In the past two weeks, I completed many interviews. The question is the same. “When will the impact of the pandemic on the supply chain be over?” My answer? “No one knows, but it will not be soon.”
I expect the resolution of the pandemic’s impact—with the multiplicity of issues and disruption—to take eighteen months to two years to correct. The reason? In the world today, there are more headwinds than tailwinds.
The building of the global supply chain over the last seven decades evolved based on three assumptions:
Number 1. Logistics is available. With availability assumed, the traditional focus of supply chain practices was on negotiating the lowest price. Shippers pushed cost and waste backward in the supply chain. There is no planning model in traditional solutions that recognizes a logistics bottleneck and drives bi-directional orchestration across source, make and deliver.
Number 2. Supply Chain Variability is low and controllable. The lengthening of cycle times of the supply chain is less impactful than the increase in variability to supply chain performance. Increasing variability is a killer. (The variability of the essential cycles of the supply chain– lead times, conversion rates, and cycle times—grew and were not manageable during the pandemic.)
Number 3. Government policies are rational. The increasing issues with tax and tariff shifts and the policies of China make the response more complicated.
These three assumptions for building global supply chains are no longer valid. The post-pandemic world shattered this reality. As a result, the supply chain leader is moving through unchartered territory. The news reports symptoms, not root causes. The traditional technology company puts new lingo on their marketing and the salespeople jet around the world, but we are not asking ourselves, “How do we improve outcomes with the changing winds of the supply chain?”
Headwinds and Tailwinds
For the supply chain leader navigating change, I count ten headwinds and four tailwinds. Not all are equal, but each is continually shifting daily. The size of the challenge is large. The gaps in current technology approaches built based on historical assumptions of the global supply chain are inadequate.
Table 1. Current Headwinds and Tailwinds for Recovery
|Inflation. Current supply chain systems either optimize volume or currency. An ongoing opportunity is bi-directional orchestration of currency and volume impacts with shifts in mix (types of products sold). Most installed optimization technologies are blind to the trade-offs.||Increased Importance. The rise in awareness and concern/focus on the supply chain at the board level. The gap in understanding of supply chain as a complex non-linear system at the board level is an ongoing issue. Most companies invested heavily in transactional infrastructure and underinvested in systems of insights.|
|Ocean Port Snarl. Record demand and port terminal issues increase variability.||Changing Analytic Capabilities. Dramatic improvement in capabilities to drive insights through the use of analytics. The world of NoSQL enables the use of disparate data to drive learning and new forms of insights. The issue is that the technologies are new and not very well understood.|
|Airfreight Shortages. Labor shortages and shifts in routes reduce the availability of air freight.||Vaccine Effectiveness. Current vaccine effectiveness is the hallmark of recovery, but issues remain.|
|Widespread Labor Shortages. The issues with education and child care cause many workers to stay home.||Corporate Social Responsibility Pressure. The continued pressure on supply chain leaders to rethink “cost” and move to “sustainable value” drives companies to rethink the global footprint and move to a more regional model.|
|Demand Uncertainty. The world is experiencing rising demand with dramatic shifts in consumption. Demand continues to shift as consumers focus on the purchase of products and fewer services. Current processes and practices are “supply-centric.”|
|Increase in COVID-19 Variants. The Delta and Omicron variants are today’s news. With only 5.8% of the populations of emerging countries receiving their first dose, the risk of variant proliferation is high.|
|Full Warehouses. Inventories are out of balance with demand and the rising need for write-offs.|
|Rolling Electrical Outages in China. The issues with China refusing Australian coal and the dependency of China on coal for electricity for 65% of electrical supply. Expect this to grow worse in the winter.|
|Chemical Sector Inventory Availability. The chemical inventory levels continue to decline. The port and labor issues exacerbate the issues.|
|Shifts in Chinese Policy for Data Sharing. Changes in Chinese policies for data sharing change the availability of ocean shipping data. This month, AIS data is no longer available for China ports.|
These are my thoughts. I welcome yours.