Global shortages are popping up across global supply landscapes as the pandemic still impacts supply and demand, shipping capacity and other levers of the global economy. Companies should use this moment as an opportunity to diversify their supply chains with future resilience and competitiveness in mind.
Amid an unprecedented series of supply chain shocks to the global economy – including COVID-19, Brexit, the Suez Canal debacle, semiconductor shortages and more – a new international survey, the Interos Annual Global Supply Chain Report, reveals that global supply chain disruptions cost large companies, on average, $184 million a year. Nearly all (94 per cent) of the 900 senior IT, IT security and procurement decision-makers from companies across the US and EU reported some negative impact to revenue resulting from supply chain disruption, which they attributed to a variety of supply chain risks including cyber breaches, financial risks, and ESG (environment, social, governance) transparency issues.
“Our survey results underscore the growing importance of supply chain operational resilience in the globally interconnected world that we all live and operate in,” said Jennifer Bisceglie, CEO of Interos. “We can no longer cleanly separate digital and physical supply chains, which is driving a need for greater transparency into hidden supply chain risks, relationships and reliances.”
Study: COVID-19 was the game changer
The “Logistics 2021 Market Study”, conducted by the GEMIT Institute of the Niederrhein University of Applied Sciences in cooperation with the Simon Hegele Group of Companies from Karlsruhe, examined how factors such as the COVID-19 pandemic and Brexit, international punitive tariffs and trade barriers, as well as the new Supply Chain Act and industry-specific trends have led to disruptions in the supply chains of companies since the beginning of last year. According to the report, more than 60 per cent of respondents report being negatively affected by aforementioned disruptions; the COVID-19 pandemic in particular was the supply chain “game changer” for 36 per cent.
“The effects will be observed for years to come. At the same time, the results are positive that such disruptions have made supply chain experts rethink, promising a sustainable positive development in terms of resilience and robustness.”
Prof. Dr.-Ing. habil. Holger Beckmann, Head of the GEMIT Institute.
A substantial number of manufacturers around the world continue to have trouble securing supplies of semiconductors, delaying the production and delivery of goods and threatening to raise the prices paid by consumers. Several factors are driving the crunch, which was initially concentrated in the auto industry: Car makers and high end tech cut back orders for chips while at the same time there was a huge surge in demand for consumer electronics. So chip manufacturers saw the change in demand from consumers and shifted their output to serve that demand. But when car sales rebounded in late 2020, and the automotive industry started placing new orders, companies couldn’t source enough chips to meet the demand.
For cost-reduction purposes, over the past decade or more, the production of semiconductors and microelectronics has moved offshore, and supply chains have become more global. In 1990, 37 per cent of chips were made in American factories. By 2020 that number had declined to just 12 per cent with manufacturing now concentrated in Taiwan, South Korea and China.
“The global chip shortage will continue to worsen for the time being”, according to Intel CEO Pat Gelsinger, “with the industry forecast to endure a worsening situation throughout the second half of 2021, before there’s any real hope of recovery.”
- Food & Beverages in Fast-Food chains
Food transport has at times turned into a logistics nightmare during the past months. Supermarkets in particular score high on sales figures, but are undersupplied. Because of sourcing problems, products based on a wide range of ingredients are becoming increasingly difficult to make and are therefore disappearing from some store shelves.
At least nine fast-food chains and restaurant companies surveyed by Reuters said some of their locations have been grappling with changing lists of brief shortages of key ingredients and products, as supply bottlenecks plague eateries. The list of hard-to-find items has included summertime staples such as wieners and chicken wings, and non-food items like plastic packing material and paper bags.
A Wendy’s franchisee in the southern United States said he received only half of the lettuce he ordered, while a Subway location in New York City was missing roast beef, rotisserie chicken, ketchup and spicy mustard. Some locations of KFC have occasionally run out of paper bags, one franchisee source said. A Starbucks in Poughkeepsie, New York, said it had been short of many different items for months, most recently iced green tea, cinnamon dolce syrup and spinach, feta and egg white wraps.
