Introduction
Supply chains are the most important structures that safeguard every aspect of human life across the world. Every finished product that mankind produces is highly dependent on supply chains. From raw material sourcing and daily essentials to high-end luxury products, supply chains are the reason behind their global reach. Well-functioning supply chains provide highly critical components for healthcare, defence, and everyday necessities. Due to globalisation, these chains have been transformed into global entities and are dependent on several nations across the globe. With the highly diverse nature of raw materials and minerals that are spread across the globe, these supply chains are dependent on the global political climate as well.
As the diversity of the chain increases, the challenges to its functioning also increase exponentially. For the time being, we will look at a few global supply chain challenges that will haunt the industry for the time being.
12 modern challenges in the supply chain industry
1. Material scarcity
According to a recent survey, 89% of the respondents were experiencing raw material scarcity due to recent disruptions in the supply chain (Consultancy.uk). Raw materials, basic parts, minerals, and oils are essential for the production of any product. However, these raw materials can dry out quickly without any notice, causing raw material scarcity across the globe. Agriculture is one of the most important raw material providers for the manufacturing industry. Due to the rising temperature and its dire effects, raw material sourcing can be disrupted for a long time. Increasing floods, landslides, and wildfires have devoured produce and made mining more difficult. On the other hand, harsh weather and political conditions slow down the supply of these raw materials, making it harder for the logistics sector to handle. The travel restrictions of the pandemic, the unhealthy supply chain conditions in the warzones, and others are some examples of this.
2. Inflation and rising freight prices
Jack Prichett Unsplash
Another challenge that the supply chain is going to face for a long time is inflation. Economic crises are recurring and common, and so is inflation. Due to the heavy blow that the COVID era caused to the economy, inflation has grown to haunt several countries. During the Ukraine-Russia war and the subsequent inflation, Apple reduced its iPhone SE production rates by 20% ( Nikkei Asia). When we add losses due to climate change and geopolitical tensions to the clouds of war set on humanity, the economy needs a dire boost. In the supply chain, these conditions play a major role by increasing material prices and transport prices.
Global supply chains are dependent on several countries for several steps, and any extra cost increase in any part of the chain can increase freight charges. Increasing oil prices, tax laws, creating and maintaining warehouses, licensing and paperwork, and workforce shortages can all have additional increases in freight movement. Sadly, supply chain companies have little to no control over these matters, and it will haunt the industry for years to come.
3. Demand forecasting difficulties
Supply chains are created and function based on customer needs. However, modern consumer behaviour has become increasingly complex to forecast. The availability of several options after the MNC revolution, digitalization, e-commerce, and the gig economy has birthed new customer trends. While some of these are directly responsible for environmental pollution, unhealthy lifestyles, and causing long-lasting environmental effects on humanity, the market has become largely difficult to control, even for authoritarian governments, high-profit MNCs, and global political leaders alike.
Due to this, supply chains are left in the dark without knowing the customer base they can expect. Often, overproduction and underproduction result in a myriad of market conditions. One such extreme example of this is the shortage of liquid oxygen during the COVID-19 era ( Advisory). While no industry had ever thought of needing such a large amount of medical oxygen for humanity, a farsighted approach to COVID could have resulted in a lower number of deaths due to oxygen shortages. Global oxygen shortage put more than half a million COVID-19 patients at risk during the pandemic (WHO).
4. Port Congestion
David Vives Unsplash
Ports are the major hubs of logistics and supply chains. Even in the age of aviation, ships are the most economical and highly sought-after logistics method on the water. Intercontinental supply chains rely on ocean liners for their logistics operations, and ports are the gateways to these nations. Supply chain companies suffer heavy losses due to port congestion. It happens when a ship arrives at a port but is unable to load or unload its content because the port is already functioning at full capacity. It incurs additional losses in time, effort, and expenses. In the Felixstowe port in the UK, this delay is nearly 7 days while in the USA, it can be anywhere between 5-12 days ( GoComet). Upgradation of the ports is a crucial undertaking. Every nation must plan for the future. It is especially important in the era of climate change when the threat of rising sea levels is looming over many port cities.
5. Quick delivery - excellent customer service
E-Commerce is a primary reason why modern supply chains are transforming at a faster pace. Ecommerce behemoths like Amazon, Walmart, and Flipkart are directly responsible for the industry's innovative approaches to logistics and supply chain management. Faster delivery times, last-mile delivery, same-day delivery, cash on delivery, easy returns, and EMI options are some of their myriad contributions to the supply chain industry. Due to these, the modern customer base is actively looking for faster delivery times. Nobody wants to wait a month to get their hands on their product anymore. Even 7 days of delivery time is now considered slower in many countries.
However, it poses additional stress for supply chains that are not as large or as innovative as these e-commerce giants. If this is a test case for B2C businesses, B2B supply chains are also under several obstacles. Shortened expected delivery times have problems with time lost in customs, port confessions, and labour shortages, which are all answerable to the buyer. Only a few countries, like Singapore, are actively taking the initiative to curb the time lost in paperwork and give supply chain companies a boost through their online licensing platform, which is under development.
6. Data management due to digital transformation
E-commerce and digitalization have transformed the supply chain industry. However, it has created an additional challenge as well. Every move of freight creates large amounts of data across multiple checkpoints in the supply chain. Indeed, the modern business world operates based on total transparency. Customers are always checking the location of their parcel and the estimated delivery time. Even b2b products are not immune to this constant need for transparent freight movement. As a result, a myriad of technologies like GPS trading, weather forecasting, and AI-type optimization are implemented. All these technologies create data. For a supply chain company, the amount of data that needs to be dealt with on an everyday basis is massive.
