This new world of volatility, uncertainty, complexity and ambiguity that we are all operating in presents new challenges at every corner.
The past couple of years have really tested supply chain and logistics managers, whose jobs are complex enough without issues like pandemics, labor shortages, supply chain disruptions and geopolitical turmoil also interfering with their day-to-day activities. This new “VUCA” (volatility, uncertainty, complexity and ambiguity) world that we’re all operating in presents new challenges at every corner and is keeping all of us on our toes.
With a focus on manufacturers, a new survey from Deloitte highlights some of the key pain points that are keeping supply chain leaders up at night right now. Working with the Manufacturers Alliance, Deloitte surveyed about 200 manufacturing executives on their experiences over the past 18 months. Here’s what the two organizations learned:
- Supply chain disruptions won’t quit. Shipping delays, parts shortages, and transportation delays due to truck driver shortages and congested ports had the greatest impact on manufacturing companies in the past 12–18 months, according to survey respondents. Production and profits are the two key areas where this impact has been felt, and a majority of respondents report negative impact to profits of up to 13%.
- Most companies felt the pinch of rising transportation costs. The top operational concern among the executives that Deloitte surveyed was rising shipping costs. “Indeed, shipping costs rose by over 77% in August 2022 from January 2021 due to increased fuel costs, labor costs, and logistics challenges,” it says.
- Labor is getting more expensive. Companies are also worried about labor, where costs continue to rise. According to Deloitte, total compensation cost per hour worked rose by 6.2% to $42 in the manufacturing industry during the first quarter of this year.
- Manufacturers are struggling to meet demand and the continued shortage of critical parts.According to Deloitte, 31% of companies can’t fulfill ongoing contracts as a result of these shortages.
- Boosting local capacity is a real and important strategy for today’s manufacturers. Deloitte says that many US companies are increasing domestic sourcing. This is particularly true in the semiconductor industry, where ongoing supply chain and logistics challenges are pushing manufacturers to build more local capacity.
- Companies are turning to digital capabilities for greater supply chain agility and visibility. “Armed with real-time market intelligence and predictive technologies, manufacturing executives can better navigate current market volatility and pivot more quickly to their plan B,” Deloitte says. “Most executives surveyed are implementing digital technologies for enhanced risk mitigation, such as increased illumination of the supply chain.”
In sticking with the visibility theme, Deloitte also says that gaining supply chain visibility is one of the top use cases for ongoing digital initiatives, and that 78% of the companies it surveyed agreed that using digital solutions and/or monitoring tools would enhance visibility and transparency throughout the supply network.
“For most survey respondents, the lines of visibility start to blur beyond Tier 2+ of their supply network,” it says. “However, there is a strong correlation between visibility beyond Tier 2 and implementation of digital solutions—73% of respondents with visibility beyond Tier 2 reported they had already implemented digital solutions.”
When responding to the survey, one executive mentioned launching a control tower that enhanced visibility into suppliers while also integrating different parts of the supply chain, Deloitte says. Others are using Industry 4.0 tools such as AI and bots to integrate the supply network, as part of a larger digitization strategy for manufacturing.
“Several supply chain executives interviewed said that the early months of the pandemic helped them realize they needed to enhance their digital capabilities to weather the disruptions,” it adds, “and their spending on digital technology has continued to increase over the past three years.”