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Preventing future supply chain disruptions: what companies need to do

illustration of a person standing next to a large monitor with an arrow representing the supply chain, being interrupted by a lightning bolt.

From surges in product demand and supply shortages to congested ports and vacant jobs, the pandemic has highlighted the weaknesses in many links of the supply chain. 

Both shippers and 3PLs worldwide were caught off guard by the disruptions caused by the pandemic, which hindered companies’ ability to manage transportation networks, sourcing and procurement, manufacturing, and their workforces. 

Inbound Logistics’ 16th Annual Perspectives report, published in July 2021, looks at data gathered from a survey of 3PLs and shippers. The report found the top challenges faced by shippers are reducing transportation costs, labor (finding, training, and retaining a qualified workforce), ecommerce, and managing inventory.¹ 

The pandemic brought to the forefront the vulnerability and resiliency gaps of supply chains everywhere. As a result of these lessons, many companies are working to strengthen their supply chains through improved supply chain planning and risk mitigation strategies, and by making greater use of advanced technologies.

According to the 3PLs and shippers surveyed in mid-2021 for the 2022 26th Annual Third-Party Logistics (3PL) Study, the top supply chain areas that 3PLs plan to improve on are domestic transportation and logistics, followed by data analysis and visibility, capacity forecasting, labor management and scheduling, and demand forecasting.  

On the other hand, the leading areas for supply chain improvement by shippers differed slightly from 3PLs. In the same survey, nearly one-half of shippers cited improving international transportation and logistics as a top priority, followed by risk management, demand forecasting, domestic transportation and logistics, and capacity forecasting.² 

Fixing current challenges: putting your money where it matters

In the 26th Annual 3PL study, 3PLs said they are currently working on—based on approved projects and budgets—data analysis and visibility, managing labor and scheduling, domestic transportation and logistics, and warehouse distribution and operations. 

Likewise, shippers said they are working toward improving demand forecasting, capacity forecasting, international transportation and logistics, supply chain network design or redesign, and data analysis and visibility.

As a means to achieve supply chain improvements, a few leading investment areas cited by 3PLs and shippers over the next three years involve technologies such as robotics, intelligent data analytics, and advanced material handling equipment such as autonomous forklifts and wearables.³ 

In the 16th Annual Perspectives report, most shippers did not call out issues around technology as a chief concern—only 22% said technology strategy and implementation was a challenge—though 32% of shippers cited supply chain visibility as a top challenge. In the same report, only 10% of 3PLs named technology investment as a key challenge, which isn’t surprising considering that 3PLs regularly invest in technology to stay competitive.

In the Perspectives report, 44% of shippers cited ecommerce as an important challenge in 2021, an increase from 37% in 2020. Managing inventory was also cited by nearly 40% of shippers as challenging in 2021, versus under one-third in 2020.⁴

Tech-forward retail and ecommerce

Acknowledging the challenge of ecommerce, those shippers that operate within the retail sector appear to take a strong stance toward technology and automation. According to the Shopify eCommerce Market Credibility Study, a commissioned survey conducted by Forrester Consulting on behalf of Shopify in 2021, 38% of merchants said they plan to integrate technology to help their company anticipate disruptions and demand, while 33% plan to digitize legacy manual processes within the supply chain.⁵  

For many merchants on the Shopify ecommerce platform, actions to digitize supply chains are accelerating. Shopify reported that installs for warehouse management applications, as well as order and shipping applications, grew significantly in the first nine months of 2021.⁶

A textbook approach to addressing supply chain vulnerabilities

Efforts by shippers and 3PLs to improve their supply chains with planning and automation are all positive developments. The bad news? Research by McKinsey & Company found that supply chain disruptions are likely to continue to happen with increasing frequency and severity.⁷ 

A 2020 McKinsey & Company report on supply chain recovery suggests that enterprises can better prepare for disruptions by looking holistically at the supply chain to address the drivers of potential vulnerabilities with these considerations in mind: 

  • Planning and supplier network: The predictability of demand planning; exposure to tariffs and other trade disruptions; the complexity of supply networks. 
  • Transportation and logistics: The resiliency of the physical flow of goods and logistics networks.
  • Financial resiliency: The flexibility of financial resources to sustain increased costs and disruptions.
  • Product complexity: The availability of alternative or substitute suppliers; design flexibility; vulnerability to regulatory changes.

Organizational maturity: proactive in mitigating supply chain disruptions, not reactive

In the 2020 report, the consulting firm recommends using scenario analysis and financial modeling to size the impact of various shock scenarios and create mitigation strategies to prepare for the next disruption. A couple of examples of risk mitigation that could be identified to address gaps are establishing dual supply sources and relocating production. 

In sum, the pandemic has taught us that how companies manage their supply chains is a key success factor and addressing gaps and planning for disruptions is critically important.  

In our next blog on addressing the supply chain, we’ll take a closer look at the kinds of technologies companies are investing in to improve their operations.

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