Supply chain logistics are constantly evolving, but there’s no doubt that the coronavirus pandemic caused heavy disruption on a global scale, creating major supply chain problems for businesses who rely on imports. As 2023 gets underway, these challenges and more are making good supply chain management more important than ever.
With the war in Ukraine, ongoing challenges caused by Brexit and social, environmental and ethical considerations thrown into the mix, getting a good grasp on your supply chain is essential for success, but more poignantly for survival.
The State of Supply Chains Going Into 2023
The Office for National Statistics reported that in June 2022, the highest proportion of supply chain problems out of the top three industries was the manufacturing industry at 32%. The other two industries in the top three were retail and wholesale trade, in particular the motorcycle industry and businesses who deal with motor vehicle repairs at 32%. Finally the construction industry industry at 26%.
The most common way to survive the volatility in supply chain trends of the past few years was to get lean, sell through inventory and emphasise working capital. The supply chain crisis has put even the largest suppliers and manufacturers to the test. Things like stock shortages, fulfilment delays, lack of decoupled inventory and lengthy back orders have all been serious problems.
These challenges are likely to persist for the rest of 2023 and beyond. A sustained appetite for buying online is a key contributor, along with catching up from last year’s bottlenecks. The supply chain network may seem fragile, but companies are adjusting by tackling inefficiencies head-on. It’s all about working smarter rather than harder.
Now we’ve covered the current state of the trends seen in supply chain and how we got there, we’ll move onto the burning question at hand.
What are the big supply chain challenges in 2023?
1. Rising Freight Prices
The need for container shipping has continued to rise since the onset of the pandemic. The surge in e-commerce sales led to greater import demand for manufactured consumer goods as well as raw materials. This demand has been sustained at a higher rate than anticipated, so inefficient shipping capacities and a shortage of free containers continue to be a problem.
One consequence of this scarcity has been a spike in pricing. Freight rates from China to the US, for example, have more than doubled since 2021. Every cubic metre counts and businesses who aren’t shipping their products efficiently and have empty space in their containers are throwing money down the drain.
2. Raw Material Shortages
Insufficient inputs have been a problem for several years now, largely brought on by the surge in consumer demand. In 2023, many retailers and suppliers have still not got on top of this demand. The limited availability of many materials and parts is part of the problem, and other global events such as the war in Ukraine are not making this any easier.
By way of example, furniture manufacturers are facing foam shortages. Bike producers are maxing out on component suppliers. Food manufacturers are facing a scarcity of certain ingredients. In fact, lead times and materials shortages have reached record highs in some industries.
Brands’ ability to sustain growth may depend on working capital to keep riding out this downtime and ramp up when peak seasons arrive. It would also be prudent to complete a full supplier review. A supplier in one country may not have the same material shortages as a different supplier located elsewhere. It might take this kind of agility and close management to get around the problem.
3. Congestion & Delays at Ports
Port congestion remains an ever-present challenge. Port owners, shippers and carriers have been scrambling for solutions to this problem for some time now. Load and unloading practices are still going largely according to plan, but labour shortages are steering things off course.
Not to mention ongoing restrictions caused by COVID-19 in certain territories and unfortunate incidents like in 2021, when one of the largest container ships ever built (the Ever Given) got stuck in the Suez Canal. The ship was stuck for six days, blocking an estimated $10billion of trade per day .
The congestion, and the resulting backlog, are making it impossible for many companies to get their goods out on time. This is rendering carriers unable to meet their original delivery commitments. Any business who relies on imports needs to be realistic about lead times. Naivety in this area will lead to disappointment for both you and your customers. Get orders in ahead of time and you might just get your goods when you originally wanted them.
4. Demand Forecasting Challenges
With so many disruptive factors, demand forecasting has been increasingly complex. The pandemic shattered forecasts around the world, and a similar effect was triggered by the conflict in Ukraine. This combined with the current cost of living crisis in the UK results in businesses having no truly reliable guide for the amount of inventory to stock or manufacture. Consumer demand is fluctuating based on so many factors right now that predicting it might seem almost impossible.
The challenge here is to try and improve predictive models for consumer demand. An element of gut instinct has been coming into play as data-driven research becomes less reliable. In these circumstances, supply chain managers must abandon bias and pursue new data sets in their forecasting. There needs to be an ongoing focus on refining results to maximise their accuracy.
Implementing Enterprise Resource Planning (ERP) software could also be a prudent move right now if your business doesn’t have it. ERP software automates processes and stores all business data centrally and accurately. It can automatically increase or decrease production, create purchase orders or push them back, all based on real-time accurate data. Quite handy at a time when demand can change quickly and unexpectedly.
