The 5 Biggest Supply Chain Risks of 2022 (and Beyond)
The COVID-19 pandemic uncovered just how fragile the global supply chain is—how quickly unexpected events can wreak havoc on this interdependent system we’ve built. In the face of this, companies worldwide have been forced to undertake comprehensive risk assessments and seriously reconsider their crisis response plans.
Two years in, as COVID restrictions have lifted, consumers have started spending more money again. As a result, demand has gone through the roof, catching many companies off guard after two years of material shortages and supply chain disruptions.
The drastic fluctuations of the past two years have made risk mitigation a huge priority for brands and manufacturers alike—in many cases, vying with profitability for top priority status.
To help you predict and mitigate your company’s risk in these uncertain times, we’ve compiled five of the biggest supply chain risks to keep an eye on throughout the rest of this year and into 2023.
Logistics
Reliable, predictably-priced, long-distance ocean freight has formed the foundation of global trade for years. This has allowed organizations worldwide to leverage the cost and scale advantages of Asian factories.
COVID-19 impacts to logistics resulted in increased freight rates, port congestion, and shipping delays. Climate-related events have had an impact as well, with extreme weather hitting important industrial regions (heatwaves in the U.S. and Canada and flooding in western Europe, for instance) and putting additional pressure on already-stretched ports and logistics networks.
Delays have hit many of the world’s biggest ports, as they operate well above their maximum sustainable capacity while simultaneously dealing with labor shortages.
And this problem won’t be over anytime soon: the global ocean cargo industry is expected to continue having issues with port congestion and delays through the end of this year at least.
Labor
Companies have asked much of their workers over the past two years, and the increased pressure has left its mark:
In the U.S., record numbers of employees have left their jobs in what’s being called the “Great Resignation”.
The job market is saturated with open positions—including critical logistics roles like truck drivers—and companies in many sectors are struggling to find staff to fill them.
Worldwide, workers are striking across industries, asking for better pay and working conditions.
In addition, inflation is driving the cost of living up, and wages will need to follow if companies hope to recruit and retain the workers they need.
Another labor-related issue that is likely to affect the supply chain is increasing legislation in the E.U. and U.S. surrounding holding companies accountable for human rights violations within their supply chains.
For example, beginning this month, businesses operating in the U.S. are prohibited from selling products manufactured in China’s Xinjiang region due to forced labor concerns. If you aren’t already, your organization needs to pay attention to the operating practices of each company in your supply chain, from raw materials sourcing to product delivery.
Sustainability
In their 2022 Annual Supply Chain Risk Report, Everstream Analytics lists water shortages as one of their top risks to watch for. By 2025, the U.N. predicts widespread water shortages, with two-thirds of the world’s population experiencing “water-stressed conditions”.
A reliable water supply is necessary for production and cooling equipment for everything from food processing to technology manufacturing. Low water levels can affect logistics as well: in 2019, extremely low water levels in the Panama Canal prevented the biggest container ships from passing through with full loads.
Expect to see water use restrictions in the coming years in regions where supplies are limited.
In addition, current efforts to address climate change include a focus on Scope 3 emissions generated by the global supply chain. This means that, in addition to monitoring their own carbon emissions, companies need to keep an eye on that of their suppliers as well. Plus, consumers are paying more attention to the carbon footprint of the products they buy, putting pressure on companies to assess and manage greenhouse gas emissions.
The International Maritime Organization's current goal is to cut greenhouse gas emissions in half by 2050, with new measures being put in place in 2023. Ships will be graded for energy efficiency on an A-E scale, and will have to demonstrate yearly improvements in their operational carbon use.
For some older ships, meeting these goals will mean making expensive retrofits or sailing at slower speeds. This is likely to result in higher shipping costs and potential delays.
Geopolitical Events
The war in Ukraine is inevitably affecting the supply chain. It has forced the diversion of shipping and air freight routes, curbed production in some regions, and spiked energy costs, focusing our attention on raw material supplies, including metals and agricultural commodities.
In addition, the ongoing trade war with China, combined with pandemic-related factors, has exposed weaknesses in our dependence on other countries and the need for regional alternatives to global sourcing.
One example of this: semiconductor chips. As the pandemic took hold, our reliance on these vital components and our overseas partners who manufacture them became painfully clear. As a result, legislation has been introduced to promote domestic investment in semiconductor manufacturing.
Localizing at least some production of the components we rely on the most will enable us to pivot more effectively in future crisis events.
Global Health
The ongoing pandemic has forced companies to reassess workplace safety and how to avoid long-term disruptions from disease outbreaks or other health-related events.
As much as we wish it were, the pandemic isn’t over yet, and some areas are still experiencing high risk for short-notice shutdowns due to COVID-19 outbreaks. And continued shutdowns in China due to the Chinese government’s zero-COVID strategy will continue to have an effect on supply chains as well.
As vaccination rates rise and infection risks recede, governments and companies will loosen pandemic-era restrictions accordingly, and many of the pandemic-driven disruptions to the supply chain will begin to ease. But if, as expected, the COVID-19 virus eventually becomes endemic, seasonal outbreaks will likely continue, and health and safety protocols will be put in place again during those seasons.
Meet Supply Chain Risks Head On With Help From Flywheel
To meet these supply chain challenges, your business and its chain of manufacturers and suppliers needs to be agile, resilient, and adaptable. And having a proactive (vs reactive) approach to supply chain risk management is crucial.
You need actionable insights and recommendations from an expert to help you predict and plan for future supply chain problems. Having partners on the ground in the countries where your production takes place will help you more nimbly respond to crisis events, lowering your risk and keeping your business running smoothly.
Refresh your supply chain by working with Flywheel Sourcing.
We’ll put our expertise to work for you, monitoring these events and more, and helping you find creative solutions to maximize your company’s success in the midst of supply chain challenges. Contact us to learn more.