Supply chains face both short-term challenges, such as the availability of critical materials and increased risks associated with overseas suppliers, and long-term ones, with the need to meet net zero carbon targets and increase circularity. Many of these challenges are interconnected and significantly affect businesses worldwide. The pandemic, continued lockdowns in China, the war in Ukraine, rising energy costs, inflation and, for the UK, Brexit, add to these challenges, causing more disruptions before supply chains eventually bounce back.
Shortage in labour and space
Compared to other industrial sectors, manufacturing and logistics are not attractive to young people. The skilled age gap in these sectors will worsen when the ageing baby boomer workforce retires, and fewer young people enter these fields.
Ecommerce has created a need for more warehouse space. The global pandemic showed that traditional “just in time” inventory management is no longer a panacea. Businesses stockpile goods to guard against further disruptions in anticipation of increasing energy and materials costs. Demand for warehousing has grown at the fastest rate ever, and warehouses are fuller than ever.
Technology
Many businesses are moving towards automation and robotics to address the labour shortage. Technology such as robots and other AI or digital systems can be a reliable alternative to cope with the above labour challenges. For example, a new wave of robots has started reaching warehouses, stores and loading docks, creating a new “roboconomy”.
According to the International Federation of Robotics, the total population of industrial robots in the world has reached an all-time high of 3.5 million. Very recently, DHL Supply Chain announced that it is testing Boston Dynamics’ Stretch robot and plans to roll out between 20 and 30 of them next year to unload trucks.
Sector wide challenges
The post-pandemic boom of logistics mergers and acquisitions is slowing down as freight demand returns to “normal” pre-pandemic levels, with freight rates still much higher than pre-pandemic level but profit margins stabilising. Perennial problems in the sector such as fragmentation and lack of collaboration persist as a result of the lack of trust and visibility in the supply chain, and organisations being unwilling to share commercially sensitive information.
Bottlenecks in transportation and demand contraction
Port congestion is a long-term challenge, with strict lockdown measures in China and strikes at UK ports adding to delays. Suppliers cannot process and fulfil orders of robots due to severely disrupted supply chains. Port congestion and shortages of electrical and electronic components cause delays in manufacturing new equipment, demonstrating that the challenges are interconnected and have knock-on impacts. Despite the increased availability of advanced technology, port automation is limited; many of the operations are still manual, leading to low efficiency and productivity. Challenges to port automation include the absence of industry-wide standards to connect data across ports and shipping lines, the cost of investing in automation, and fear of job losses.
However, the above may be less of a worry in the short to medium future as the demands in the container shipping markets are contracting at a fast pace due to rising energy and inflation costs. According to the Wall Street Journal, ocean carriers are cancelling dozens of scheduled sailings out of Asia to Europe and the US and companies such as Maersk Line are re-introducing “slow steaming” to reduce fuel costs.
Geopolitical uncertainty
The invasion of Ukraine, the tense relationship between China and the West, and continued Covid lockdowns in China have weakened already fragile global supply chains. The ongoing trade war between the world’s two largest economies has led to a drop in bilateral trade and the dismantling of supply chains for nationally important goods, resulting in production moving to other regions.
Growing costs
Sanctions on Russia continue to drive up costs of energy, metals, chemicals and other commodities. Rising energy costs force companies to reduce or close parts of their operations, while limited availability of chemicals, such as fertilisers, leads to reduced food production; reduced metal supplies increase uncertainty in manufacturing supply chains which depend on them, such as vehicles, medical devices and aircraft.
Rising costs and reduced production, coupled with socio-economic volatility in Europe, have resulted in record inflation which, combined with surging energy costs, could significantly reduce consumer demand. Global supply chains must adapt and contend with growing uncertainty about future consumer demand and trade levels. Combating the effect of increasing costs will be a key focus for global supply chains over the next 12 months.
Path towards net zero
While dealing with these long standing and emerging challenges, businesses face pressure to consider sustainability more broadly and start the move to net zero carbon. Supply chains are a major source of greenhouse gas emissions and are also at risk of disruptions attributable to climate change effects (eg. increased frequency and severity of hurricanes).
Businesses are seeking opportunities and new initiatives to green their supply chains, including local production, green materials and packaging and technology driven production. Progress has also been made in logistics via new vehicle technologies, but significant challenges remain to decarbonising aviation, due to energy intensity, and maritime logistics, due to government policy and international agreements.
What can we do?
While industry players, and possibly even individual governments, cannot overcome the geopolitical and macro-economic issues facing supply chains, there are steps that can be taken and are being taken to try to ensure that we can maintain supplies. We can break these down into these two categories: people, and risk reduction.
People
Most school and college-age young people have not heard of logistics. Those who have heard of logistics do not see it as a sector they would want to work in. With the pandemic and continuous pressure from other geopolitical disruptions such as Brexit, US-China trade war, and the Ukraine-Russia war, the relevance and significance of logistics and supply chain management is increasing.
Therefore, it would be useful for the industry to lobby the government to get a higher profile for logistics and supply chains in the curriculum and encourage talented young people to enter the industry. Businesses must also invest in reskilling/upskilling the existing workforce, training, recruiting and retaining new workforce, and improving job satisfaction. The apprenticeship scheme in the UK allows employers to attract and retain talent through a compelling suite of programmes, have a skills injection to future-proof their businesses, and address the strategic needs of the business through focused learning.
Risk reduction
While geopolitical tensions will continue for the foreseeable future, businesses can assess key risks, identify important regions and suppliers, evaluate suppliers’ geopolitical risks, and prioritise adjustments and contingency plans.
In response to rising freight charges and continued transportation bottlenecks, businesses should consider diversifying sources, focusing on local supplies, and fostering strategic partnerships with shipping lines and logistics companies. The gradual adoption of automation technologies, including 5G, is increasing the productivity of container ports and the throughput between vessels and the hinterland. Careful planning and implementation are necessary to develop industry-wide standards to facilitate information and sharing. Government policies and international agreements are also required to strengthen collaboration between shipping lines and ports around the world.
Current levels of globalisation also necessitate companies to operate parallel supply chains, which entails managing a supply chain that focuses on responsiveness to demand by bringing suppliers and production facilities closer to customers. In contrast, another supply chain focuses on efficiency by sourcing from low-cost countries and shipping finished goods worldwide. Operating parallel supply chains help companies better manage disruptions and balance trade-offs between efficient and flexible supply chains.
About the authors
This article was co-written exclusively for Freight Industry Times by supply chain academics based at Cranfield University’s School of Management, one of the oldest business schools in Europe and a world leader in management education and research: Prof Ying Xie - Professor of Supply Chain Analytics; Prof Emel Aktas – Professor of Supply Chain Analytics; Prof Aristides Matopoulos – Professor of Supply Chain Design; and Prof Michael Bourlakis - Professor of Logistics and Supply Chain Management.
The Cranfield Centre for Logistics, Procurement, and Supply Chain Management is one of the first organisations that investigated supply chain resilience in a White Paper prepared by Prof Martin Christopher for the Department for Transport in 2003. Two decades on, this report is still relevant and informative on reducing supply chain risk and achieving supply chain resilience. It can be accessed at www.cranfield.ac.uk/som/scr.