- Hotels and restaurants
Entire industries that shrank dramatically during the pandemic, such as the hotel and restaurant sectors, are now trying to reopen. Many of these do not have enough of their products in inventory to avoid running out of stock. The situation has been especially difficult for businesses with complex supply chains, as their production is vulnerable to disruption due to shortages of inputs from other businesses. When the pandemic hit, businesses were stuck with billions of dollars in unsold goods, causing inventory-to-sales ratios to surge briefly before businesses liquidated these inventories. But, as the economy recovered and demand increased, businesses have not yet been able to bring inventories fully back to pre-pandemic levels, causing inventory-to-sales ratios to fall.
- Lumber for Homebuilders
A record share of homebuilders reported shortages of key materials such as framing lumber, wallboard, and roofing. Homebuilders appear to be responding to these shortages in part by delaying new construction, as housing starts have been volatile for several months. Facing a shortage of lumber, homebuilders briefly sent prices to $1,711 per thousand board-feet last month, an amount that implies a typical 2,000-square-foot house would require more than $27,000 in framing lumber alone, relative to a lumber bill of about $7,000 before the pandemic. Lumber prices have now rapidly come back down, falling 38 percent from their record high, in an early sign that some shortages may be short-lived.
- Metals/ Rare Earth
The demand for copper, lithium, nickel, cobalt and rare earth elements is soaring. But these are all vulnerable to price volatility and shortages, the International Energy Agency warned in a report, because their supply chains are opaque, the quality of available deposits is declining and mining companies face stricter environmental and social standards. Limited access to known mineral deposits is another risk factor. Three countries together control more than 75 per cent of the global output of lithium, cobalt and rare earth elements: The Democratic Republic of Congo was responsible for 70 per cent of cobalt production in 2019, and China produced 60 per cent of rare earth elements while refining 50 to 70 per cent of lithium and cobalt, and nearly 90 per cent of rare earth elements. In the past, mining companies have responded to higher demand by increasing their investment in new projects. But it takes on average 16 years from the discovery of a deposit for a mine to start production, according to the IEA.
According to the New York Times, Van Horn, Metz & Co., an American producer of chemical ingredients, buys chemicals from suppliers around the world and sells them to factories that make paint, ink and other industrial products. In normal times, the company is behind in fulfilling perhaps 1 percent of its customers’ orders. On a recent morning, it could not complete a tenth of its orders because it was waiting for supplies to arrive. The company could not secure enough of a specialized resin that it sells to manufacturers that make construction materials. The American supplier of the resin was itself lacking one element that it purchases from a petrochemical plant in China. One of their regular customers, a paint manufacturer, was holding off on ordering chemicals because it could not locate enough of the metal cans it uses to ship its finished product.
Streamline: The AI-driven digital scouting platform for building supply chain resilience
Such disruptive incidents that many companies are struggling with today were the very reason why scoutbee was invented: When a deadly tsunami hit Japan in 2011, 50 per cent of Gregor Stühler’s supply chain vanished. To find new suitable suppliers quickly, Gregor (the subsequent founder and CEO of scoutbee) began to explore the most powerful ways to pull together verified information about suppliers from across the globe and make this available in a single profile. Thus, scoutbee was born.
scoutbee matches businesses with their optimal suppliers, by greatly transforming supplier landscape visibility and providing a structured approach to scout-to-source procurement work. Powered by AI and continuously curated data, scoutbee tracks millions of data points to form supplier information with deep insights and a simple, digital process for strategic sourcing.
In a volatile supply environment, companies need greater optionality in their supply chains and the flexibility to diversify and respond as challenges emerge. Whether it be for innovation, sustainability, cost reduction or risk mitigation purposes, the use of technology like scoutbee’s Streamline allows procurement teams to not only stay ahead of their competitors, but to take strategic sourcing to a whole new level!
Explore our product tour and see how Streamline can transform your supplier discovery and insights, here.
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