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If there’s one thing that everyone in procurement knows, it’s that supply chains have inherent risks. It just takes a wrinkle in a subcontractor’s operations to generate a mountain of trouble for contracting authorities.
Effective supply chain management (SCM) is the best way to identify wrinkles before they become molehills, let alone mountains. Effective SCM also enables procurement authorities to proactively address potential challenges so that they have no, or barely any, impact at all.
The thing is, there are always new risks, which require new SCM risk management strategies. However, if flexibility and adaptability are built into these strategies, the chances of the mountain tumbling down on you are slim.
We’re going to look at the biggest supply chain challenges public sector buyers are likely to face in 2024, as well as solutions to mitigate or eliminate the impact of risk on supply chains.
Supply Chain Challenges in 2024
A supply chain stretches from the acquisition of raw materials to delivery to the end user. There are a lot of steps in between, a lot of activities and tasks that need to be coordinated, tracked, monitored, and adapted to keep movement through the supply chain on track.
Supply chain management (SCM) oversees all these tasks, and more besides. Supply chain management software ensures the procurement process continues seamlessly and that includes managing challenges and implementing solutions.
7 Top Supply Chain Issues
There are many global supply chain issues. We’re going to look at seven of the biggest challenges now and perhaps into the future.
1) Fluctuating Consumer Demand
The way consumers behave today is very different to the way they behaved three or four years ago.
Yes, COVID-19 reshaped the way we shop, but social influence is also a big factor in consumer behaviour. But, anything social is fleeting, trends and preferences are in a constant state of flux, which makes it difficult to properly plan for things like inventory or stock on hand and turns forecasting into a guessing game (educated guessing, of course).
How do you tackle a problem like this?
Artificial Intelligence. AI can crunch vast amounts of data from some sources and analyse and interpret it, spotting patterns and forecasting trends.
This is invaluable when determining stock numbers, pricing, and logistic costs.
2) Escalating Logistics, Bottlenecks, Shipping, and Delivery Costs
Several factors have affected logistics and shipping costs; the war in Ukraine has caused petrol/fuel prices to rise, increased consumer demand for international products (the Amazon effect), and bottlenecks, which stall delivery and can even halt the process for weeks at a time.
Consumers aren’t always understanding, which puts pressure on suppliers and can force them to absorb the extra cost to appease their customers. This isn’t sustainable, however. At some point consumers will have to accept increasing prices.
Furthermore, lackadaisical logistics management creates a hornet’s nest of challenges and repercussions. For example, delays can put a dent in your business’s reputation and cost you customers. Poor transportation planning can result in delays which are disastrous for perishable or frozen stock items.
There are a few options for you to hold customer dissatisfaction at bay.
Change transportation methods, for example, ocean freight to air freight (more expensive) or rail freight.
This isn’t always feasible if materials or products come from overseas. In this case, you could source products elsewhere, preferably locally to support the UK economy.
Proper logistics management is essential for the coordination and implementation of transportation strategies, including inventory management, warehousing, and distribution. Automation can help optimise processes for a more efficient supply chain. Software can improve transparency and the accessibility of data so stakeholders benefit from real-time visibility and motivated managers across the supply chain.
3) Labour Shortages
There are many stages in procurement (or links in the supply chain) and each has its own staff complement. Think of dockworkers, warehouse stock managers, drivers, and machine operators. All of these interlinked roles are necessary to keep the supply chain moving. Unfortunately, it means that shortages in one impact the functioning of all.
One of the more pressing supply chain issues in the UK caused by labour shortages is skills shortages. A more modern cause of labour shortages is the preference for flexibility in the work environment, especially positions that allow employees to work at least a portion of their time remotely from home.
How does one address such a complicated challenge?
Use automation as much as possible, wherever possible to reduce reliance on manual labour. This can actually streamline operations and shorten the procurement cycle, which means happier customers and a healthier bottom line.
Training is also important to address skills shortages. Training can be a perk that attracts workers who want to develop their skills and retains workers who want to upgrade their skills for advancement in the business. Cross-training (training that bridges a few roles) that increases skill sets is also a great way to attract and retain talent.
4) Poor Supply Chain Risk Management
Poor risk management is a serious problem in SCM that works on two levels: Internal and external risks. It’s possible to identify and plan for many ‘likely’ internal risks (human error, fraud) and some external risks (stock shortages). But it’s just as important to plan for ‘unlikely’ risks (natural disasters, geopolitics).
These are just four examples of supply chain management risks, but there are many more.
Most risks can be mitigated with the following solutions.
Advanced SCM software with features that include data visibility for stakeholders, predictive analytics based on data from several sources, open communication for all parties to give notice of potential risks – and solutions – and achievements, and collaboration among key decision-makers that fosters innovation in risk identification and solutions.
Diversifying your supplier base also goes a long way toward risk mitigation because you have options should one supplier suffer catastrophic disruption.
Contingency plans for all potential risks, including the unlikely ones. For example, a procedure to secure stock in case of a flood or offsite data backups in case malware wipes data from your IT infrastructure or cripples the system, making it impossible to access data.
