Behind the Chaos: A Closer Look at Cause, Impact, and a Possible Cure for the Supply Chain Crisis
Since the earliest days of the pandemic, supply chain disruptions have been ever-present on our radar. Today, there are no signs things will let up and the latest shortage predicted for the fall could impact chocolate-lovers and trick-or-treaters coast to coast: One of the largest chocolate manufacturers in the U.S. believes it will fail to meet demand for Halloween and the holiday season due to its limited cocoa supply. But by now, news like this leaves few surprised.
For nearly 30 months, the average consumer has experienced the persistent impacts of a global supply chain in crisis. In many ways—and especially for businesses operating within the supply chain—the issues have gotten increasingly worse as time wears on. Freight rates are vastly overinflated, chassis shortages are impacting everyone involved in shipping and receiving goods, and a shortage of skilled workers is forcing many to pump the breaks on everything from production to delivery.
Here to explain what’s going on and what we can do to pull ourselves out of this mess is Robert O’Dwyer, the logistics industry principal at UKG.
What’s behind the supply chain crisis?
A widespread dearth of raw materials, skilled labor, and reliable transportation pushed supply chains to a breaking point. The Covid-19 pandemic and resulting supply-demand imbalances that surfaced in 2020 have weakened many points and severed many links in the chain, but ongoing labor constraints, tight capacity, and congestion have made things 10x worse.
How is this playing out across different sectors—from manufacturing to logistics to retail?
In the beginning, the big players in logistics and e-commerce—as well as manufacturers with more control over their supply of raw materials—saw their profits soar. But no one is completely immune to inflationary pressures and volatile demand, so at the end of the day, every organization I’ve spoken to is feeling the pressure in some way or another.
In manufacturing environments, we’re seeing two things: Shifts are getting cut left and right because materials are scarce, but at the same time operations are quite literally grinding to a halt because of the labor constraints. Machines are sitting idle with no one to work them because organizations are understaffed, or people just aren’t showing up to work. A survey by The Workforce institute at UKG recently found production lines are under- or overstaffed 62% of the time, on average. And although a skilled-labor gap has plagued the sector for decades, 87% of the manufacturers surveyed are feeling its impact now more than ever.
Logistics providers—as well as their drivers—are getting crushed by oil prices. Freight rates are vastly overinflated, and there just aren’t enough chassis to get product where it needs to go. The delays are out of control, and it starts at the ports. As recently as March we heard reports that it takes a container more than 100 days to move from Asia to its U.S. destination through the West Coast, whereas just two years ago that trip took less than 50 days.
Retailers are facing their own sets of challenges. Buried in excess inventory that consumers don’t want, a lot of the biggest brands are discounting like mad in order to right-size their stock before “back-to-school” kicks off. They want to put this mess behind them as quickly as possible so they’re in good shape ahead of the holidays, which will likely start earlier than ever as consumers try to get the season’s best buys before everything sells out.
What strategies will get us out of this mess?
First of all, supply chains need to be refortified. Strategies to reshore and nearshore production could help reduce reliance on suppliers, and already 70% of manufacturers said they’re planning to bring production closer to their shores. Among larger retailers and distributors, already we’re seeing higher-tech fulfillment centers, while others are taking control of their supply chains by acquiring their own logistics companies or securing space near ports to hold inventory—these are great moves! Hub and spoke distribution models are also picking up steam, as well as crowdsourcing to improve last-mile delivery. But the one thing everyone should be doing is looking at technology to improve forecasting, visibility, and data sharing. That’s going to be key.
Solving the skilled labor shortage must also be a top priority. Employees with options will always choose organizations that show they respect their people and value the daily contributions they make. It’s not just about raising wages. Alternative currencies like flexible time off, shorter shifts, variable scheduling, and access to technology and information that enables autonomy at work can be a real differentiator.
We need more people-centric policies that facilitate life-work balance. More automation to augment the work of valued team members and ease the burden of the tight labor market. More field technologies to modernize mobile workplaces for drivers and others transporting goods. Give them more control over when they work, implement flexible pay-day options, and increase opportunities for employees to expand their knowledge base and achieve their personal and professional goals. Organizations should revisit their employee value proposition through the lens of today’s job market. Satisfying the needs of all employees, especially on the frontlines, is a business imperative.
Will the supply chain stabilize before the holiday season?
I believe these industries can handle anything. Leading into the season, many manufacturers have already taken steps to balance labor with forecasted demand. Supply chains will remain fragile through 2022, but retailers will make out OK—both in stores and online—if they’ve set the right expectations and remain thoughtful about strategies for building up their holiday workforces. They’re right-sizing inventory as we speak and throttling incoming freight to ensure just the right product mix. Success, however, assumes no new global disruptions and depends heavily on consumer spending habits shaped by inflation and fears of a potential recession.
Where can people find more information?
For more information, I encourage you to read the newly published industry brief from UKG. Behind the Chaos: Supply Chains Under Pressure explores the complex network of supply chain challenges impacting manufacturers, logistics providers, and retailers around the world. The brief also identifies top priorities in each of the most affected industries. The goal is to help organizations address labor challenges, refortify supply chains, and become more resilient in the face of future supply chain complexities.