years.
A recent article in trade publication SupplyPro echoed that assessment. As they put it, “The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since summer. The web of factories, railroads, ports, warehouses and freight yards that link goods to customers have nearly regained their pre-pandemic levels.”
For consumers, the opening of supply chain bottlenecks could mean reduced prices for goods and an easing of inflation. A U.S. government report showed that inflation cooled more than expected in November, easing to a still-high 7.1% annually from the previous month’s mark of 7.7%. Canada’s consumer price index report, released just before the holidays, showed inflation easing to 6.8% on an annualized basis. Inflation is still high, but there are signs that it’s beginning to cool.
Big Issues Remain
Despite these encouraging signs, there are still some big risks for disruption in 2023—and many of those risks, as often happens when it comes to supply chains—are in China. Labour disruptions in China due to ongoing COVID lockdowns have exacerbated many of the supply chain issues of the past few years. In December, following protests, the Chinese government signalled that they would end lockdowns. By some reports, COVID cases have begun to skyrocket in China, leading to further disruptions. The unpredictability of this situation, as well as the ongoing war in Ukraine, show that there are significant risks for supply chain disruption beyond the control of any one organization, or government.
It’s clear that supply chain managers need to remain vigilant to emerging risks and disruptions. That may be the new normal going forward.
So what’s the upshot for supply chain managers, and supply chain organizations?
The easing of supply chain bottlenecks is a sign that the economy is entering a new cyclical period. But it’s also a sign that the tremendous investments made in new supply chain skills, systems and processes over the past few years are beginning to pay off. Companies, as well as the supply chain professionals, buffeted by years of disruptions, can’t afford to let down their guard. But they can take a bit of a sigh of relief. The temperature, for now, may be lowering. That might mean less burnout for supply chain managers—which is something to both pursue, and celebrate.
For years now, supply chain organizations have dealt with the twin challenges of the disruptions themselves, as well as the need to invest in the medium-to-long term people, process and technology changes needed to mitigate disruptions in the future. Attention—as well as resources—that aren’t spent on putting out fires might now be more easily redirected towards building long term agility and talent bases. This cooling should come as an especially big relief to those organizations who haven’t had the time, or resources, to invest in that improved capability until now.
But whatever relief the current environment offers, supply chains aren’t going back to the way they were before. There’s too much risk, and uncertainty. There’s too much to be gained—even in more “normal” times—from the benefits of supply chain modernization. Supply chains everywhere need to continue to adapt for whatever’s coming down the pike.
We want to hear from you! What are you seeing in your own supply chain practice? Has the picture eased? How much of that is a result of larger macroeconomic factors, and how much is a result of new supply chain investments? Let us know in the comments! And as always, if you’re looking to bring on new high-performing supply chain professionals to help navigate these challenges, reach out to firstname.lastname@example.org!