Global supply chain bottlenecks may continue until 2023: CEO
Supply chains rely on people, equipment for production; if either in short supply, delays, shortages and price hikes seen, he says
Global supply chain bottlenecks may last until 2023, according to Sebastien Breteau, the CEO of QIMA, a global supply chain service, and compliance provider.
"The backlog of orders, coupled with factory closures, labor issues, and equipment shortages, has caused what some people are commonly calling the 'everything shortage' or the 'supply-chain crisis'," Breteau told Anadolu Agency in an e-mail interview.
"The very global nature of the supply chain makes it vulnerable to disruption, which is what we're seeing now," he added.
Breteau said as countries emerged from the COVID-19 lockdowns last year and started spending again, demand has skyrocketed and outweighed factories' ability to provide supply. This was coupled with consumer demands shifting dramatically during the pandemic, causing oversupply in some areas but undersupply in others.
He noted that household goods, electronics, automobiles, construction, agriculture, and the food industry have been among the hardest-hit industries in the global supply chain crisis, since their supply chains are complex, relying very heavily on the availability of raw materials.
"The ongoing, lingering effects of COVID-19 risk mitigation strategies have fundamentally reduced production levels. The supply chain shortages currently hitting the marketplace go hand-in-hand with businesses' struggles to return to pre-pandemic levels. In the near- and far-term, the imbalance between supply and demand – which we've seen since the onset of the pandemic – has stymied production," he said.
"It's difficult to say which industries will remain in the throes of the bottleneck, but it's safe to say disruptions will indeed continue for the foreseeable future."
External factors: Labor shortages, energy, inflation
Breteau noted that there are some key external factors putting additional pressure on supply chains, such as labor shortages due to border controls, mobility restrictions and extended lockdowns around the globe, reducing the number of factory and warehouse workers, and declining transportation capacity.
Labor shortages in the US have been on the rise in recent months, as a record, 4.43 million people in the world's largest economy quit their jobs in September, according to figures released by the Labor Department. While Americans quitting their jobs came in at over 4 million for the third consecutive month, the latest figure was a 3.7% increase from almost 4.27 million in August.
Breteau said recent patterns in the energy industry have also presented grave implications for supply chains and global economic activity.
"In China, energy supply deficits have temporarily put a stop to industrial production in some regions. As the world's largest manufacturing market, this is disrupting supply chains and business activity on a global level," he said.
He listed other energy implications hurting supply chains as low wind activity in Europe eroding wind farms, droughts in Brazil stopping hydroelectric production, and floods in Asia hampering coal transit.
"Moreover, inflation is also plaguing supply chains and snowballing the crisis, with production costs rising and these costs being passed on to consumers," Breteau said.
China's producer price index jumped 13.5% in October annually, its fastest pace in 26 years, while euro area annual inflation is expected to come in at 4.9% in November, the highest rate in 25 years.
In the US, consumer prices soared 6.2% in October, the largest 12-month increase since 1990, and producer prices were up 8.6% in October on an annual basis.
"Soaring inflation has become a worldwide phenomenon, even if it's occurring with varying intensities and different trigger points. Of note, several emerging-market and developing countries have experienced rising commodity prices – without subsequent capital inflows and nominal exchange rate appreciation – which has translated into higher domestic prices for consumers," Breteau said.
"It's important to consider supply chains don't fundamentally rely on production. At the baseline, they rely on people and equipment to put products into action. If either of these commodities is in short supply, that's when we see delays, supply shortages, and price hikes. When labor issues ease up and equipment shortages subside, we'll see production lines resume a normal schedule," he added.
Solutions: Technology, identifying weak links
Breteau said there are a number of remedies businesses can undertake in order to mitigate supply chain issues to a certain degree until full recovery.
"Mass digitization is a major plus and could help alleviate the supply chain bottleneck. After all, companies with a low degree of supply chain digitization were found to be twice as likely to have serious issues in both these areas, according to a QIMAone survey," he said.
Around two-thirds of buyers surveyed reported that they implemented new technology in 2020 in an immediate response to the pandemic, and as many continued digital transformation efforts into 2021, according to the survey.
"But still, less than half, or 44%, of businesses reported having a highly digitized supply chain, and up to 85% admitted to blind spots within their supply chains. Businesses still have a long way to go in the digital transformation journey," he noted.
Breteau, however, stressed that corners could not be cut when it comes to quality control and ethical compliance even in a difficult business environment, emphasizing that any missteps in these areas could put brand reputation and operations at risk.
"Apart from diversifying suppliers, investing in the right digital technology, and minding the basics of quality and compliance, businesses should conduct a risk analysis and identify where the weakest links in their supply chains are. This exercise will help them focus on alternative solutions in case the supply chain bottleneck lasts longer than expected," he added.Anadolu Agency website contains only a portion of the news stories offered to subscribers in the AA News Broadcasting System (HAS), and in summarized form. Please contact us for subscription options.