Supply chain issues and the potential for an economic downturn have companies taking a closer look at their operations to reduce bottlenecks and improve their efficiency.
Solving supply chain challenges requires a proactive approach as well as accurate and timely data that enhances supply chain visibility. More than two-thirds of CEOs say they plan to increase their investments in supply chain tech solutions, including artificial intelligence, to shore up their operations.
In this article, we’ll examine some of the biggest challenges in supply chain management and provide potential solutions to these supply chain challenges.
7 Supply Chain Management Challenges
The complexity of today’s supply chains has made them increasingly challenging to manage effectively and cost-efficiently. Yet companies must tame the complexity to meet customers’ demands and hit their profitability goals.
Here are seven of the major supply chain challenges companies are dealing with and how they're overcoming them.
1. Increasing Freight Costs
While we’ve started to see some moderation of freight costs, the spot prices for shipping and delivery remain above pre-pandemic levels. Most of the port congestion is behind us and trucking capacity has improved, but high fuel costs are continuing to drive higher-than-normal shipping costs for the acquisition and delivery of goods.
Companies are deploying several strategies to improve their freight cost control, including using a real-time transportation management system (TMS). Other strategies include:
- Contracting steady lane volume
- Comparing contract rates with spot rates
- Using multileg or multicarrier options
- Increasing delivery lead times
- Reducing dunnage and packaging
- Consolidating loads and pool distribution
Cloud-based transportation tools using IoT devices can also help reduce the overall cost of order fulfillment.
2. Customer Demand Forecasting
Consumer behaviors are constantly evolving, making demand forecasting for products increasingly difficult. Yet accurately forecasting demand is key to efficiency. If you carry too little inventory, you risk running out of products and missing out on sales. If you carry too much inventory, you tie up capital and increase your carrying costs.
Accurate demand forecasting requires a blend of historical and real-time data. It’s also necessary to regularly check your actual sales numbers against your forecasts, and those of your competitors, especially when market conditions are changing.
3. Labor Shortages
The current labor shortage is well-documented. Despite increasing layoffs in the news, industry analysts expect labor shortages to persist for years to come. The World Bank shows that over the next decade, the number of working-age residents will decline by 3% in the U.S.
Shortages impact every phase of the supply chain, from suppliers to manufacturers to distributors and retailers. The labor shortage drives costs higher for both companies and consumers.
Companies need to deploy automation and production control tools to gain valuable insights and optimize their workflow efficiency. By providing complete visibility into your supply chain and reducing manual or redundant processes, you can streamline your operations. More efficient systems help mitigate labor shortages and also improve employee retention.
4. Risk Management
As we’ve seen over the past few years, supply chain disruptions can come from a variety of sources, including global unrest, plant shutdowns, raw-material shortages, capacity issues, cyberattacks, and labor shortages. Risk management has become an essential part of supply chain management, evaluating both known and unknown factors that can affect operations.
Companies must identify and document known risks as part of an integrated risk management framework and monitor key performance indicators to constantly look for anomalies that may be leading indicators for a potential disruption.
Managing unknown risks is even more challenging. Companies must deploy proactive strategies to mitigate unknown risks, such as diversifying sources and suppliers and enabling greater transparency and tracking.
Business leaders must have a firm grasp on evolving customer demand, sourcing, pricing, quality assurance, and cost structures to mitigate risks. Understanding risks that threaten your supply chain can provide a significant competitive advantage.
5. Supplier Relationships
Supplier relationships are changing, too, and transparent and consistent communication has become crucial. You need real-time information and tracking to overcome supply chain challenges.
Without timely tracking, it’s impossible to evaluate your supply chain health and spot emerging problems. When you have visibility into every step of the supply chain, however, you can make more informed decisions and effectively manage your supplier relationships.
6. Unforeseen Delays
Perhaps the biggest challenge is unforeseen delays, which have a ripple effect across the market, impacting manufacturing, fulfillment, and cash flow. Unforeseen delays can create unhappy customers and hurt your company’s reputation, even when you can’t control the underlying cause.
This is another area where data provides guidance. By comparing historical data and baselines against current data, you can often spot irregularities that indicate potential problems. At the same time, companies need to build redundancy into their supply chains.
To overcome unforeseen delays, you need to be on guard to detect potential problems as early as possible and have contingency plans in place to move aggressively when disruptions occur. For example, when port congestion stopped goods from arriving on the West Coast in a timely manner, many companies switched to air cargo or routed goods from Asia through Europe. Those with backup plans in place fared significantly better than those that had to adjust on the fly.
7. Outdated Supply Chain Technology
Most companies continue to rely on legacy technology that’s been built over time. As new solutions became available, businesses added to their tech stack but didn’t always address the underlying infrastructure. Manual systems, older technology, and legacy systems can make it challenging to gain the visibility you need to manage your supply chains and processes efficiently.
These are just a few of the reasons why 90% of supply chain executives in a 2022 McKinsey survey said they planned to overhaul their supply chain planning and technology stack within the next few years. Modernizing technology, automating processes, and increasing visibility are key to improving supply chain efficiency:
- Modern tools like IoT tracking and sensor-based technology are creating the visibility needed for end-to-end asset management.
- Production tools are reducing the need for manual work and creating efficiencies in manufacturing and distribution.
- Transportation tools are streamlining inbound and outbound goods to improve productivity, reduce downtime, and speed up order fulfillment.
Avoid Supply Chain Management Issues With Surgere
It may be years before we see a return to normal in supply chains — if ever. Companies need to be proactive in their approach to managing every aspect of their supply chains to remain competitive. The right supply chain tech solutions and automation software can help solve challenges in supply chain management.
Surgere creates a single source of truth and real-time insights into your supply chain using IoT sensor-based technology to accurately track activity data.
Contact Surgere today to learn more about overcoming these challenges and creating a more durable supply chain with accurate, timely data and better decision-making.