The peak of supply chain challenges may have passed, according to industry commentators, but it isn’t yet plain sailing for businesses.
Cost inflation dropped in January while output and optimism were increasing, Trading Economics reported. However, general inflation has risen to over 5%. Volatile material prices also appeared to level off in the new year too.
But supplier lead times continued to be lengthy, as ongoing labour shortages and limited haulage slowed deliveries. And all industries are keeping a close eye on the impact of rising energy prices.
Now businesses are capitalising on the lessons learned from a testing 2021, with new, or renewed, focus on digital, planning and procurement.
These will be vital to weather new challenges.
Supply chain challenges
Throughout 2021, key materials were in short supply globally, causing fast-rising prices. Skilled labour continued to be scarce in the UK too, due to ongoing challenges further compounded by the combined impact of Covid and Brexit. Congested shipping and haulage routes also exacerbated supply chain challenges.
New cost pressures are anticipated in 2022. Energy price rises will have a knock-on effect on manufacturing and production as well as consumer confidence. Rising inflation will impact all industries, causing cost pressures.
Ongoing challenges created by Brexit – increasing regulatory requirements and import checks while limiting access to migrant workers – will continue to cause supply chain problems too, according to Make UK.
Some supply chain pressures could be temporarily – perhaps artificially – eased though, as businesses who chose to bulk buys materials in 2021 work through large inventories. Those who got ahead of the price rises will be working to carefully manage stock levels and ensure no wastage, reducing some reliance and pressures on parts of the supply chain
Overall, business leaders are optimistic for the year ahead.
Findings by accountants BDO show that 73% of manufacturers believe opportunities now outweigh the risks. Similarly, a survey by accountants Deloitte found 37% of large companies are planning significant investment in 2022.
Businesses say one way they plan to make these investments work is by “reshoring” supply chains, to reduce their vulnerability should other global challenges arise.
Infrastructure investment led by the public sector – one of the key drivers of economic recovery in 2020/21 – will support supply chains to cope with higher output and domestic demand, having improved transportation networks.
There is set to be a renewed focus on sustainability through 2022. Making supply chains more efficient is key to overcoming climate challenges and meeting global net zero targets.
Aspects of the Industry 4.0 transformation, accelerated by the pandemic, will support this. Businesses better able to track materials and identify waste will reduce their resource reliance, for example, or reduce fuel consumption of their fleets by implementing route optimization.
Digital transformation is helping to reduce unnecessary ‘just in time’ approaches too, improving the data available for procurement and logistics.
The silver lining
Industry leaders have said some positives have come from the challenges of recent years, though.
The pandemic saw digital transformation pick up pace, as above, as well as modern methods like off-site works. By developing more streamlined or standardised approaches, businesses can better plan better to ease pressures on supply chains.
Strategic procurement is now more commonplace too. Businesses are engaging suppliers earlier to understand availability and pricing of materials and spreading risk through larger supplier pools, while more closely monitoring and managing their supplies and critical spares. Leaders say they have invested heavily in improved procurement processes and operations to cope with supply chain challenges.
Factoring risk management into all aspects of programme planning and pricing is becoming more standard.
As ever, close communication and collaboration with suppliers and contractors will help to mitigate risks, particularly through early engagement.
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