Supply chain issues not over yet

SAP SE has released a new survey that finds senior business decision-makers expect the unprecedented supply chain issues and disruptions that U.S. companies have been grappling with for years are not over yet.

More than half (52%) of those surveyed think their supply chain still needs much improvement and nearly half (49%) expect current supply chain issues to last through the end of 2022. One in three says the issues will last until the end of summer 2023.

Findings are based on a survey conducted in late August and early September 2022 of 400 U.S.-based senior decision-makers in logistics and supply chain strategy across small, medium and large businesses.Here’s what they had to say.

The impact of global unrest

Global political unrest is the main factor causing current supply chain issues. Business leaders say their current supply chain issues primarily stem from global political unrest (58%), lack of raw materials (44%) and rising fuel and energy costs (40%). Only 31% cited inflation as a major contributor.

Looking ahead, the top three supply chain disruptions business leaders expect in 2023 are:

•Reduced availability of raw materials in the United States (50%)

•A slowdown in construction of new homes (44%)

•Disruption to public transport due to lack of drivers (44%)

Cost remains an issue

Cost remains an issue as companies catch up on lost revenue from the pandemic. Companies weren’t prepared for the drastic changes in consumer buying behaviors during the pandemic and felt the financial strain as a result. About half of business leaders saw some financial impact from supply chain issues since the start of the pandemic, including:

•A decrease in revenue (58%)

•Necessity to take new financing measures, such as business loans (54%)

•Inability to pay employees (50%)

•Missed rental payments (42%)

In order to cover the extra costs of supply chain issues, more business leaders say they’ve had to turn to wage or recruitment freezes (61%) and staff job cuts (50%). Only 41% have chosen to increase the price of their products or services.

A different holiday season

The 2021 holiday shopping season was anything but normal as supply chains were stretched beyond their limits. Although many companies have started to prepare, there are still questions about how this year will pan out.

Let’s start with consumers. A separate study by SAP of 1,000 U.S.-based consumers found that nearly half (45%) say price is the top factor they weigh in purchasing decisions, and a whopping 73% say it’s a top three factor. With inflation hiking costs and a potential recession worrying consumers, it’s not surprising that 65% plan to decrease their holiday spending budget. Fifty four percent expect inflation to impact how they shop for holiday gifts, with 39% shopping online more.

Business leaders anticipate the online shopping trend, with 73% expecting an increase in e-commerce volume this season compared to last year. To sell their own products, business leaders plan to deliver on these differentiating points:

•Speed of delivery (64%)

•Excellence of customer service (57%)

•Availability of products (52%)

•Sustainability credentials (47%)

•Price reductions (42%)

•Made in the U.S. (38%)

Supply chains need improvement

Every organization said their supply chain needs improving to some extent, and they’re making big changes to prepare for future disruptions and to fortify their supply chains. Business leaders plan to:

•Adopt new technology to overcome challenges (74%)

•Implement new contingency measures (67%)

•Prioritize U.S.-based supply chain solutions (60%)

•Find new environmentally friendly supply chain solutions (58%)

Nearly two in three companies (64%) are moving from a just-in-time supply chain to a just-in-case supply chain by increasing the amount of inventory stored. In fact, 63% think the United States should adopt this approach to overcome potential supply chain crises this year.

“The move to just-in-case means organizations will be storing more inventory to help meet customer demand, but doing so also means increased cost,” said Scott Russell, member of the executive board of SAP SE, Customer Success.

“Managing the supply chain is a constant balancing act. Over the last couple of decades, the ‘just in time’ approach traded resiliency for efficiency and lower costs, which in turn made the supply chain fragile. The pandemic and the snowball effect of related disruptions exposed this fragility, which has organizations refocused on resiliency. Still, cost remains a factor, especially in the current economic environment. Technology can help organizations strike the right balance by enabling more real-time collaboration between trading partners,” added Russell.

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