The supply chain snafu doesn’t appear to be ending any time soon, and many credit the current geopolitical climate for the ongoing uncertainty.
Fifty-eight percent of U.S. logistics and supply chain strategy decision makers say their current supply chain issues primarily stem from global political unrest, including the war in Ukraine and tensions in Taiwan, according to an SAP survey.
More than half (52 percent) of brands surveyed think their supply chain still needs significant improvement and nearly half (49 percent) expect current supply chain issues to last through the end of the year. One in three believe the issues will last until the end of summer 2023.
While talk about the macroeconomic environment is often tied to the supply chain, inflation isn’t as much to blame here, the 400 respondents said. Only 31 percent cited inflation as a major contributor.
Instead, more leaders pointed to a lack of raw materials (44 percent) and rising fuel and energy costs (40 percent) as top factors fueling the slowdown. Executives also blamed changes in regulations and compliance (36 percent), rising interest rates (34 percent) and lack of contingency plans across the industry (34 percent).
With these concerns in play, the top three supply chain disruptions business leaders expect in 2023 are reduced availability of raw materials in the U.S. (50 percent), a slowdown in construction of new homes (44 percent) and disruption to public transport due to lack of drivers (44 percent).
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The supply chain constraints erupted when Covid-19 first broke out, and in the time since it has been clear that companies weren’t prepared for the drastic changes in consumer buying behaviors throughout, namely the growth in online shopping.
As a result, approximately half of business leaders saw some financial impact from supply chain issues since the beginning of the pandemic, namely a decrease in revenue (58 percent). Fifty-four percent say they needed to take new financing measures, such as business loans (54 percent), while 50 percent said at one point they were unable to pay employees.
As many as 42 percent even missed rent payments—a circumstance that saw retailers including Gap Inc. and J.Crew spar with their landlords, with the former embroiled in a Simon Property Group lawsuit over the unpaid rent before they settled in December 2020.
In order to cover the extra costs of supply chain issues, more business leaders say they’ve had to turn to wage or recruitment freezes (61 percent) and staff job cuts (50 percent). In retail alone, headcount reductions have hit hard in 2022, with layoffs coming at companies including Walmart, VF Corp., Bed Bath & Beyond, PVH, Gap Inc., Nordstrom, Shopify and many more.
Only 41 percent have chosen to increase the price of their products or services, as companies hesitate to stick consumers with higher costs.
Holiday remains a mystery
Although many businesses have started to prepare for the holiday season, there are still plenty of questions about how the end of the year will pan out.
For example, there is still an ongoing debate on the overall health of the consumer, and how much they will be willing to spend if the economy gets worse.
A separate study by SAP of 1,000 U.S.-based consumers found that nearly half (45 percent) say price is the top factor they weigh in purchasing decisions, and 73 percent say it’s a top three factor.
With inflation hiking costs and a potential recession on the horizon, 65 percent of consumers told SAP they plan to decrease their holiday spending budget. Fifty-four percent expect inflation to impact how they shop for holiday gifts, with 39 percent shopping online more. Surprisingly, only 15 percent said they will seek bargains in stores.
Business leaders anticipate growth in online shopping, with 73 percent expecting an increase in e-commerce volume this season compared to last year.
To sell their own products, 64 percent of business leaders plan to use speed of delivery as their lead differentiator, while 57 percent want to leverage their customer service for that purpose.
Other significant differentiators include availability of products (52 percent), sustainability credentials (47 percent), price reductions (42 percent) and products that are Made in the U.S.A. (38 percent).
How do we improve the supply chain from here?
Every organization said their supply chain needs improving to some extent, and they’re making changes to prepare for future disruptions and to fortify their supply chains. The respondents plan to adopt new technology to overcome challenges (74 percent), implement new contingency measures (67 percent), prioritize U.S.-based supply chain solutions (60 percent) and find new environmentally friendly supply chain solutions (58 percent).
Nearly two in three companies (64 percent) also say they are moving from a “just in time” supply chain to a “just in case” supply chain by increasing the amount of inventory they store. In fact, 63 percent believe the U.S. should adopt this approach to overcome potential supply chain crises in 2023.
“The move to ‘just in case’ means organizations will be storing more inventory to help meet customer demand, but doing so also means increased cost,” said Scott Russell, member of the executive board of SAP SE, customer success. “Managing the supply chain is a constant balancing act. Over the last couple of decades, the ‘just in time’ approach traded resiliency for efficiency and lower costs, which in turn made the supply chain fragile. The pandemic and the snowball effect of related disruptions exposed this fragility, which has organizations refocused on resiliency. Still, cost remains a factor, especially in the current economic environment. Technology can help organizations strike the right balance by enabling more real-time collaboration between trading partners.”