The COVID-19 pandemic has shown many companies that the just-in-time supply chain simply wasn’t strong enough to handle a major shock.
Businesses are now planning and pulling multiple levers to make their supply chains far more resilient and reliable. For some, this means physical changes to their supply chain footprints, such as increasing inventory of critical products, dual sourcing of raw materials and localizing or regionalizing supply and production networks.
Government also plays a role in reshaping supply chains by facilitating trade, providing tax incentives and legislating favorable policy to spur innovation investing in infrastructure. For example, the federal CHIPS and Science Act of 2022 directs financial assistance for the construction and expansion of semiconductor manufacturing facilities and other programs to bring technology supply chains closer to home. And the Inflation Reduction Act is already having its impacts by bringing positive funding to multiple layers of supply chain while also leading the United States to a lower carbon future.
Customers now judge supply chain performance not only on efficiency, but also on the ability to predict and mitigate risk. Planning for extreme, unexpected events has become an essential new requirement of supply chain management.
The pandemic wasn’t the death knell for just-in-time supply chains, but they must evolve. In reimagining their supply chains, businesses should focus on three themes: reliability, agility and infrastructure.
Embrace reliability
People inherently value reliability. Businesses that do what they say and meet deadlines tend to be successful. But in today’s uncertain environment, reliability is even more important to daily success. To demonstrate reliability, companies have taken several actions and most revolve around capacity: manufacturing capacity, transportation capacity and labor capacity. During the pandemic, the world ran short of all three, and scarcity has caused the prices of many things to go higher.
An emerging response to broken supply chains is to bring workforces and manufacturing back to America. U.S. companies, including joint ventures with foreign companies are on pace to “reshore” nearly 350,000 jobs this year, according to a report published by the Reshoring Initiative. That would be the highest number on record since the organization began tracking the data in 2010.
In particular, investment in electric batteries and semiconductors is booming as manufacturers look to reduce their dependence on Asian imports and see the benefits of producing in the market, especially when the home market is the United States.
The rapid economic recovery from the pandemic-induced downturn has been a shot in the arm for the labor market. By August, the economy regained all the jobs that had been lost since April 2020. Still, labor markets remain tight, which has contributed to higher wages. The Atlanta Federal Reserve Wage Growth Tracker shows pay increasing at a 6.7% year-over-year rate in August, the same pace as in July.
Wage growth for truck drivers is outpacing the overall market. The average truckload driver saw a wage increase of nearly 11% last year, according to the American Trucking Associations. Fleets needed to raise compensation to recruit and retain drivers because whoever has transportation capacity right now is winning.
Foster agility
With new pressure points testing supply chains every day, it’s no longer enough for companies to rely on past behavior, uneducated hunches or even stated intent when they’re trying to figure out what their suppliers and customers want.
The pandemic rewarded companies that were nimble and able to react to unforeseen changes across the network, from sourcing issues to demand spikes.
An agile supply chain is enabled by digital technologies to improve line of sight from source to destination. The advancement of blockchain, artificial intelligence (AI) and the Internet of Things helps businesses see through the fog of uncertainty. With end-to-end visibility, companies can work with suppliers and customers to root out inefficiency and drive value.
Companies are accelerating their digital journeys, as customers increasingly demand shorter lead times, personalization and more sustainable practices. The onus is on supply chains to deliver on these customer expectations.
In this complex environment, it’s essential to prioritize partners that will help you meet fluctuating demands, expand your reach, spark innovation and respond nimbly to inevitable challenges.
Target infrastructure
Government also is a critical stakeholder to fostering resilience in global supply chains. We’ve already seen the U.S. federal government approve some measures to address the supply chain crisis.
Amid the global semiconductor shortage, the CHIPS and Science Act contains $52 billion in subsidies and tax credits for any global chip manufacturers that chooses to set up new or expand existing operations in the United States, along with more than $200 billion toward advanced research in areas like AI, robotics and quantum computing. Experts are calling the legislation the most significant investment in industrial policy in years.
Earlier this year, in response to inflation in international shipping and congestion at ports, President Biden signed into law the Ocean Shipping Reform Act. The law empowers the Federal Maritime Commission (FMC) to guard business against skyrocketing shipping costs and unfair practices.
However, the FMC does not have control over inland infrastructure—the warehouses, waterways, rails and trucking where problems and delays remain a persistent issue. In a survey by the American Chemistry Council (ACC), for example, almost all companies (97%) had to modify or curtail operations because of logistics problems.
To help address growing freight rail problems, the ACC, as a member of the Rail Customer Coalition, is urging policymakers and regulators to adopt long overdue reforms. One proposal allows shippers to request that their freight move to another major railroad if another rail line is easily accessible, a concept known as reciprocal switching.
Ongoing supply chain and freight transportation disruptions have stressed just-in-time supply chain models, impacting business and consumers. While companies and countries alike have taken several steps to shore up their supply chains over the past two years, more can and should be done to better address risk and uncertainty.
