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It’s been a turbulent time for global supply chains as companies navigate the many hurdles brought about by Covid-19. From a global pandemic, geopolitical crises and shortages related to mass labour shortages, there is constant risk arising that effects your supply chain’s health. Here is an overview of the risks facing supply chains currently, and ways to minimize the impact on supply chains.
Top 6 supply chain risks for 2023:
- Labour Shortages
- Ocean freight bottlenecks
- Increasing inflation
- Global port congestion and warehouse shortages
- Lack of sustainability
- Resurgence of COVID-19
1. Labour shortages
Supply chain leaders have seen a massive labour shortage in recent years, largely due to the external challenges we’ve faced such as pandemics, inflation, political instability and so on. Labour shortages in every industry create a ripple effect to multiple sectors, making this issue all the more difficult to solve. Take an understaffed factory for example. The lack of available workers causes production to slow and, in some cases, stop completely, resulting in skewed inventory levels, with distributors feeling most of the shock. In logistics, the labour shortage impacts the transport of goods between parties, resulting in delays and unhappy customers.
How to manage the risk?
As the world is constantly shifting and adapting, we are urged to change the way we work. To manage such an eminent risk, supply chain leaders are encouraged to re-evaluate their hiring process, retention practices, compensation, and strive to create a balanced work environment for all employees.
2. Ocean freight bottlenecks
The six-day Suez Canal blockage in 2021 reverberated around the world, with more than 60 000 cargo containers stocked with goods prevented from distributing to customers. While this might be an outlying event, bottlenecks in ocean freight have been predicted to be a continued area of risk in 2023. A freight bottleneck refers to recurring congestion on ocean highways whereby traffic backs up because of volume congestion, impacting port capacity. Delays brought on by external stressors such as the pandemic have resulted in massive congestion, with labor shortages and shutdowns seeing ports operating beyond sustainable capacity for months. The risk to the supply chain remains high this year as bottlenecks continue.
How to manage the risk?
It’s time to replace manual ocean freight shipping processes with software that handles the task of freight management. There are a few ways within technology in which these risks can be managed;
- Digital transformation within the supply chain remains a priority, particularly for those companies that have been slow to respond to this revolution.
- Cloud-based solutions like Orkestra that provide supply chain managers with access to real-time data can prevent siloed data, improve visibility and prevent disruptions.
- Collaboration and coordination between ocean liners will also allow for real-time scheduling and flexibility when bottlenecks occur.
- Standardizing international freight shipping documentation will also streamline processes while minimizing unnecessary fines and freight detention.
3. Increasing inflation
The supply chain is an interconnected operation, so when prices go up in one area, there is a knock-on effect down the line. Currently, there is massive inflation in labor, energy, and transport costs. These all create significant risk to the existing supply chain. According to the Economics Observatory, the Consumer Price Index in the USA showed an increase in consumer prices by 5.4% in December 2021 compared with the previous year.
How to manage the risk?
Supply chain leaders must look at transferring this risk either upstream or downstream. A way to do this is to multi-source the supplier base with strict contract time periods to account for sudden price changes. Keeping an eye on trends is also key here and managing your supply chain’s finances o that you’re protected when the next wave of risks hit.
4. Global port congestion and warehouse shortage
The global supply chain crisis has resulted from two years of pandemic-related delays, severe labor shortages, and antiquated infrastructure, especially in the USA. This created massive clogging at US ports, consequently pushing warehouses to capacity, leaving supply chain leaders to scramble for space.
How to manage the risk?
Companies need to implement technologically driven, robust processes using real-time and predictive visibility platforms that can provide advance information on congestion and bottlenecks across global ports. Warehouse managers should utilize digital platforms that incorporate WMS, which can handle demand planning and demand forecasting through real-time data monitoring of inbound and outbound assets.
5. Lack of sustainability
The growing awareness of environmental, social and governance (ESG) issues will directly impact the supply chain as legalities surrounding unjust practices and dealings become more stringent. Some examples of how this is being translated into real-time changes include:
- US regulations prohibiting the sale of any materials mined, manufactured, and produced in the Xinjiang province, home to the Uyghur people who are believed to be forced into labour.
- Financial sanctions in Russia closing off transport routes and preventing shipments out of Russia and Ukraine.
- Norwegian and German laws holding companies accountable for human rights violations in supply chain.
- Climate crisis regulations being enacted to reduce emissions along global supply chains.
How to manage the risk?
While many companies have implemented sustainability in their mission statements, an Oxford Economics survey of the global supply chain showed that only 52% of 88% have transferred these statements into action. The supply chain needs to be putting into practice the plans it has set out.
According to Gartner, ‘visibility drives resiliency and sustainability’ which encourages supply chain managers to consider AI-driven technology for improved visibility across the supply chain. By collecting and consolidating real-time data, supply chain managers are able to meet the ESG initiatives and mitigate the impending risk.
6. Resurgence of Covid-19
While many businesses are almost back to normal operations and the world is opening up in a ‘post-pandemic’ way, the reality is that Covid-19 is still a very real threat. Any potential new, more devastating variant can result in more lockdowns and restrictions that pose a very real risk to an already threatened supply chain, with experts saying we could see a resurgence in as little as a couple of months.
How to manage the risk?
Using advanced data analytics, companies can better predict areas in their supply chain operations that could be impacted and the extent of that impact and take preventive measures to mitigate those risks. Real-time visibility and predictive visibility are a must to avoid risks posed by the continuous disruptions caused by COVID-19.
Conclusion
Trade embargoes, labour shortages, ESG concerns and a rise in regulations are creating significant risks to the supply chain. The supply chain industry will increasingly move along the path of digital transformation as machine learning and IoT-based software to mitigate these and other risks. Companies that have not yet considered streamlining operations through supply chain optimisation software would be advised to start sooner to avoid bearing the brunt of these risks.
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