2023 is moving forward against the backdrop of uncertainty brought about by global events such as recession, wars, shrinking demand, stock overflows and fragmented adoption of AI. Data released by Coupa software reveals that ~82% of supply chain leaders anticipate supply chain disruptions to persist for the next 6-12 months, with predictions that food, oil and gas and chips will be at most risk this year.
The spotlight naturally falls on what eCommerce businesses are doing about it, because passivity only harms one’s chances at profitability. Designing supply chains to withstand the shocks of disruptions like Russian Ukraine war events and predict risks that could have significant effects on business performance is becoming more and more crucial in today's fast-paced global economy.
Industry reports show that only 35% of businesses have a formal overall risk appetite statement, and even fewer—less than 11%—support tailoring risk appetite for individual business units. Through 2023, organizations should be ready to deal with supply disruption, delays and price increases.
When supply chain disruptions occur, many businesses struggle to carry out their continuity plans, whether dealing with a specific supplier issue, a regional crisis, or a global epidemic. At the end of the day, it’s about recognizing that a firefighting approach will only keep you afloat but will do little to help your eCommerce business grow. Let’s dive into what supply chain disruptions are impacting the global economy in 2023.
What factors cause supply chain disruption?
A supply chain is said to be disordered or disrupted when there’s an interruption to process flows associated with the inwarding and delivery of goods. Global supply chain disruptions create congestion in the passage of goods, which introduces additional delays, costs, errors and inefficiencies in a domino effect.
The extrinsic and intrinsic factors that initiate supply chain disorders are
- Digital vulnerability including data leaks and cybersecurity threats.
- Financial hindrances arising from company concerns that hinder revenue outlook
- Logistics issues that are affected by weather changes, traffic, shipping and transit damages
- Human errors
- Geopolitical instability arising from wars and fallen trade deals.
- Natural disasters such as earthquakes (like the one in Turkey), Tsunamis etc.
These factors create material insufficiencies and supply-demand imbalances which consequently impact production and employment. In 2020, only 2% of the respondents in an EY LLP survey responded that they were aware of these challenges and had a plan of action at the ready. Two and a half years later, however,more supply chain experts are taking the Big 4 companies’ recommendations to heart. Looking at it from the lens of supply chain sustainability, two things are being prioritized; increasing end-to-end visibility and building resilience. This is with the view to staying better prepared for demand swings and monitor disruptions, given that the supply chain accounts for ~50 to 70% of an enterprise’s operating costs.
In the next section, we’ll examine the risk levels and mitigation measures of each disruption to the supply chain.
The Levels of Supply Chain Disruption
Supply chain disruptions are categorized by the likelihood of occurrence and severity, which are classified in three levels as follows;
What challenges will the supply chain face in 2023?
The Big 4 consultancies concur that investment in supply chain technology will ramp up in anticipation of the disruptions brought about by the following challenges;
Economic conditions and financial markets
Concerns about a recession in 2023 won't go away. In fact, it's possible that numerous industries are already in one. The collapse in the consumer electronics sector might have begun as early as the end of the first quarter of 2022. Although the demand is still robust in other significant industries, such as the automotive, infrastructure, and healthcare sectors, the number of business bankruptcies in the preceding year may be a troubling sign for all industries in 2023.
Companies might be prompted to cut investment in anticipation of declining demand if this trend persists or even accelerates in 2023. Even though operating costs are still high, particularly in the oil and gas industry, interest rates are still at their highest level in years, and stock market valuations are declining, even though inflation has moderated in recent weeks. Businesses that could easily raise financing when interest rates were low are no longer able to do so. These are all relevant variables that may cause suppliers to experience financial instability and occasionally insolvency.
The tremendous labor shortage that supply chain leaders have seen in recent years is mostly attributed to the external issues we have faced, such as pandemics, inflation, political unrest, etc. This problem is made more challenging to resolve by the ripple impact that labor shortages in every business have on several industries.
