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Sourcing and Procurement

Amidst “New Normal” will supply chain crisis prevail or end?

The recurring COVID-19 outbreaks have proven that the virus and its variants are here for a long haul. While healthcare organizations and institutions across the world are researching to release confirmed vaccination to prevent the spread of the pandemic, industries and organizations are adapting “new normal” strategies to overcome the losses, build resilience, and become more agile. However, when talking business operations, undisrupted supply chain plays a pivotal role in ensuring a smooth functioning.

In last two years, or ever since the unprecedented outbreak of the pandemic, every sector across the globe has reported delays and shortages due to bottlenecks in supply chains. Although, the current crisis does not appear to be ebbing anytime soon, experts indicate it could abate by the second half of the year. Owing to factors such as normalization in demand, sourcing from local geographies, and probable increase in shipping capacity, experts are optimistic that supply chains might breathe a sigh of some relief in the upcoming years.

Factors impacting the situation

Taking advantage of the technological advances, companies are leveraging advanced data to identify locations and build inventory for just-in-case situations, thereby reducing chances of future disruptions. Also, while revising their strategies, companies are incorporating sustainable practices to build resilience into the supply chain. Below are a few more factors that will contribute significantly in deciding the future course of supply chains:

  • Consumer demand and product inventory:
  • Even though the current COVID-19 situation is under control as compared to its initial outbreak, consumers continue to play safe by hoarding inventory in the face of crisis. Experts believe the eventual movement towards normalcy and consumer shift towards sustainable products, are further encouraging companies and industries to follow sustainable practices. However, when it comes to semi-conductor or related products, the supply is likely to remain strained throughout the upcoming year. As per the experts, with use of chips in products ranging from automobile to appliances, the demand for semiconductors is on the rise, and the limited production is subsequently exposing a cut-throat competition among the incumbent businesses. However, the soaring demand is likely to reduce owing to the pre-pandemic capital investments that will become operational in 2022.

  • Changes in shipping scenario:
  • The unprecedented spread of the pandemic gave rise to shipping congestion. The ports reported 11% of global containership capacity across 2021 as against 2% of containership capacity before the pandemic. With ships parked at the wrong ports, there occurred a scarcity of vessels and containers at the required places. Additionally, the congestion also led to delays in unloading the vessels that further pushed the freight rates upwards while reporting longer transit times. However, with the new transportation capacity expected to increase by the end of 2022, existing shipping bottlenecks are likely to show signs of easing. Additionally, investments made towards port infrastructure and waterways in the U.S. will further aid in reducing the current port congestion.

  • Keeping the human factor intact:
  • Despite technology aiding in ensuring continuity of businesses, the dependency on human skills for delivery and production cannot be eliminated. Thus, with mass exodus of workers from industrial centers to rural areas that occurred at the start of the pandemic, made it difficult for the industries to reverse the movement. Additionally, many countries like United Kingdom experienced dearth in lorry drivers that further halted supplies. Fortunately, the countries got some relief during Christmas after they were able to recruit enough to prevent shortage of goods during the festival season. However, these signs could not be relied upon as labor shortage is certain to continue owing to prolonged consequences of the pandemic, as well as China’s zero-COVID strategy, that will continue to disrupt production and transportation.

  • Enhanced role of government:
  • The devastating impact of the COVID has forced governments to give away their old methods and instead brainstorm new strategies to iron out the existing creases in the supply chain network. Considering the disruption that COVID-19 brought, leaders are expected to focus on cross functional alignment, to ensure continuity in an ever-changing market dynamic. Further, an association/ collaboration between the governments and private players could help in dealing better with domestic, regional, as well as global market conditions. Regular monitoring of risks and performance will help the governments build resourceful regulations and investments. While the upcoming years in the post COVID world are sure to see significant structural changes, governments would need to be more proactive in identifying measures for economic development by clearing bottlenecks caused due to supply chain disruption.

    In conclusion, the conjecture is that while the spread of COVID-19 may be under control, it would take time to overcome the impacts. Hence, being increasingly agile and building resilience is the best strategy to adopt going forward. It’s high time that we reimagine supply chain strategies keeping in mind the risks and disruptions while simultaneously focusing on the pivotal role technology can play in straightening loopholes. It is equally important to focus on upskilling and reskilling of human skills and its contribution in the new normal. With leaders and industries working in collaboration to resolve the roadblocks, we would positively be able to fill the gaps in few years, alongside ensuring an agile system that is future proof to such massive disruptions.