Edward Sweeney, Heriot Watt University
As Christmas approached, there was much concern about shortages of food and festive gifts. Trade frictions were already at the heart of the Brexit debate, and supply chain issues have been made much worse by the COVID-19 pandemic.
For example, a shortage of computer chips has impacted many industries. Concerns have also been raised about everything from lithium supplies for electric vehicle batteries to restaurant food supplies to coffee shortages.
Never has the issue of supply chain management been so important. The question now is what are the challenges that supply chains will face in the coming year. So what can we expect?
Complex, fragmented, under pressure
Products reach consumers through a chain of involved businesses, which typically includes manufacturers, logistics companies – which provide storage, distribution and transportation – and retailers. Unsurprisingly, the whole system is very complex.
There is a whole philosophy of contemporary supply chain management (SCM) concerned with making supply chains much more integrated than they were before. Done well, it can dramatically improve overall business performance, while benefiting the economy and society. Yet this long-running effort to make the whole system more efficient has been set back by a host of challenges in global supply chains.
Three big issues became particularly apparent in 2021. The first, and probably the most obvious to many of us, was the unprecedented pressures on global supply chains created by the COVID pandemic and the subsequent series of lockdowns and restrictions, the timing and severity of which varied from country to country.
This has led to significant geographic shifts in supply and demand, which has created problems for finely tuned global supply chains. Trends that were apparent before the pandemic, such as increased online shopping and shortages of drivers and other skills, are now causing real problems.
Second, the economic and business environment has become more difficult. For example, in the UK and the rest of Europe, supply chain pressures have been caused by Brexit due to increased red tape and cross-border checks. More broadly, companies continue to face a range of international business challenges ranging from fluctuating exchange rates to building global leadership teams.
All of this matters because business has become increasingly international – often global – in recent years. This is due to the reduction of traditional barriers to the cross-border movement of goods, services, capital, people and information. The impact of this change on logistics and SCM is the subject of my book Global Logistics: New Directions in Supply Chain Management.
Third, the environmental impact of logistics and supply chain activities is beginning to be better understood. If countries around the world are to meet their emissions targets and commitments, it is essential that they develop more sustainable supply chain practices. COP26 in Glasgow in November had a strong focus on transport, including freight and logistics. The status quo is simply no longer an option if a sustainable future is to be achieved.
But uncertainty is a feature of the international business landscape in which supply chains operate. As a result, large companies have focused heavily on supply chain risk management. This means identifying where risks of any kind exist in the network, assessing the potential impact of these risks and putting in place mitigation strategies. A range of formal methodologies and tools have been developed to support this process.
The big question is how to manage all this complexity, especially in terms of design, planning and execution. These challenges are new in many ways, so past experience cannot be relied upon to generate solutions.
An unpredictable world
So what kinds of things are going to affect global supply chains in 2022? As The Economist aptly put it recently, “the age of predictable unpredictability is not going away.”
The arrival of omicron was a timely reminder of the unpredictability of the pandemic. The emergence of new variants in 2022 could accentuate some of the current pressures. In this context, the continuation of China’s zero-COVID strategy with its strict border restrictions could create problems.
Despite some easing in recent months, international shipping costs are expected to remain high in 2022. Closer to home, the arrival of full post-Brexit customs checks introduced on January 1 has introduced new frictions and costs additional, with many companies reporting a worrying situation. lack of preparation.
Importantly, freight transportation and supply chain processes will continue to change in 2022 as more environmentally sustainable practices are adopted. These practices affect everything from transportation vehicles, such as the switch to electric delivery vans, to changes in the broader supply chain, such as the relocation of distribution centers to minimize distances travelled.
Industry and academia are working together to develop innovative and sustainable practices, as evidenced by the work of the Center for Sustainable Road Freight, for example. The coming year will be instrumental in the adoption of these practices, each of which requires a change in the operational practices of companies. Such change will inevitably create short-term challenges as new practices are incorporated.
Businesses need to be resilient and able to adapt to major disruptions so they can develop long-term strategies and solutions to address these complex challenges. In the meantime, buyers will likely see higher prices as businesses pass on increased shipping and other logistics costs to customers. We may continue to notice shortages on our supermarket shelves – shortages of New Year’s produce are already being reported in some countries. So as consumers, we’re going to have to continue to be a little more resilient ourselves.
Edward Sweeney, Professor of Logistics and Supply Chain Management, Heriot Watt University
This article is republished from The Conversation under a Creative Commons license. Read the original article.