The global supply chain is expected to take a hit as inflation continues to rise in 2023. While facing the biggest surge in over a decade, manufacturers are already incurring the effects of inflationary disruptions. So, how exactly is inflation impacting the global supply chain and what can manufacturing leaders do to mitigate the risks?
Legacy supply chain processes are no longer adaptable, flexible, or scalable for the new state of the economy. According to Forbes, these “formerly reliable ways of doing these things just won’t hold up in inflationary environments.” Inflation is a huge driver for change in the manufacturing industry. And the current climate is no exception.
What does inflation mean for the market?
1. Shrinking demand
The cost of daily necessities is only going up. Food, shelter, gas, etc. are all becoming more expensive as inflation rises. The cost of living is steadily increasing as prices rise, which is resulting in consumers not having as much disposable income. The buying power of the US dollar is down and there has been a significant decrease in demand levels across industries which continues as inflation increases. Shifting gears from the most recent trend of increasing supplies to counter supply chain shortage risk, manufacturing leaders will need to reevaluate their current strategies to see if they fit the current circumstances.
2. Increased costs
Rising costs of manufacturing materials, energy, labor, and more are causing supply chain organizations to notice a decrease in profit levels. The debate of whether consumers or producers should bear the weight of the material cost increase is tricky due to market circumstances. If producers bear the weight of a higher variable or fixed cost, profits will substantially decrease. However, in an era of decreasing demand, will shifting the cost responsibility to the consumer by increasing prices drive demand even lower?
The various rising costs of transportation are also a huge part of the shifts we are seeing in the global supply chain. By definition, the more global the supply chain, the more abundant the need for reliable transportation. With inflation, the cost of reliable transportation is significantly increasing, and supply chains are struggling to transport goods as efficiently.
3. Shortages, shortages, and more shortages
The strain of supply chain disruptions over the recent years has led to global material shortages. The talk of the town since the pandemic has been the shortage of chips that are vital in the production of automobiles, smartphones, medical devices, and more. However, this is not the only major shortage manufacturers will be facing in the coming years. Supply Chain Dive suggests that manufacturers will be looking at a shortage of lithium in 2023, a key component of electric vehicles (EVs). Not only are we facing a shortage of raw materials, but of labor resources as well.
What can manufacturing leaders across the global supply chain do?
Visibility, connectivity, and digital transformation. These are the keys to protecting your organization against the effects of inflation. Visibility into supply chain operations across the globe by having real-time insights into data help manufacturing leaders understand the current circumstances and plan for disruptions. Even if you are currently operating mainly locally, disruptions abroad can still lead to disruptions at home. If you are operating nationwide or globally, incorporating total visibility into your supply chain plan is a must.
Connectivity is also vital in planning for inflationary disruptions. Connections between teams, and departments, is crucial for operating in today’s supply chain climate. The more connected an organization is, the better teams can work together to solve supply chain problems. If teams are siloed and data is not easily accessible, miscommunication and hindered visibility will lead to further chaos in the global supply chain.
Digital transformation solutions will be key in many manufacturing organizations' plans for dealing with inflation. Many advanced technology solutions have features that help manufacturers to enhance efficiency and productivity. In this new day and age, advanced solutions are not just a leg up on the competition, but a standard in the manufacturing industry.
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