This piece is one in a series on challenges CEOs believe will disrupt their businesses.
Consumers and businesses are acutely aware of the supply chain crisis as organizations wrestle with the worst shortages the economy has experienced in 50 years.1 Some companies are unable to obtain the materials they need, leading to empty warehouses and shelves, as well as lost revenue. Others are stuck with warehouses full of product after overestimating future demand and trying to get ahead of potential bottlenecks. Consumers are paying increasingly high prices for everything from groceries to car parts.
These bottlenecks aren’t missed on CEOs, 46% of whom believe supply chain issues will disrupt their businesses over the next year.2 Supply chain challenges are among many critical factors — including inflation and staffing shortages — that 51% of executives feel could hinder growth.3
Profitability is possible when supply chain disruptions occur, however. Companies must identify and fix specific vulnerabilities, build a diverse supply network, and ensure there are adequate resources to proactively respond to supply and demand dynamics.
Businesses need to change their approach.
Experts believe recent supply chain issues were bound to happen because they were already in motion before 2020. The global pandemic only hastened and exacerbated the breakdown of an already shaky supply chain model.
The current model isn’t flexible enough to handle economies that are essentially on-demand. It lacks the agility to respond to the rapid, pandemic-induced changes experienced over the last few years. Newer technologies are needed to rapidly collect and share data for timely decision-making, including inventories, availability of supplies, shipment tracking, etc.
Pressure is subsiding a bit. Supply chain executives are evaluating and changing sourcing and manufacturing strategies, along with adding locations to their networks.4 Still, if businesses fail to adapt, they will continue to struggle to satisfy customer needs.
Prolonged disruptions carry many risks.
Supply chain disruptions are much more than just annoying; they carry severe consequences. Business in affected sectors languishes, which can also dampen the overall economy. Limited supplies also drive prices higher for end customers. We’re seeing this now.
The longer the crisis persists, the more costly it becomes. Prolonged disruptions can cost businesses earnings losses of 30%-50% before interest, taxes, and depreciation.5 Companies that don't shore up their supply chain risk losing out to competitors when customers seek an alternative provider for the goods they need. Ultimately, this can result in long-term erosion of the customer base. There's also high potential for damage to brand reputation when businesses can’t deliver the products customers expect.
Supply chain resilience is the key.
Economic uncertainties, including a possible recession, are further hampering the supply chain. With high interest rates, and less cash available, spending and payments have slowed, which is bloating both inventories and accounts receivable.
With so many potential hazards, businesses must take steps to eliminate missteps and surprises. Supply chain resilience could be a key differentiator for companies that are able to deliver product that competitors can’t. But getting there requires a paradigm shift.
Develop a model with multiple scenarios.
Evaluate your product portfolio to identify bestsellers, next best products, and future launches. Next, assess current and projected demand, lead times, capacity, production costs, and potential profit, along with other operational and financial considerations. This will help prioritize production and inventory based on risk and value, so that you can appropriately allocate resources in short supply and ensure you’re meeting the needs of high-value customers.
Rethink the linear supply chain.
As we’ve seen in this model, if one link breaks in the chain, everything connected to it is thrown into disarray. However, when businesses are connected to multiple vendors and partners who are ideally located in various geographic locations, they better manage materials availability and distribution. Simply alternating suppliers can keep operations running more efficiently.
Realign your workforce.
Few industries haven’t been impacted by labor shortages, including logistics companies. As a result, some businesses are now adding supply chain management roles. These employees require specialized skills like project management, technology, and procurement, so be prepared to invest in tools and training. Supply chain professionals should also participate in discussions with Finance, as they’ll be able to provide insights on materials, production costs, and schedules that could affect profitability.
Carefully oversee liquidity.
When resources are scarce, liquid assets are critical. You might not be able to wait even a few days to secure funding for purchases needed right away. Effective cash flow management – from operations, investing or financing – ensures there is adequate liquidity to meet your organization’s financial requirements.
Invest in technology.
If your supply chain systems need a refresh, there’s perhaps no better time than now. In addition to supply chain software, you might also consider intelligent automation platforms that apply machine learning, artificial intelligence, forecasting technology, and advanced applied analytics to manage the process from end to end. You’ll be able to “right size” inventory levels, as well as identify vulnerabilities and opportunities. At a minimum, all supply chain documents and processes should be digitized.
Some say the crisis will end in 2023; others say 2024. No one is certain. Despite the ambiguity, CEOs and other business leaders can take steps to minimize risks and sustain your organization. Detailed analysis provides vital business information and advanced technologies will help to streamline operations. If you don’t already have these tools, there may be expenses associated with upgrading your capabilities. We can help. For more information, contact a Synovus Commercial Banker.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or service/es described here, and take no liability for your use of this information.
NewsCenter, “Expect Another Year of Supply Chain Issues,” June 27, 2022
Deloitte, “Summer 2022 Fortune/Deloitte CELO Survey,” June 2022
Gartner, “CEOs Turn a Sharp Eye to Workforce Issues and Sustainability in 2022-2023,” April 27, 2022
Gartner, “Gartner Survey Reveals 51% of Supply Chain Leaders Increased the Number of Network Locations in the Past Two Years,” August 3, 2022
McKinsey, “Supply Chains: To Build Resilience, Manage Proactively,” May 23, 2022
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