The supply chain crisis keeps escalating. What began as cleaning supply and home office technology shortages have since expanded into delays and scarcity for everything from appliances to automobiles.
More companies are revealing that these shortages are prompted by disruptions in their Tier 1 or downstream supply chains. And it’s not likely to get better anytime soon due to systemic risk. According to Forrester Senior Analyst Alla Valente: “Supply chain isn’t a single process but rather a complex system of interconnected and interdependent relationships. As such, disruptive events resulting from systemic risks — droughts, bankruptcies, and cyberattacks included — can trigger a domino effect up and down the supply chain, even causing adjacent industry failures. Systemic risks don’t take turns; they often trigger one another and can materialize all at once. To ‘fix the problem,’ businesses must understand the top systemic risks shaping global supply networks.”
Below outline several examples of systemic risk events currently shaping global supply chains, as detailed by Forrester analysts:
1) Firms having to wait for coveted semiconductor chips – Vice President and Research Director Glenn O’Donnell
“Semiconductor chips have become the basic ingredient in a wide variety of products. They include automobiles, a market the media has been highlighting as the ‘poster child’ for the chip shortage. The impact extends far beyond autos — home appliances, consumer electronics, medical devices, farm equipment, and even toys are all affected. It is hitting corporate IT hard, as data center equipment, cloud services, PC, and even Apple struggle to get these essential parts. Demand for ‘smart’ products has skyrocketed, but the supply is stuck at a hard limit. This supply is exacerbated by chipmakers’ own supply constraints — if you can’t get aluminum, you can’t make chips; if you can’t get sand (raw silicon), you can’t make chips. Chipmakers are increasing capacity substantially, but they just kicked off this supply repair process, which takes a minimum of two years. An ample supply of chips will not come until well into 2023, perpetuating the electronic supply chain for another two years or so.”
2) Automated software programs (bots) exploiting the supply/demand imbalance – Principal Analyst Sandy Carielli
“As supply chain disruptions continue, be prepared for bot operators to take advantage of any shortages. Online retailers already contend with bots snagging up popular, hard-to-find products like gaming consoles and limited-edition sneakers, frustrating legitimate customers who can’t buy the products that they want and end up paying a premium on resale sites. In the spring of 2020, it was toilet paper and hand sanitizer. Last holiday season, it was the PS5. This year, anything that doesn’t make it onto shelves could be a beacon for the bots, which means that people already paying higher prices for food and gas may be forced to pay markups for hard-to-find hot gifts or everyday essentials. The good news is that retailers can mitigate this risk to their customers with effective bot management tooling: as you anticipate upcoming shortages, expect bot activity to expand. ECommerce, marketing, supply chain, and security teams must collaborate closely to understand what inventory may be at risk and implement appropriate bot protections.”
3) Employee experience (EX) gaps fueling labor shortages – Vice President and Principal Analyst J.P. Gownder
“The Great Resignation and retirement-related talent gaps are creating chokepoints in the supply chain, as with the shortage of truck drivers. Employee power plays a role, too, as frontline workers demand higher wages and put the kibosh on increased automation at ports, as longshore unions did in Los Angeles. Overseas labor continues to reel from COVID-19, as in Vietnam, where lockdowns have hurt production. Solving these labor problems won’t be easy, in part because it’s a complex chain of many types of labor in diverse locales. But using the downpour of employee data that’s now commonly available can allow you to start predicting shortages and creating more adaptive strategies for how to deploy labor. And improving EX can increase retention for key talent, boost better recruitment rates, and drive higher rates of productivity.”
4) Global containers (still) recovering from chaos in the Suez Canal – Vice President and Principal Analyst George Lawrie
“Issues are not just on the supermarket shelves; the shipping industry claims that the real supply chain challenge is that containers cross the Pacific to North America full and then either return empty or wait (too long) for return consignments. This mismatch of import, export, and expenses creates a worldwide ‘container imbalance.’ Since the pandemic, changes in consumption and shopping patterns, including a surge in eCommerce, have already increased import demand for container shipments of consumer goods to North America and Europe. In addition, new markets for Asian manufactured goods require more ships for a weekly service, which in turn means yet more containers on the high seas. Compounding the problem, the global container circulation had still not recovered from the recent Suez Canal blockage. Ports also blamed the container shortage on delays in returning containers, ‘ship bunching,’ and slow turnaround of vessels and containers from the US and Europe.”
5) Manufacturing hiccups triggering global concern – Principal Analyst Paul Miller
“A quick glance at the news headlines might give the impression that the manufacturing sector — and its supply chain — is totally broken. And yet, the system keeps working. The challenges facing manufacturers are individually serious and collectively painful, and they must be addressed, but we see plenty of manufacturers doing an excellent job of responding in ways that minimize the short-term impact while positioning themselves to emerge strongly as the situation stabilizes:
- “In the short-term manufacturers reduce variation and complexity in their products, direct the most supply-constrained components into the highest-margin finished goods, or adjust marketing (and pricing) to nudge customers towards existing stock.
- “Longer-term, existing work to augment the human workforce with software and hardware automation continues. So, too, does investment in moving manufacturing capacity closer to the customer. But neither of these will be quick. New chip fabs are coming in Europe, North America, and elsewhere, but they’re unlikely to reach high-volume production for several years. Specific tasks (such as stock movement within a defined space) can often be automated with relative ease, but broader automation requires a total reimagining of entire workflows, retooling of factories, reskilling and upskilling of the workforce, and careful consideration of the human, organizational, and business implications of the change. Do it too quickly and you may solve one problem but create many more.”
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