5. Supply Chain ESG
ESG refers to Environmental, Social and Governance issues. Sustainability and ethical practices have become extremely important in every aspect of business. Moreover, transparency in governance to ensure compliance with all legislation is more important than ever.
This introduces a range of new problems in supply chain management. Companies must work hard to meet their compliance demands and search for new ways to do things that improve their environmental and social stature.
Decreasing waste, reducing emissions, and ensuring everyone is paid fairly, are all important considerations, but they add further complications to the supply chain. In a world where these issues have become extremely important, the supply chain ecosystem gains new challenges that you must find innovative ways to navigate.
It’s essential that you have confidence in the ESG compliance of your suppliers. It’s also important to understand the same about your suppliers’ suppliers! Non-compliance can cost you dearly in large penalties and legal repercussions. Do your homework, drill down deeper and understand your supply chain because supply chain ESG is only going to get more prevalent.
6. Digital Transformation
Digital transformation is helpful to supply chain operations, but only if companies use it correctly. Things like artificial intelligence, drones, electric vehicles and ERP systems are all tremendous resources to leverage. But implementing them can be challenging and there are often many features that are not needed by every business.
The world is becoming more digital with every passing day, and failing to adopt new technologies can cause you to fall behind the competition. The key is to use proven strategies to implement technologies and work with experts to ensure everything goes the way it is supposed to.
If your competitors are undergoing or have undergone digital transformation and you haven’t, it’s highly likely they’re in a far better position to manage their supply chain effectively. Supply chains shouldn’t be managed through scraps of paper and spreadsheets. With proper management systems in place, you’re giving yourself a fair chance at competing.
You can learn more about the latest digital transformation trends in our article Digital Transformation Trends in 2023.
7. Inflation
We are all very aware of the rocketing inflation and cost of living crisis. As this period of inflation continues, businesses are having to deal with cost increases relating to procurement, manufacturing, delivery and more. The consequences of these soaring costs amount to a loss of revenue and having to pass some of the burden on to consumers.
The big challenge here is to accept the reality whilst working to minimise the impact of inflation. You need to understand how it affects you and take steps to keep pushing through each challenge as it comes. Good inventory management technology can be extremely helpful, reducing overheads where possible. Use tools that help you identify opportunities to save and seize them with both hands.
You should also be reviewing the cost prices you’re paying to your suppliers. Small reductions in cost price can have a big impact on profitability when you’re working with volume. Speak to your existing suppliers and also shop around. Unfortunately, you may need to review your own prices to your customers.
It’s also worth looking at ways to increase your cash flow. This could be as simple as changing your businesses direct debits from annual or quarterly plans to monthly. Although a small change, it could provide that small increase in cash flow that will make all the difference.
10 Tips To Overcome Supply Chain Challenges
Now we’ve looked at the range of problems the supply chain will face in 2023, let’s look at our top ten tips to overcome them;
- Work smarter by leveraging technology.
- Review your suppliers and customers.
- Reduce costs wherever and whenever you can.
- Increase your retail prices if you need to.
- Implement ways to improve cash flow.
- Rethink your product specification and SLAs.
- Maximise shipping efficiences.
- Be realistic about lead times.
- Keep your customers aware and up to date with issues like delays.
- Ensure you and your supply chain are compliant.
Conclusion
It’s been a tough few years for supply chain management, and anyone who’s gone through it will no doubt be desperate for the light at the end of the tunnel. Despite things returning to somewhat normal, 2023 is set to see current supply chain trends continuing and there are still challenges ahead. It’s vital that you have full visibility of your supply chain and are implementing some of the suggestions above to improve the situation. Your focus shouldn’t just be on supply chain however. There are other key ways you can grow your business this year, all of which could see you ride out these tough times. You can learn about them in our article 15 Tips To Grow Your Business.
Finally, it’s important to stay positive. After a testing few years for all of us, it’s easy to feel a bit deflated and defeated. Try to generate some excitement and enthusiasm, both personally and in your business. It’s surprising how much something as simple as a group office activity can raise morale and get everyone working towards business goals again. Maybe a cheeky Nandos followed by some questionable bowling? We’ll leave that one up to you.
Why choose Eventura as your ERP implementation partner?
Eventura has been providing robust business solutions to countless organisations for over two decades. We are ERP experts and can identify all of your business needs, including issues surrounding supply chain, and deliver a comprehensive ERP solution that works for you.
As Sage 200 Partners and NetSuite Solution Providers, we can help you identify which solution will fit your business needs the best. Our expert team of business analysts, developers, consultants, technicians and support staff can guide you through your entire project, from initial scoping through to implementation and on-going support.
We’re also managed IT service providers meaning we can help you identify your entire IT infrastructure requirements from day one. If you would like to speak to one of our ERP experts to discuss your options or request a free demo, you can request a free call back here.
