The ability to adapt to higher levels of supply chain uncertainty is now essential for global companies and their suppliers
The supply chain challenges seen throughout the world in recent months, from the pandemic to the Suez Canal blockage and now the ongoing closure of the Yantian terminal in Shenzhen, can no longer be considered shocks, according to Taulia, the leading fintech provider of working capital solutions. In a new paper, Taulia has outlined the numerous issues over the past 18 months that have highlighted the fragility of global supply chains, and their impact.
Uncertainty in managing inventory had been growing even before the pandemic, as geopolitical tensions affected trade between the US and China. The US has also faced trucking strikes, while Brexit has caused transportation shortages and increased costs for UK and European firms. The recent Suez Canal blockage created yet another supply shock, costing around $9 billion each day, while the semiconductor chip shortage has wreaked further havoc for many industries.
Taulia predicts that higher levels of demand, inflation and interest rates in the near future will only add further pressure and complexity for companies already struggling with supply shortages, depleted stock, increased shipping costs, supplier financial pressures and greater uncertainty.
Erik Wanberg, Head of Inventory Management at Taulia, commented: “These problems now need to be treated as a new normal in supply chain and inventory management. There is simply too much at stake for companies to continue attributing them to outlier events and not taking appropriate forward-looking action. Investors generally reward companies who have the agility to react quickly to negative events with minimal impact to their performance relative to their peers.”
Taulia believes this ‘perfect storm’ has created an urgent need for companies to adapt to higher levels of supply chain uncertainty and costs in shipping and international trade. It has made agile supply chain management more critical than ever. While many firms have begun adapting by holding higher levels of safety stocks, this increases inventory and storage costs, tying up valuable capital that could be put to better use elsewhere in the organization.
Wanberg added: “Today, balancing the competing priorities of holding just enough inventory to avoid production outages while reducing inefficient capital and storage costs is a crucial part of supply chain management and one that shouldn’t be overlooked. By reducing the working capital tied up in inventory, while maintaining the same level of sales, companies can drive a higher return on capital. But in order to do this, companies need new solutions that can both increase their visibility through better data and bring improved access to efficient capital. As with many things, technology will provide the greatest opportunity for supply chain transformation and competitive advantage”.
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