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The Non-Covid reasons for today's supply chain challenges

Almost everything that is vital for delivering a finished product to customers is experiencing shortage — semiconductors, raw materials, shipping containers, port capacity, warehouse space. You name it, and you will likely see a shortage for it and a higher price. Covid-19 is one reason for this but are there other factors?

The challenges we are seeing today in global supply chains are unprecedented. Almost everything is experiencing shortage. You name it, and you will likely see a shortage for it and a higher price.

It is very easy to point the finger at suppliers, contract manufacturing partners and logistics for this, but let us look at the "demand chain" as well. We are still experiencing a global pandemic, however, there are other, non-Covid-19 factors that are also contributing to today's supply chain chaos. Consumer demand has been amplified by these factors. In my view as the CEO of a supply chain planning platform, these factors have been building the past few years, and the pandemic was the trigger.

The Rise Of 'Smart Tech'

These days I see that semiconductors or chips are embedded in coffee mugs, watches, home systems, appliances, household goods, cars and more — not just computers and phones. Almost everything around us is getting smarter and moving toward IoT. And with 5G still in its early stages, I think this trend will only accelerate. The pandemic has definitely accelerated movement in the semiconductor supply chain. The supply that automakers abandoned in 2020 has been picked up by consumer tech companies, but now they are running out of semiconductors too. Chip manufacturing takes a long time, and building more chip manufacturing plants requires years of engineering and construction and billions of dollars. For now, companies must manage with shortages, long lead times and higher prices (which are often passed on to consumers), and yet the growth of "smart tech" continues and will likely continue to strain the semiconductor and components supply chains.

Acceleration Of Product Development, Manufacturing And Commercialization

The digitization of design and engineering processes, agile product development, rapid prototyping, maturing underlying technologies and components has shortened the hardware development cycle from ideation to production. New cloud-based technologies and platforms for "on-demand" design, manufacturing, logistics and last-mile delivery have greatly increased the efficiencies in the value chain, and brand owners are able to manage the entire process through online platforms that are accessible from anywhere.

Social Media

Social media has been around for a couple of decades, but I think it has reached an inflection point where it is genuinely contributing to brand experience and top-line revenue growth. According to ZoomInfo, "On average, 30% of companies with higher revenue than their peers also have larger social media followings on Facebook and Twitter". Social media platforms have made it easy for companies, both large and small, to introduce products and services to their targeted customer segments. Companies have multiple strategies for increasing sales through social media marketing — direct sales and ads to their followers, indirect advertising and promotions, influencer marketing and building a brand image. In many cases, these strategies, along with easy "one-click" purchasing, are leading to increased sales and thus the surge in demand and pressure on supply chains to meet those expectations.

'Buy Now Pay Later' (BNPL)

This is the latest trend that is contributing to the surge in demand for everything from electronics to clothing to household goods. BNPL platforms are popular among younger consumers to make big box purchases without having to shell out the entire cost upfront. With installment payments spread over six to eight weeks and no interest or fees, the BNPL option is certainly attractive. Fitch Ratings found that "The volume of U.S. e-commerce payments made using BNPL rose to $19 billion last year — more than double the $9.5 billion spent in 2019."

This "demand creation" with easy financing tools is going to further strain the supply chains as consumers stretch their budgets to buy more goods. According to Juniper Research, "By 2026 BNPL services are expected to account for over 24% of global e-commerce transactions for physical goods by value, from 9% in 2021."

Moving forward, I believe the speed at which business is done will be unprecedented, and how supply chains need to respond will be anything but normal. Business leaders today should proactively plan their supply chains, both strategically and tactically, to mitigate disruptions and risks that these trends could bring. Strategically, business leaders should take a methodical, data-driven approach to support the shift to direct-to-consumer channels. Tactically speaking, business leaders should consider scenario planning, what-if analysis and process automation to increase team efficiency and drive better decisions.

We are moving toward "smart tech" in all aspects of our lives, new product development has accelerated, and social media and financing platforms like BNPL are amplifying the demand for new products, which in turn is putting pressure on the entire supply chain from raw materials, chips, manufacturing, logistics and last-mile delivery. Covid-19 may eventually settle down, but these trends will likely continue to push the global supply chains to their boundaries. I think companies and governments need to expand the boundary through improvements in their supply chain infrastructure, people and technologies to make the supply chains agile, adaptable, efficient and sustainable.


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