With each successive scaling up of business, the amount of data that needs to be managed increases exponentially. Data management has thus become a major challenge for supply chain companies. What's more, the dark side of the internet, which thrives on the vulnerabilities of these systems, is a growing concern. Hacking, viruses, and ransomware are making this data management challenge harder than ever. Increasing a safe, fast, and reliable data management system is still a dream for many supply chain companies.
7. Risk management
Managing risk is largely neglected in several businesses. However, PR risk management can have dire effects on supply chain companies. As the system thrives on customer trust, the shelf life of some perishable products, warehouse capacity, and management, there is always the risk of unnecessary delays. Poor weather, political crises, natural disasters, man-made obstacles like pot congestion, and labour shortages can all have negative effects on businesses. In 2017 alone nearly 360 billion dollars was lost due to hurricanes in the USA and Puerto Rico ( McKinsey). What's more, supply chain companies are at the risk of losing customer trust in these cases, though it is not their fault.
Proper risk management, on the other hand, identifies these risks ahead of time and tries to avoid and minimise them. At the very least, it makes the supply chain companies meet the risks without the element of surprise, which can result in panicked decisions. Increasing proper risk management is not only necessary but also gives businesses an advantage over their competitors who are poor risk takers.
8. Accountability and compliance
Zeyn Afuang Unsplash
Global supply chain companies face a major challenge in identifying and eradicating unethical practices in their workforce. Social evils like child labour, modern slavery, forced labour, and exploitation of women and children with little pay and no perks are some of the challenges every company must address and fight against. Even today, over 152 million children are in child labour across the world in the supply chain industry ( ILO). Constantly monitoring the supply chain system for these crimes can help companies. Such labour, while cheap and to a company's profit, does irreparable damage to the well-being of the labourers. The risk of reputational damage and lawsuits can also cause further unnecessary hurdles for the company.
9. Defects and quality control
Even with highly sophisticated supply chain elements, companies sometimes cannot maintain the quality of the freight in transit. Perishable products like flowers, medicines, lab products, and food are likely to lose quality with time and changes in environmental conditions. Breakable products also risk being broken or damaged due to mishandling of the freight. Companies must consider these risks beforehand and take measures to maintain the quality of their supply chain. In cases of quality, losses are defects. Companies must know the acceptable defect levels in that particular country. Insuring can also help the product with valuables like rare metals and ornaments. Having a backup strategy in case the product does not meet the expected quality must also be well researched and planned.
10. Linguistic barriers
English is on its way to becoming the global language. However, it is still far from reaching that stage. Countries like China contain a large population that does not speak English at all ( Wikipedia). There are still major manufacturing hubs, countries with cheap labour, and countries with abundant natural resources that do not speak English as a primary language. Supply chain companies that need access to these resources have a challenge in adapting to the local languages. Though the task can be fine through an interpreter or a native local area manager, it still causes discomfort during the business take and hinders faster decision-making. Moreover, logistics employees who are not well versed in English pose significant challenges in adapting to the company and its technology.
11. Challenges due to time zones and currency conversion rates.
A global supply chain company needs to be constantly informed of the fluctuations in foreign currencies. Even the smallest fluctuation can add up and become a major obstacle for operating in developing countries. Often, the countries with the lowest labour costs are also those with highly unstable economies and are subject to political instability. Supply chains operating in such countries face the challenge of fighting the exchange rate fluctuations. Keeping an eye on local politics, international laws, and foreign exchange can help a little. Even while using trusted banking partners, the banking fees can quickly add up and pose a new challenge in minimising operational costs.
Time zones can pose serious challenges for global supply chain companies. There can be no working hour overlap between two countries from opposite parts of the world. In such scenarios, one cannot rely on phone calls or chat. Emails can take hours to get a reply, which hinders the fast decision-making process. In such cases, a preplanned modus operandi helps, though it does not negate the consequences of a lack of immediate communication.
12.Lack of skilled workforce
A skilled workforce is an absolute necessity for any company. The logistics and supply chain industries are facing severe labour shortages in key areas. It needs learners and a skilled workforce in ports, airports, warehouses, etc. After the pandemic, four million US workers have left the civilian workforce despite a 50% increase in job opening rates (McKinsey). The staff needs to be competent technologically, linguistically, and skillfully. Supply chain disruptions, such as the Suez canal blockage in 2021, require highly skilled, quick decision makers. Keeping up to date with the news and situations across the globe is an important trait for logistics and supply chain professionals. Such talents are short in supply. Even now, European countries are running short of blue-collar workers like the drivers who make up a majority of supply chain workers. However, thanks to the advancements in artificial intelligence, self-driving vehicles might be a solution to this problem.
Conclusion
The supply chain is a critical global element of humanity. Due to its complexity, it is facing challenges that are ever-growing despite great management and research. Increasing prices and a shortage of resources and labour are haunting the industry. International trade laws, port congestion, and cybercrime have become major threats in recent times. On the other hand, customer behaviour is undergoing a massive transformation in the digital age, and keeping customers happy has become a challenge with the advent of faster delivery methods. In many countries, language barriers are taking the best of logistics workers. Time zone changes and fluctuating currencies add up to the complexity of the chain. Finally, unethical labour is still the biggest challenge that needs immediate attention by companies. With experienced and educated management, supply chain companies can address these challenges and bring about change effectively.
If you are a logistics or supply chain professional who needs a Masters degree in your industry, SNATIKA is your best choice. Our prestigious Masters in Logistics and Supply Chain Management is completely online, self-paced, and just 9–12 months long. If you need a quick academic upgrade at a reasonable amount of time, effort, and cost, visit SNATIKA right now!