Efficio’s Six Major Supply Chain Trends and Challenges
Disruption is, needless to say, the new normal when it comes to global supply chains.
This stark reality means organisations must strive for maximum resilience and efficiency to ensure their operations continue running smoothly.
However, as Efficio points out, maintaining focus on the right areas can be problematic. In a bid to keep leaders and other decision makers informed, the dedicated procurement and supply chain consultancy has identified six major trends and challenges shaping the supply chain landscape in 2024.
Geopolitical tension in the Red Sea
Attacks by Houthi militants on merchant vessels have put a halt to transits by a host of major container shipping companies through critical waterways in this region.
To avoid being hit, many have been forced to detour around the Cape of Good Hope, close to the southern tip of Africa – adding approximately 9,000 nautical miles to the distance sailed.
“This disruption has not only impacted trade volumes but also increased air freight rates as an alternative,” explains Ashray Lavsi, Principal at Efficio.
“Efficio advises businesses to develop resilient contingency plans, consider alternative routes and buffer stock levels to mitigate such risks effectively.”
Mounting pressures on sea freight and truck transport
Beyond the Red Sea, pressures on sea freight and truck transport are mounting globally.
The overflow of traffic from disrupted routes like the Suez Canal has congested Mediterranean ports, with Barcelona recording a 17% rise year-on-year in containers handled in February 2024.
Meanwhile, the trucking industry faces numerous challenges including driver shortages, especially in the US, where the American Trucking Association (ATA) estimated a deficit of more than 60,000 drivers as of 2023. What’s more, tightening regulations requiring the adoption of electric and hydrogen fleets means delivery companies are having to revamp their fleets and substitute standard trucks with EVs to stay compliant.
Ashray adds: “We recommend enhancing transport network transparency and diversifying logistics partners to manage capacity fluctuations and volatility effectively.”
Shifting risks and opportunities: Offshoring versus reshoring and nearshoring
The 20th century saw a rise in offshoring, with companies capitalising on lower production costs and expanded market access.
However, a notable shift is occurring in global manufacturing strategies, with companies reassessing the risks associated with offshore operations and reconsidering in favour of reshoring and nearshoring.
This is especially prevalent in Europe, which, according to Cushman & Wakefield, saw a 29% increase in the acquisition or leasing of industrial space in 2022 compared to 2021.
“This trend, driven by geopolitical uncertainties and rising labour costs, aims to enhance supply chain resilience and reduce dependency on distant suppliers,” Ashray continues.
“Efficio advises assessing risk exposure across the supply chain (tier mapping) and strategically reshoring elements where feasible to mitigate disruption impacts.”
Inventory management: Balancing efficiency with safety
Efficio points out that, prior to the COVID-19 pandemic, just-in-time (JIT) inventory management was seen as a cornerstone of efficient supply chain practices due to its ability to help minimise working capital, enhance flexibility and optimise cash flow.
However, the pandemic revealed its vulnerabilities, with a reliance on minimal buffer stock levels leading to widespread supply chain disruptions.
Now, companies have a dilemma on their hands amid the convergence of high interest rates and escalating supply risks. As they grapple with replenishing inventories amid disruptions, the need to open up operating cash flow is drawing them back into a JIT approach.
Ashray says: “We suggest adopting dynamic inventory segmentation and predictive replenishment strategies to strike a balance between efficiency and risk mitigation.”
Global shortages across labour, raw materials and shipping equipment
The pandemic combined with political tensions and extreme weather events have significantly reduced material and labour availability across various industries’ supply chains.
Labour shortages have been exacerbated by demographic shifts, including ageing populations, changes in immigration policies and workforce preferences.
In fact, S&P Global forecasts that, by 2050, developing nations may lose approximately 92 million working-age individuals and gain more than 100 million elderly people.
Climate change has led to raw material shortages, particularly affecting agriculture due to
severe weather conditions like flooding and droughts. The concentration of food production in a few countries has heightened global food supply chain vulnerabilities.
“Efficio advises prioritising supply continuity through comprehensive risk assessments and exploring diversification strategies to reduce vulnerability to these shortages,” Ashray goes on.
ESG: Taking on Scope 3 emissions
While progress is being made towards reducing direct emissions (Scope 1) and indirect emissions from purchased energy (Scope 2), accounting for emissions from upstream and downstream activities in an organisation’s value chain (Scope 3) demands attention.
However, complexities in supply chain visibility, data collection, regulatory compliance and stakeholder engagement present formidable challenges.
Ashray concludes: “Efficio recommends integrating sustainability metrics into procurement processes and fostering collaboration across the supply chain to achieve meaningful emissions reductions.
“Navigating these supply chain challenges requires a proactive approach that integrates resilience, agility and sustainability into core operational strategies. By embracing these recommendations, organisations can enhance their ability to thrive in a volatile and interconnected global marketplace.”
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