In May 2021, the Centers for Disease Control and Prevention (CDC) surprised the U.S. by announcing that masks were no longer required for people who are fully vaccinated against Covid-19. It was phenomenal news for those who endured 14 months of Covid-19 restrictions. It also created a massive disruption in the world’s supply chain as businesses suddenly reopened to full capacity with little warning.
With the abrupt policy change, restaurants reopened to increased capacities, consumers returned to retail stores, construction continued to flourish, and travel and hospitality gained much needed traction. These are all fantastic changes in consumer behavior and much needed for the economy, however, businesses struggled with labor shortages, access to supplies and significant freight and logistics challenges.
Several challenges include well-known shortages in electronic chips for automobiles causing increased delays for an industry already reeling from the pandemic; lack of access to containers causing companies to air freight items at significantly higher costs to have sufficient supply; and containers being sold off in auction-like settings at anywhere from five-to-10 times their historical costs. All of these challenges are short term, but will cause significant complexities over the summer months as companies forecast a return from Covid-19.
The aforementioned economic factors are creating drastic upward price pressures on almost every industry with companies continually asking the question, “Can I pass these increased costs to my customer?”
Ultimately, we are in an environment where the laws of supply and demand hold true. For certain products, customer preferences have shifted so strongly to product availability and timing, that pricing pressure has been a secondary focus. It is seen in the construction industry where product costs have increased so greatly coupled with an extremely strong demand in the housing market, that costs have spiked beyond manageable pricing as supply is extremely limited.
What manufacturing and distribution companies are focused on
All of these changes have caused companies to think about how disruption to the global supply chain has impacted their sourcing of products. In Citrin Cooperman’s 2021 Manufacturing and Distribution Pulse Survey, the topic of fluctuating supply chains were identified as an area of focus for manufacturing and distribution companies.
The survey notes that manufacturing and distribution companies’ major focuses related to supply chain were diversification of suppliers, outsourcing manufacturing processes, and reshoring to the U.S. Some of these initiatives will be influenced by economic incentives, such as the U.S. Innovation and Competition Act that was passed by the Senate on June 8, 2021. Although not yet law, it continues to show that the U.S. is pushing for more “made in America” products as it competes with global competition. Ultimately, what the pandemic has taught us, is that supply chains are extremely vital to the health of a business and having more control over product inputs will help maintain future financial success.
When it comes to improving your supply chain process, manufacturing and distribution companies should consider the following:
- Assessment and strategy: Covid-19 was the ultimate stress test for your supply chain. Use that information to make changes to allow for more control in the event of future issues and supply chain disruptions.
- Procedures and crisis management: Outline future procedures for major events or disruptions in the supply chain. Examples could be future global events, such as a natural disaster or vendors impacted by cyberattacks.
- IT and automation: Update your IT tools to enable better forecasting and prepare for supply chain disruptions. Conduct ongoing review of systems and cybersecurity.
When ensuring that your supply chain processes can withstand future unforeseen disruptions, you are encouraged to contact your network of professionals and trusted business advisors to evaluate the best path forward.