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The supply chain disruptions sparked by the pandemic and ongoing geopolitical conflicts exposed several weaknesses in the system. As manufacturing and distribution firms look to the future, one thing is clear — after three years of supply chain bottlenecks, there’s no going back to the old normal. Instead, firms are rethinking supply chain security to help reduce the risk of delays, shortages and increased costs.
At the end of 2022, 61% of logistics managers said their supply chain was not operating normally. They cited limited availability of raw materials, port congestion, skilled worker shortages and a decrease in warehouse space as the biggest challenges in the months ahead. For most, addressing these challenges starts with letting go of historical practices and creating more resilient, secure supply chains.
Pandemic lockdowns and the war in Ukraine highlighted the dangers of over-relying on a single supplier of materials. Now, businesses are looking to diversify their sourcing to ensure they can maintain a steady supply of the materials they need, including options for pivoting more rapidly if one of their sources becomes unavailable.
Microchips and semiconductor chips are prime examples. Modern life requires sophisticated chips to manufacture everything from phones and computers to appliances and cars. Even pre-pandemic, the increasing demand for chips was causing shortages. However, during the pandemic, online ordering and demand for electronics drastically increased in a majority of households. Factory closures and shipping delays related to the pandemic greatly exacerbated the problem. In response, manufacturers, companies in other industries and governments are leaning into diversifying the available sources, including decentralizing where chips are produced.
In 2021, it was reported by CNBC that Taiwan accounted for over 60% of the total global semiconductor foundry revenue. Due to geopolitical tensions, relying on Taiwan for a majority of high-grade chips in the U.S. could result in another supply disruption. So in 2022, the U.S. Congress passed The CHIPS Act to help alleviate national security concerns and supply chain issues through government subsidies for the research and production of semiconductors in the U.S. The European Union, South Korea and Japan are also enacting similar measures. However, these types of onshoring incentives don’t signal an end to globalization. Companies — and countries — will continue to source materials globally but with more geographically diverse supplier sources and contingency options built in.
Skilled labor shortages are another supply chain challenge requiring manufacturing and distribution businesses to seek creative solutions. Again, a lack of skilled workers was an industry-wide challenge prior to the pandemic, which subsequently accelerated the workforce trends. In the U.S., the National Association of Manufacturers estimates that the industry will have 2.1 million unfilled jobs by 2030.
To address the shortage, firms are adopting long-term strategies to upskill current workers and partner with educational programs to develop future talent. They’re also ramping up technological innovation, including artificial intelligence (AI) and robotics, to further expand automation. The strategic use of these types of technologies is helping manufacturing and distribution firms deploy their human resources more effectively. For example, autonomous container handling, autonomous vehicles and automated cranes are helping ports to increase efficiencies and manage backlogs without requiring significant increases in hiring. Looking ahead, 45% of supply chains are expected to be mostly autonomous by 2035.
Supply chain management is a delicate balancing act that requires constant assessment of risks and changing demands. Often, adjustments in sourcing, staffing or shipping routes need to be made quickly to prevent supply chain delays or disruption. Digital technology is transforming how companies make key decisions about day-to-day logistics and long-range forecasts.
Advancing digital technology allows firms to create intricate digital representations of the physical supply chain, known as a digital twin. The virtual replica provides an effective way to model different scenarios, assess risks and anticipate potential disruptions. From there, firms are able to map out in-depth contingency and risk mitigation plans, which facilitate faster, data-driven decision-making when issues arise.
Digital technology also produces comprehensive and integrated data that gives businesses new tools to mitigate supply chain risk and improve efficiency. Using digital technology, organizations gain a more complete view of their supply chain and additional transparency into the factors affecting their suppliers — and their suppliers’ suppliers. Having this end-to-end view of a global supply chain network gives firms enhanced analytics capabilities that provide valuable insights into production cycles, inventory gaps and costs.
The manufacturing and distribution industry experts at CBIZ can help you navigate supply chain risk, security and efficiency. Connect with a member of our team and gain access to more resources here.
This article includes input from Anna Rathbun, Chief Investment Officer of CBIZ Retirement & Investment Solutions. Anna is highly sought after for her insights in supply chain and has been featured in numerous publications regarding economic shifts.