Revealed: the big challenges for supply chains in 2022

Supply chain issues have been exacerbated by the Covid-19 pandemic, but what is on the cards for 2022? EDWARD SWEENEY reports.

In the run-up to Christmas 2021, there was considerable anxiety about shortages of gifts and festive food. Trade friction was already at the core of the Brexit debate and supply chain issues had been made much worse by the pandemic.

A computer chip shortage had a knock-on effect across many industries, while concerns were also being raised about everything from lithium supply for electric vehicle batteries to restaurant food supplies and even coffee shortages.

Never has the issue of supply chain management been so prominent. The focus now turns to what challenges supply chains will face in 2022. So, what can we expect?

COMPLEX, FRAGMENTED, UNDER PRESSURE

Products reach consumers through a chain of companies, typically involving manufacturers, logistics firms – who provide storage, distribution, and transport – and retailers. Not surprisingly, this is a highly complex system.

There’s a whole philosophy of contemporary supply chain management (SCM) concerned with making supply chains much more integrated than they used to be. Done well, this can significantly improve the overall performance of companies, as well as benefit the economy and society. Yet this long-term effort to make the whole system more efficient has been set back by a whole host of global supply chain challenges.

Three big issues became particularly apparent in 2021. First, and probably most obviously to many of us, were the unprecedented pressures on global supply chains created by the Covid pandemic and the subsequent series of lockdowns and restrictions, which varied from country to country in their timing and severity.

This has resulted in significant geographical shifts in supply and demand, which in turn has created problems for finely-tuned global supply chains. Trends that were apparent pre-pandemic – such as increases in online shopping as well as driver and other skill shortages – are now causing real problems.

Second, the economic and business environment became more challenging. In the UK and Europe, for example, increased red tape and cross-border checks caused by Brexit resulted in various supply chain pressures. More widely, firms continue to grapple with a range of international business challenges, from fluctuating exchange rates to the assembly of global management teams.

This all matters because business has become increasingly international – often global – in recent years. This is thanks to the reduction of traditional barriers to the cross-border movement of products, 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 more widely understood. If countries around the world are to meet their emissions targets and commitments, it is key that they develop more sustainable supply chain practices. Glasgow’s COP26 in November had a strong focus on transport, including freight and logistics. Business as usual is simply no longer an option if a sustainable future is to be achieved.

But uncertainty is a characteristic of the international business landscape in which supply chains operate. As a result, major companies have become strongly focused 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 mitigation strategies into place. A range of formal methodologies and tools have been developed to support this process.

The big question is, how can all this complexity be handled, particularly in terms of design, planning, and execution? These challenges are new in many respects, so we cannot rely on past experience to generate solutions.

AN UNPREDICTABLE WORLD

So, what kinds of issues are going to affect global supply chains this year? As The Economist neatly put it recently, “the era of predictable unpredictability is not going away”.

The arrival of Omicron has provided a timely reminder of the unpredictability of the pandemic; the emergence of new variants during 2022 could accentuate some of the current pressures. In this context, China’s continuing zero-Covid strategy with its tight border restrictions could create problems.

Despite some easing in recent months, international shipping costs are likely to remain high in 2022. Above all, freight transportation and supply chain processes will continue to change during 2022 as more environmentally-sustainable practices are adopted. These practices affect everything from transport vehicles (such as switching to electric delivery vans) through to changes in the wider supply chain (such as relocating distribution centres to minimise travel distances).

Industry and academia are collaborating to develop innovative and sustainable practices, as can be seen in the work of the Centre for Sustainable Road Freight. This year will be key in the adoption of these practices, each of which requires firms to make changes in their operational practices. Such change will inevitably create short-term challenges as new practices become embedded.

Business has to be resilient and capable of adapting to major disruptions so that it can develop long-term strategies and solutions to these complex challenges. In the meantime, shoppers are likely to see higher prices, with companies passing on increased shipping and other logistics costs to customers. We may continue to notice things missing from our supermarket shelves; product shortages are already being reported in some countries. So, as consumers, we are going to have to continue to be a bit more resilient ourselves.

This article – written by Edward Sweeney, Professor of Logistics and Supply Chain Management at Heriot-Watt University in Edinburgh, Scotland – was originally published by the World Economic Forum. Click here to read the story on their website.