The year 2020 was a big year of disruption for people around the world. All facets of life as we knew it were impacted, changed and altered by the COVID-19 pandemic. We had hoped that 2021 would be better, and in many regards it is; in some, it is not. The pandemic still plays a role in most people’s lives in some way, every day. Businesses, especially those in manufacturing, are trying to rebound and return to some sense of normal; whatever that means. Supply chains were pushed to their breaking points in 2020 for all manufacturing vertical segments, resulting in:
- Halted or slowed production by manufacturers in the auto industry
- Manufacturers not being able to keep up with demand for many personal care and food products
- Meat manufacturing plants shutting down
- Demand for certain life science products impacting the delivery of quality healthcare
Material shortages for Industrial, high tech and electronic product manufacturers
What Challenges are Supply Chains Facing in 2021?
2021 has given us a bit of hope that we are recovering, however, we still have a number of issues impacting supply chains. Some are recurring effects from the pandemic, others are new disruptions.
Today, supply chains are faced with many issues, but the top three have to be:
The Domino Effect from the Pandemic
As manufacturing tries to rebound, the pandemic is still rearing its ugly head. People are still getting the disease, but the impact from last year’s production shutdowns are making recovery very difficult. The domino effect describes the extended ripple effect that disruptions in one area of the supply chain can have on the other downstream areas of the supply chain.
During the pandemic, companies saw significant shifts in their demand, putting significant pressure on the available production capacity to meet this demand. This has also led to shortages of raw materials, which has recently led to price increases, labor shortages and wage increases, container and truck shortages and a host of other impacts that have rippled through the global economy. We have seen the impact cycle through the toilet paper crisis, lumber prices rising, the computer chip shortage and its impact across the automotive industry, as well as a host of other impacts across nearly every industry.
The pandemic affected all industries, but the CPG and Food & Beverage industries were especially affected as restaurant and hotels shut down, and panic buying of groceries and other products disrupted food supply chains from farm to consumer. The pandemic helped expose weaknesses across so many CPG and food & beverage supply chains. One of the more serious issues was the CO2 shortage that occurred. Carbon dioxide is a bi-product of our ethanol and gasoline production process. As demand for ethanol dropped with people driving less, this created a carbon dioxide shortage that impacted the production of beer, cheese and refrigerants such as dry Ice and packaging for things that needed to be shipped cold. This actually hindered the initial distribution of the COVID-19 vaccine.
These domino/ripple effects challenge the agility and resiliency of distributors, manufacturers and essentially, all the participants in the supply chain.
Labor Issues
There are a number of KPIs that are used to measure the strength of the economy. One of those areas is labor. Unemployment statistics are used to determine if the economy is strong or weak. For the most part, when industries are working for workers, it is a good economic sign. Today, we have both situations almost “boomeranging” each other.
Many businesses across all industries, including manufacturing and distribution are looking for workers. Yet, unemployment is still high. Almost everywhere you look today you see “Help Wanted” signs in the windows, and many manufacturers have identified the labor shortage as their number one challenge. There are shortages of factory workers, warehouse workers, truck drivers as well as big challenges in finding supply chain planning talent to help address the demand/supply imbalances that the businesses are currently trying to manage.
The labor issue has so many facets, from the social distancing and safety/regulatory impact on factories and retail establishments, to the fiscal stimulus response of governments and the extended unemployment benefits. Then there is the “work-from-home” shift and impact of schools shifting to online education, as well as the general demographics of the workforce with many skilled and experienced workers opting to take this opportunity to retire early, or leave the workforce. Labor is certainly going to have an impact on the supply chains in all industries for the remainder of this year and possibly into the next.
Transportation and Distribution
A third major disruptor to supply chains today is transportation and distribution. We all saw the news and headlines recently of the giant cargo ship that got stuck in the Suez Canal, blocking a major shipping lane for an extended period and disrupting deliveries of goods around the globe. This is a highly visible example of recent transportation issues affecting businesses, but there are so many other more impactful challenges within the global transportation area that are creating some real head-aches in getting goods and raw materials to factories and consumers.
COVID-19 accelerated e-commerce, with sales growing from $598 billion in 2019 to $861 billion in 2020 — a 44% increase. Data from consulting firm McKinsey puts the surge in e-commerce volume into context, noting that the rate of e-commerce penetration in the U.S. grew by 10 years in 90 days in 2020. Other notable issues are causing disruptions in the areas of transportation, including:
- Small-parcel volume caps experienced by many large supply chains in the fourth quarter of last year caused shipments that would typically go by parcel to be handled by LTL providers. This situation strained LTL networks, which led shippers to turn to the truckload spot market to move traditional volume LTL shipments, driving those rates higher and causing acceptance rates to decline.
- Container shipping rates from Asia to the U.S. and Europe increased to new record levels this year, ensuring transportation costs will stay elevated for companies heading into a peak season for rebuilding inventories.
- There is a persistent shortage of containers along the busy transpacific lane carrying American imports. Goods in containers are flooding into the biggest U.S. gateway for seaborne trade in record volumes.
- Port congestion has been exacerbated by labor shortages brought on by an increase in cases of COVID-19 by dockworkers across the globe.
Staying One Step Ahead
These three challenge areas are working in tandem to add disruption and turbulence to the supply chains around the world. All indications point to these disruptive forces not going away anytime soon, and there is a good chance they will continue to add an unpredictable element to the planning of complex global supply chains.
The bottom line is simple. Manufacturers and distributors need to stay one step ahead of disruptive forces. That is easier said than done. To do so requires companies to be nimble and agile. Flexibility is really the critical element in being prepared to manage through disruptions. Organizations that have processes and systems in sync, integrated and adaptive, can achieve successful business outcomes, but it is those companies that are able to bend without breaking that will successfully navigate through these stormy times. The events of the last two years have illustrated that there are two supply chains that need to be managed congruently, the digital and physical supply chains. One will not perform adequately if not synchronized with the other. Adaptive systems, processes and people will make this happen.