A good risk management strategy that is properly implemented builds supply chain resilience, which adds another layer of security to your vulnerable systems and processes.
5) Canals Under Siege
The Suez Canal is a major shipping route that connects Asia and Europe. Its importance is paramount. One hiccup here and global trade all but ceases. Unfortunately, this makes it a prime target for any group that wants to sabotage international procurement. Recently, Houthis and their supporters in Iran and Hezbollah have targeted the Suez Canal to disrupt supply and procurement for Western countries.
They’ve been largely successful, as the number of container ships passing through has dropped by 75%. The number seems to be increasing as shipping lines try alternative routes. Currently, the long trek around the Cape of Good Hope in South Africa is the most commonly used alternative, but it takes weeks longer for containers to reach their destination and it increases shipping costs.
Drought-Stricken Panama Canal
The Panama Canal is not, strictly speaking, under siege, but climate change is disrupting shipping in Central America to such a degree that it might as well be. The canal relies on water from the Gatun Lake to keep a strong, steady flow for ships to pass through.
The problem is that the region is experiencing an unusually severe drought and authorities have had to cut the number of ships going through by 40%, which works out to an average loss per month of $100 million!
Meanwhile, shipping lines are using alternative routes and transport methods, like rail freight.
6) ESG Compliance
The UK, EU, and parts of North America are taking ESG to heart. ESG (Environmental, Social, Governance) has had a significant impact on sustainability in supply chains. An area of particular importance, forced labour, has garnered a lot of attention and has been a motivating factor in several Acts.
- Supply Chain Due Diligence Act (SCDDA) in Germany
- Corporate Sustainability Due Diligence Directive (CS3D) in the EU
- Forced and Child Labour in Supply Chains Act in Canada.
Technically, ESG frameworks are voluntary guidelines, so there aren’t any formal penalties for not following the guidelines. However, failure to comply could have less tangible consequences, like damage to a company’s reputation or reluctance on the part of others in the procurement and supply sector to form any partnerships or collaborations, or even to do business with the company at all.
Compliance, on the other hand, can generate a lot of goodwill among businesses in the same or related sectors. They will want to do business with you and consumers will want to support you so you can continue with your ESG commitments.
7) Galloping Technological Development
Technology can be friend and foe. User-friendly, up-to-date tech that does what it’s supposed to is brilliant. Tricky tech that lags behind more advanced systems can be a nightmare. It doesn’t help that tech develops so quickly that what was advanced today is passe tomorrow.
It can be difficult for supply chain companies to keep up with developments because they usually have dozens of things going on at once and they may not have the time or budget to invest in sophisticated software and infrastructure.
The rub is that sophisticated tech can save time and money and is definitely worth the investment.
So, what are supply chain companies to do?
The best thing to do is buy the best technology you can afford. Before you can do that, however, you have to know what you’re looking for.
AI, generative AI, machine learning, and automation – all of these make operations more efficient, which is cost-effective.
Generative AI, for instance, can capture, process, analyze, and interpret vast quantities of data that lead to insightful and informed decision-making, but it also learns. It can teach itself your company’s systems, making it even more effective at enhancing and streamlining workflow and improving various systems, like communication.
Among AI’s many capabilities is scenario analysis. In this instance, data analysis is geared towards analysing anomalies and patterns of disruption to accurately forecast or predict the results or financial consequences of decisions and actions in certain circumstances or situations.
Resilient And Sustainable Supply Chains
Perhaps the best way to face up to and conquer these challenges is to have a resilient supply chain in place from the get-go. Once again, AI plays a role due to its forecasting abilities that enable companies to take evasive action. Companies should be able to incorporate the action into supply chain management as a contingency plan (one of many).
AI also captures pertinent data from global and internal sources to strengthen supply chain performance, partly by recognising and optimising opportunities to enhance supply chain processes, as well as establishing relationships with other suppliers and manufacturers in the industry.
Sustainability is another important element in developing supply chain resilience solutions. This ties into ESG compliance because it includes:
Environmental sustainability: Minimising the effect of production processes on the environment and offsetting the impact through green initiatives.
Social sustainability: Ensuring businesses operate ethically and with integrity and always with health, safety, and fair and equal treatment in mind.
Financial sustainability: Being able to continuously address the company’s financial needs, including those of its shareholders, employees, customers, and business partners.
Delta eSourcing Gives You The Tools To Successfully Manage Your Supply Chain
All supply chains experience challenges that have the potential to disrupt operations – permanently. As you’ve seen, suppliers have to face plenty of challenges in 2024. But as we’ve shown, they are not insurmountable.
A calm head, AI technology, sound risk management, and due care to your company’s economic, environmental, and social impact will help you build a strong supply chain that is sufficiently adaptable to deal with challenges proactively and as they arise.
Delta eSourcing has your back, providing you with a comprehensive supply chain risk assessment and tailored solutions to ensure your supply chain won’t derail your business. Contact us today or book a free demo of our services and discover how you can make 2024 your year in business.
