In recent years, supply chain disruptions have ramped up largely because of the pandemic, but also because of other economic and political factors. When supply chain disruptions occur, it can cause businesses to lose substantial amounts of money and can damage their reputation if goods aren’t able to arrive to customers on time. Over the past few years, it seems that every week the news reports on new events that are causing global supply chains to suffer. Below are multiple reasons as to why supply chain disruptions seem to be happening more frequently in 2022.
Although restrictions have been lifted in some countries, many countries are still facing lockdowns and restrictions that are causing disruptions in manufacturing and logistics. Despite the pandemic starting almost two years ago, some countries like China are again in full lockdowns due to a mass spike in COVID-19 cases. China accounts for 1/3 of the world’s manufacturing and lockdowns slow the production of goods despite there being increasingly high demand for foreign goods in other countries. Along with the decrease in supply, lockdowns in port cities are also causing huge delays as well as a significant increase in freight rates.
When will things return to normal? That question that can’t be answered anytime soon, and companies will simply have to adjust to the new norm of supply chains in a post-covid world.
The reason that a lockdown in a single country can have a huge trickledown effect on the world is because of how interconnected supply chains have become. Supply chains are extremely interconnected because of globalization that they have now become fragile. Globalization in recent years has been brought about by advancements in technology and the internet.
Along with globalization creating fragile supply chains, it has also made them more complex for a multitude of reasons. For one, companies tend to offshore some of their operations in countries that offer lower prices. For example, they may sell their products in retail stores within North America but manufacture their products in Vietnam where it is more cost effective. Having operations in multiple countries makes it extremely difficult to manage. Also, global companies that is sell products in multiple places face more complex issues to ensure that these products get into the hands of customers all over the world. Every country has different policies and regulations that must be tracked.
The increasing complexity of supply chains from globalization has increased the risk of disruptions as it makes things more difficult for all parties within a supply chain to manage. In general, products are traveling further distances than ever before across the globe, which has resulted in increased risks of natural disruptions.
Changes In Customer Preferences
Along with the increase in globalization, customer preferences have changed considerably in recent years. Customers now have higher expectations than they did in the past having been accustomed to faster shipping options. As a result of customers expecting faster lead times, the supply chain is put under pressure to meet these expectations which ultimately increases the risk of disruptions occurring. In the past, supply chains were less complex not only due to less globalization, but because goods didn’t have to be delivered as quickly as they do now.
Customers not only want faster deliveries, but they also want to keep track of their deliveries. In the past, small delays or disruptions may have occurred and no one would know because customers were not monitoring tracking. Now however, customers want transparency and the knowledge of why their products have been delayed.
In addition to Covid 19, globalization and changing consumer preferences, 2022 is also subject to the supply issues from the chip shortage and Russia’s invasion of Ukraine. The microchip shortage has been caused by the pandemic as well as production capacity that cannot keep up with increasing demand. Since so many electronic products rely on microchips, it has caused huge delays in their production. Analysts are estimating that the chip shortage may not end until 2023. Russia’s invasion of Ukraine has also impacted the chip shortage due to slowed or stalled production halts in materials that are essential to chip manufacturers. Shipping routes are also being affected and food/good shortages for countries that import from Russia or Ukraine.
How You Can Navigate Through Disruptions
With everything that’s going on in the world right now, disruptions are bound to occur in your supply chain. To navigate through them you must reduce the complexity in your supply chain and diversify your suppliers to reduce risks. The companies that are hit hardest by disruptions are the ones that rely too heavily on one supplier from a specific country. Having different types of suppliers from different countries can help mitigate risk when disruptions occur in one location.
To choose a diverse set of suppliers that are reliable and improve reliability among current suppliers, you can use The Owl’s procurement module. The Owl not only helps you keep track of and improve performance in procurement but all aspects of the supply chain including production, logistics, customer service, inventory management and demand planning. To learn more about how The Owl can help you mitigate the risk of supply chain disruptions, click below to book a demo.