The Global Supply Chain is in Crisis: When Will it Return to Normal?

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The Global Supply Chain is in Crisis: When Will it Return to Normal?

"In the News and Trending" includes the perspectives of accomplished Whitman professors on timely issues impacting business. Stated wording and opinions are those of the author. 

 

Today’s global supply chain is in crisis. 

The COVID-19 pandemic with its variants is impacting different parts of the world at different times. Extreme weather events, which have unleashed environmental catastrophes leading to loss of human lives, have prevented areas around the world from producing and moving materials. We are seeing labor shortages caused by people unable to work due to being infected by COVID or because they were potentially exposed to someone who was infected. 

There are unparalleled material shortages ranging from chemicals to semiconductors due to a lack of capacity or base materials/ingredients, which have impacted our abilities to use and produce more goods. Lastly, our inability to move mass amounts of materials via ship, train or truck due to closures, lack of labor and space has hampered our ability to move products in a timely and efficient manner. 

When will this global supply chain chaos end?

The COVID-19 pandemic, in addition to extreme weather events, has shown us how interconnected the world’s supply chain is and how any impact on any one part of the global supply chain will eventually ripple throughout the entire global supply chain. 

Many companies have developed global supply chains that have reduced costs and improved quality within their organizations. These global supply chains, working with single suppliers in select regions of the world, have kept inventories at their lowest possible levels to free up cash flow. Today’s factories and distribution centers have enough capacity to meet past demand levels, and these facilities are focused on producing or moving items as efficiently and effectively as possible. We now have delivery processes where we can ship anything in the world and have it delivered within 24 hours. 

Unfortunately, the pandemic and climate change are starting to make us question these long-established supply chain methodologies. Due to all of the issues and problems companies are facing within their global supply chain, many organizations are contemplating whether they should have suppliers in different geographic regions of the world versus just one region (a geographic supply base) to lessen their exposure to pandemics and weather events.

Does it make sense to have just one supplier, or should we have several? Should we carry more inventory or capacity to react to sudden demand surges? Is our organization flexible and agile enough to make anything at any time regardless of the demand pattern? Does it make sense to have local suppliers to insure timely deliveries of product? Is automation needed to deal with labor shortages? 

These are some of the global supply chain issues companies will need to address to deal with the harsh realities of today’s global supply chain.

The fourth quarter of 2021 will be a difficult time for many organizations and consumers. Expect to see less inventory, less variation of products, late deliveries and higher costs. Unfortunately, there will be even more issues within the global supply chain for the foreseeable future. 

2022 is already developing to be an arduous year for supply chain professionals. It may be time to re-engineer current global supply chain practices due to the unprecedented problems and issues we are facing today. Sadly, we know that we will see more extreme weather events and pandemics in the future, so the time to change our global supply chain is upon us.

Patrick Penfield
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