The Slow Recovery of Supply Chains: How to Overcome the Current Disruption

The COVID-19 pandemic exposed the instability of global supply chains which resulted in crisis across industries. Supply chains everywhere are still facing pressures in changing consumer demand. Consumption patterns have shifted as well – leading to higher shipping volumes and freight costs.

Today, it is important that organizations understand the factors that get in the way of supply chain recovery. They can then take the right measures to ensure not only the survival but also the success of their business.

What Hinders Supply Chain Recovery?

Supply chain recovery is a fundamental aspect of supply chain resilience and disaster management. According to a study published in the engineering management review, supply chains usually take longer to overcome more demanding challenges such as pandemics. This makes identifying challenges vital so that organizations can plan and create apt and effective strategies to carry on with their business.

One such challenge has been longstanding bottlenecks in supply chains. They have not only raised costs but also shortages in labor. As of December 2021, theUS Bureau of Labor estimated that there were only 11 million job openings in the country. The drastic decrease in job openings has slowed down overall growth and contributed to inflation, which at one point, sat at a 29-year high.

Due to such high inflation, most companies are passing the costs along, damaging supply chains even more due to rising input costs. A survey of 52 items, including forest products, agricultural products, energy, metals, and more, has shown how this impact is far wider than commonly believed. The survey showed that the average input increase has been 95% when compared to pre-pandemic levels.

There’s Light at the End of the Tunnel

By most estimates, this disruption is likely to persist throughout 2022 at the very least, with 2023 touted as a more likely possibility by some business leaders. This situation may be somewhat normalized in the long run. To understand the state of change that global businesses are going through, it is important to consider real-life examples to see how global enterprises are reacting to the crisis.

For General Electric Co., issues in its supply chains were present across all its business units. However, its healthcare unit especially faced more problems than any other part of its business. As a result, GE drove up its expenses for transportation and raw materials which, in turn, affected its onshore wind business. This is why the company raised prices and tried to suppress costs while looking for new suppliers, sourcing alternative parts, and redesigning product configurations. Such a period of transition saw GE’s Q4 2021 revenue take a hit.

According to S&P Global, however, many non-financial corporations worldwide have found it easy to absorb or cancel out cost inflation. They have been able to do so via demand shifts and offsets, hedging, product mix adjustments, cost pass-throughs, positive operational gearing, and a low rate of pay growth. But they still expect profit margin pressure to rise in 2022.

The Answer

One study has recommended a framework for supply chain management and operations during the pandemic across six distinct perspectives— digitalization, preparedness, adaptation, recovery, causality, and sustainability.

In the middle of present uncertainty, such a wide outlook can help organizations recover from supply chain issues quickly and efficiently. Today, solutions need to account for evolving requirements of enterprises, concerning supply chain integrations and all-around visibility. Only then can a solution help them overcome this situation with ease.