Everstream, a cloud-based provider of supply chain analytics, outlined five trends it sees as a risk to companies’ supply chains in its annual report released this week. These areas to watch include water supply shortages, ocean freight congestion, labor issues, just-in-case inventory strategies and the evolving regulatory environment.
That’s a switch up from the prior year’s report pointing to more localized supply chains, insolvencies for smaller suppliers, cyber attacks, air cargo constraints and increased multi-modal.
“Hanging over all of this from last year to this year is Covid,” Everstream CEO Julie Gerdeman said. “It’s remained the hottest supply chain risk and will move into this year. However, the impact of Covid, it’s shifted.”
Everstream works with clients across industries, including retail, consumer-packaged goods and food.
Gerdeman, who was tapped to lead the San Marcos, Calif. company in June, said Everstream has seen an uptick in inquiries from retailers looking to use its software to assess the risks in their supply chain and help them ultimately get product to the end user on time.
With the impacts of Covid lingering, 2022 is the year of logistics bottlenecks, creating unknowns when it comes to inventory forecasting. That’s been the challenge for retailers and brands operating in a less-than-normal environment.
“As the pandemic exposed flaws in ‘just-in-time’ inventory systems, businesses have been exploring a shift to the ‘just-in-case’ model, increasing buffer and safety stocks of critical components or best-selling products,” Everstream’s report said.
The reversal from just in time has given way to companies stockpiling inventory amid higher freight, warehousing and labor costs, coupled with the risk that many items could fall out of favor among consumers the longer they sit idle.
The uphill battle in managing supply for companies, the report noted, is “deciding when ‘normal’ is, and how big or small inventory levels should remain until then.”
“Our research is showing that they’re trying to adopt more of a balanced approach because we went so far in one direction to the lean approach, the just in time and the heavy reliance on one particular manufacturing region in the world,” Gerdeman said of where retailers are likely to end up when it comes to inventory planning. “So, now we’re seeing this balance and that’s why we talk about this tug back and forth, the little dance that’s going on.”
Outside of what’s happening at the inventory level, the risk report also cited droughts and overall water issues in different parts of the world that, in some cases, have forced cargo ships to reduce their freight loads. Low water levels impacting goods movement in South America’s Paraná Rivera and the Rhine River in Europe in more recent years were cited as examples.
Water conservation regulations have followed as a result.
And, to that point, the regulatory environment “leads the way,” the report said.
Countries looking to take a firmer stance on human rights violations or buckle down on companies’ carbon emissions, will give way to more disclosure requirements. The Uyghur Forced Labor Prevention Act, for example, goes into effect June 21 in the U.S., banning imports from China’s cotton-rich Xinjiang province, where evidence indicates that millions of minorities are exploited under the guise of poverty-alleviation schemes.
Elsewhere, the report said ocean container congestion will continue this year, exacerbated by the spread of Covid-19 among port workers and cargo re-routes that have moved the battle against backlogs to other marine gateways.
Thus, labor, on a related note, should be monitored as the supply chain industry sees an exodus of workers.
“As workers continue leaving the workplace, employer threats to permanently replace striking workers no longer carry the same weight,” Everstream’s report said.
Burlington Northern Santa Fe rail workers are weighing their options to possibly strike in response to a new attendance policy set to go into effect next month, in a move that would involve some 17,000 workers. And, key this year is the West Coast dockworkers contract set to expire in the summer.