Distributors experience the most shock as a result of the unbalanced inventory levels caused by the slowing and, in some cases, entire cessation of production due to a lack of available labor. Labor scarcity affects the movement of goods between parties, which causes logistics disruptions and dissatisfied customers.
In the midst of a global pandemic, demand forecasting has raised the bar for supply chain management at many businesses. For a large number of retailers and providers of consumer goods/services, the start of COVID-19 virtually destroyed the projections, leaving them without a reference as to how much inventory to stock or make at any one time.
To address this issue, businesses can leverage new data sets for forecast models and use reporting tools like EasyEcom to plan their inventory pipeline, determine seasonality, and price items appropriately to avoid dead stock. According to a recent report by McKinsey, businesses that use advanced analytics to forecast demand can reduce forecast errors by up to 50%, leading to an increase in sales and improved customer satisfaction. Additionally, businesses can incorporate external factors such as economic indicators, market trends, and consumer sentiment to refine their demand forecasts.
To avoid inventory shortages or surpluses and make informed decisions, businesses should give priority to data-driven methods and advanced analytics for demand forecasting. By refining their findings and taking into account external factors such as market trends, economic indicators, and consumer sentiment, supply chain managers can enhance the accuracy of their demand forecasts.
Changing weather patterns and climate
Climate change is leading to changing weather patterns, which can cause disruptions in supply chains. For example, extreme weather events like hurricanes, floods, and droughts can damage infrastructure, disrupt transportation, and affect crops. This can lead to delays, increased costs, and shortages of goods.
To mitigate these risks, companies can take steps to build more resilient supply chains. A 6 step plan of action drafted by the supply chain management center at the University of Maryland includes diversifying suppliers and transportation routes, investing in backup infrastructure and storage, and using data analytics to monitor and predict weather patterns. We’ll expand this a bit more below;
- Create a supply chain map
Given that ~50% of disruptions happen at or below the tier-II supplier level, it’s imperative to identify critical vendors at both direct and indirect locations to support manufacturing warehousing and distribution activities.
- Assess risk levels
Your supply chain is as strong as its weakest link, which is why labor availability, supplier relationships and climatic vulnerabilities should be treated as risks to be closely examined. The risk assessment measures the revenue impact, enabling you to concentrate and prioritize further investments based on the exposure to each vulnerability.
- Systematic supplier switching (SSS)
Instead of focusing only on suppliers in nearby locations, your supplier network should allow you to find and switch suppliers who are more cost-effective, dependable and unaffected by climatic extremes.
- Create climate simulations
Run simulations after climatic impact to analyze and compare different supply networks’ performance. You can consequently determine the probability and rank of the volatility.
- Implement data insights
Use location data to identify areas based on the possibility of quick restoration of production and operation. The same data can highlight high-risk areas that you should avoid when setting up new manufacturing and warehousing units.
- Communicate regularly with suppliers
Suppliers are as vulnerable to disruption as you are, so it is crucial to reevaluate supplier contracts and monitor any changes in their circumstances that may arise from regulation and laws. A business continuity plan can be drafted to ensure your enterprise isn’t affected, which include alternative production sites, recovery time frames etc.
Overall, it is important for companies to recognize the impact of changing weather patterns and climate on their supply chains and take proactive steps to manage these risks. By doing so, they can reduce their exposure to disruptions, maintain customer satisfaction, and ensure long-term sustainability.
- Obstacles in ocean freight
The six-day Suez Canal blockade in 2021 caused ripples around the world, with more than 60 000 cargo containers packed with commodities unable to reach distributors. Even if this may be an isolated incident, delays in ocean freight are expected to continue to pose a problem in 2023. A freight bottleneck is a persistent traffic jam on an ocean route caused by volume congestion, which reduces port capacity.
Ports have been running above their capacity for months due to manpower shortages and shutdowns caused by delays brought on by external stressors like the pandemic. As long as there are bottlenecks, there is a considerable danger to the supply chain this year.
