Volatility easing but will remain for 2022
The COVID-19 pandemic has driven acute volatility in demand and supply across manufacturing and logistics industry categories in significantly different ways. At one end of the spectrum there has been the dramatic decline in airline travel, at the other end there has been soaring demand for medical goods such as personal protection equipment (PPE), of which global production increased 300% y-o-y1. Although these massive shifts in demand have captured many of the headlines over the past 18 months, more common cyclical changes also play a part in rising input costs, such as labour, fuel pricing, transport costs, real estate and foreign exchange movements.
Initial responses have included holding more safety stock as global product scarcity and supply change blockages revealed the fragility of just-in-time (JIT) inventory holding. Eventually the pendulum will settle and there will be a need to reset inventory strategies and policies. This will not necessarily result in JIT being abandoned as there will still be a need to balance product availability and financial outcomes, with the use of predictive analytics to be able to better forecast demand and manage supply becoming even more critical to operating resilient supply chains.
Businesses will also seek to remove complexity from their product ranges through smart design and range rationalisation while still offering choice to customers. Supply chain networks will also be configured to create more resiliency including flexible manufacturing platforms across geographies.
Effectively Industry 4.0 offers the opportunity for manufacturers to optimise their operations quickly and efficiently by knowing what needs attention and what needs to be done2. Underpinning this is the Internet of Things (IoT) to connect different parts of the ecosystem and allow vast amounts of data to be shared and analysed.
While many businesses are currently experiencing acute volatility in their supply chains due to COVID-related pressures, the situation is expected to ease through 2022 as consumption shifts from good to services and bottlenecks are unblocked. In light of the current situation, solutions should focus on ways to sure-up supply chains in the near-term without locking in additional enduring costs.