Owing to the congestion and backlog it has generated, a slew of businesses are unable to get their goods out the door on time – which means carriers are also unable to meet their set delivery promises.
- Adopting digital supply chain solutions
To allow real-time analytics and execution, organizations should consider stepping up their expenditures in supply chain technology. As per projections, 43% of businesses will keep digitizing and incorporating cutting-edge technology into corporate-wide processes. The future of supply chain digitization is in alternative intelligence, machine learning, and the Internet of Things, and ongoing technological adoption is essential.
Digital solutions provide the necessary flexibility to respond quickly to shifting circumstances and prevent further shipping problems. By giving supply chain managers centralized data, digital supply chains also promote sustainability. Going onboard an operating system for eCommerce like EasyEcom can offer supply chain leaders the much-needed flexibility to swiftly adapt to changing circumstances by providing a centralized dashboard. This helps streamline operations while saving countless hours that would otherwise have gone into switching between different platforms to pull up reports.
How to React to Disruption
Disruptions can pose significant challenges to businesses, both financially and operationally. As if that weren't enough, companies must also tend to the needs of their people, customers, and suppliers in record time. But fear not! Supply chain leaders can turn this complexity into an opportunity for positive change with the right actions.
The key is to build resilient value chains that can withstand future disruptions. This requires a holistic approach to supply chain management that incorporates flexibility and responsive risk management operations. And when it comes to risk management, technology is a game-changer.
By leveraging platforms that support applied analytics, artificial intelligence, and machine learning, businesses can stay ahead of the curve. These platforms promote end-to-end transparency in the supply chain, making risk response an integral part of everyday protocols. For instance, an automated inventory management system can help you do an inventory audit to understand how your products are performing. It gives you early warnings of stockouts and excesses, and detects when expiry-sensitive products are nearing the end of their shelf life. These indicators allow you to adjust pricing and update those sales streams that make you money.
With these measures in place, businesses can navigate disruptions with confidence, knowing they have the tools and strategies to turn challenges into opportunities for growth.
The Lessons Learnt
Three years on, the sudden spike in H3N2 cases is creating the same stir that the Covid-19 pandemic once did.While it has not yet come down to countries taking drastic measures, supply chain leaders have realized that they have to operate for profitability amid changes, and are more alert to the dangers of not evolving their supply chain strategies for resilience, sustainability and collaboration.
The first step will be an increased investment in supply chain technologies such as AI-driven eCommerce automation and Robotic Process Automation, which will seek to not only institute warehouse efficiency but will also free up manpower to reskill so that their efforts are concentrated on higher-level strategy and decision-making capabilities.
Most businesses have come to the conclusion in recent years that their supply chain and logistics strategies need to be changed in order to stand out, operate more effectively, and improve services in 2023, they will need to boost their efforts in coordination with the key global macrotrends. This will enable them to drive fundamental change and development in the sector, as well as improve supply chain and logistics performance and resilience in the coming years.
While there may be some supply chain disruptions in 2023, these difficulties will encourage organizations to innovate. By constructing more robust, sustainable supply chains, we may be even better prepared for future trends.
Frequently Asked Questions
Q1) What exactly is a supply chain disruption?
A supply chain disruption is any event that prevents the production, distribution, or delivery of commodities. Pandemics, regional conflicts, and natural disasters can all disrupt the supply chain.
Q2) What are the top 5 supply chain problems?
- Minimizing the expense of transportation.
- Keeping up with the demands of the market.
- Sourcing dependable, constant transport capacity.
- Keeping up with the most recent technological demands and solutions.
- Pickup and delivery performed on time.
Q3) What is causing the disruption in our supply chain?
Global shortages and inflation have resulted from increased demand, trade restrictions, manufacturing closures, rising freight charges, and reliance on 'just-in-time' inventory management. Supply chain disruption has become increasingly common, progressing from an industrial issue to a threat to economic stability.