Exclusive: Navigating the New Normal

Shipping constraints, labour shortages, and stock availability have dominated the supply chain conversation for the past two years. But are we about to turn a corner?

While we might be getting sick of the term “supply chain disruption”, as we head into the second quarter of 2022 and with one of the most challenging peak periods in history behind us, businesses are still grappling with many issues caused by the onset of the pandemic.

Shipping constraints, labour shortages and stock availability issues have become the norm, and many organisations have made the dramatic shift from a just-in-time strategy to a just-in-case mindset.

At the consumer level, most of us have gotten used to not being able to secure our favourite goods in the weekly grocery shop, and at a global level, the longstanding semiconductor shortage is still crippling the automotive and technology manufacturing industry.

Leading up to Christmas, there was large-scale anxiety around shortages of festive consumer goods, as the supply chain industry was once again thrust into the spotlight.

While supply chain disruption continues to dominate the mainstream media – two years on, the question now is: what do the next 12 months look like and will we ever see a return to pre-pandemic days?

Supply Chain Insights takes a deep dive into the disruption and asks leaders from across the industry what challenges we’re likely to face in the year ahead.

The big inventory issue

According to Travis Erridge, Co-Founder and Chief Executive Officer at TMX, Asia-Pacific’s leading business transformation consultancy, businesses are still holding a huge amount of inventory.

“We’re seeing massive amounts of inventory kept in storage. Australia is at maximum capacity, and most businesses are carrying a lot more product than they normally would,” he tells Supply Chain Insights.

Coming into the peak period last year, organisations were worried about missing out on sales so, they ramped up their stock holding. “People went crazy getting inventory in, and some of that stock is only just arriving in Australia now,” Travis says.

Furthermore, retailers have had issues with inventory in the wrong place, at the wrong time, and as we move further into the year, businesses have to grapple with the issue of storing seasonal or obsolete stock.

“Carrying large amounts of seasonal inventory means that working capital is severely constrained,”

Alex MacPherson, Director of Solution Consulting and Account Management at Manhattan Associates, a leading global provider of supply chain software, says as a result of businesses holding more stock than usual, there’s been a lot of markdowns and challenges around where to hold stock and when.

“Retailers are still not sure about the split between eCommerce and bricks and mortar, so they are still finding that their inventory is often in the wrong places,” he says.

According to Darren Bretherton, Senior Business Development Manager at Zebra Technologies, a world leader in innovative digital solutions, hardware, and software; holding excessive amounts of stock not only has implications from a property and operational point of view, but this has a significant impact on short term cash positions for retailers. “Carrying large amounts of seasonal inventory means that working capital is severely constrained,” he says. 

While pre-pandemic, just-in-time lean methods may not be acceptable in today’s environment, as organisations look to plan for the post-pandemic world, TMX’s Travis Erridge says holding huge amounts of inventory is not the answer and asks: “how can you make strategic decisions about the future of your business when all your capital is sitting in inventory?”

Looking ahead, businesses need to start looking to long-term solutions about what level of inventory is acceptable in a post-pandemic world. According to Manhattan Associates Alex MacPherson, while supply chain wasn’t previously on many Boards’ agendas, it is now, and will continue to be so: “C-suites around the world are going to start to ask: why are we holding so much stock?”

Widespread labour shortage

“Supply chain challenges are still very much exasperated by the labour shortage caused by the pandemic,” Darren Bretherton from Zebra Technologies tells Supply Chain Insights.

The restriction of movement and COVID-19 isolation rules are still having a major impact on the supply chain and retail industry, and according to Travis Erridge, this is unlikely to go away any time soon.

“While there could be some labour relief as people start to travel and move around the world again, one thing the pandemic has done is show that people do not want to do hard, labour-intensive work – that’s the reality this industry is dealing with,” he says.

This issue isn’t only felt in the supply chain space, but also in retail and according to Alex MacPherson, 93% of retailers were worried about the labour shortage in 2021. “One of the challenges for the supply chain is that we have to make the industry more attractive for people to work in. We have to promote professional development opportunities and show that there is a career path in this sector. If we don’t tackle these issues now, we’re going to be faced with serious shortages down the track,” he says.

While the supply chain industry acknowledges it has an issue with labour availability, Darren Bretherton says there is an opportunity for organisations to utilise technology to help manage this issue.

“Workforce management software can help find replacement workers at short notice. Organisations can use these tools to find available resources urgently and continue to deliver goods and services on time,” Darren says.

“While there could be some labour relief as people start to travel and move around the world again, one thing the pandemic has done is show that people do not want to do hard, labour-intensive work – that’s the reality this industry is dealing with,”

However, most agree that solving these issues with labour is a short-term fix. “Short-term, labour hungry processes come at a significant cost and do not offer a long-term answer. The labour shortage will continue, so businesses need to look further ahead and start to invest in automation,” TMX’s Travis Erridge says.

For Alex, collaborative robots, or cobots, will play a central role in solving the labour availability issue. “Cobots will be key to offering warehouse operators more variety in their work and therefore make roles in this industry more attractive,” he says.

Alleviating the short-term pain with AI and Machine Learning

While some of the high-level long-term solutions take five to 10 years of planning, some solutions which can help to alleviate some of the pain caused by the large-scale disruption in the supply chain are available now.

“Right now, I would say it’s all about optimising business as usual. Get rid of obsolete stock, rationalise inventory holdings and digitise your supply chain so you can utilise real-time decision making. Businesses cannot rely on the past 12 months of data to accurately predict the next 12 months, so they need to use predictive and machine learning to help with sales forecasting based on real-time patterns,” Travis Erridge says.

Zebra Technologies Darren Bretherton agrees and says that AI tools can help companies predict future demand. “Forecasting will have to start utilising AI and Machine Learning because we simply cannot rely on the past two years of data,” he says.

Utilising AI and digitalisation are a quick fixes that organisations can adopt to start reaping the benefits almost immediately. “The quickest to digitise and utilise existing information to make real-time decisions is going to win. This is an immediate thing you can do right now. Some of the other stuff is a lot more complex, with long lead times. This is why it’s important to look at your existing data and use it to make decisions that will help you get through this turbulent time,” Travis Erridge says.  

A positive outlook

While the landscape continues to be turbulent and disruption has continued into the first few months of this year, the industry may be turning a corner.

“At TMX, we have a view that the disruption of containers and shipping availability is likely to ease this year. This is also coupled with what we expect will be a change in consumer demand. We are likely to see people starting to spend less money on material consumables and more on lifestyle such as travel, dining out etc.” Travis Erridge says.

With a little smoothing out of demand, Darren Bretherton says now is a good time to look at the systems you have in place and see if they fit a post-covid environment. “Business decisions were historically made with very steady demand curves, but can they manage a new environment where we’ve are seeing changes in how consumers buy a product and the way business operates as a whole?”

Where this will settle remains unknown, and TMX’s Travis Erridge says we might even see an oversupply of shipping availability.

“It’s a bit controversial and goes against what everyone has been saying so far, but we think we’ll start to see things normalise this year, which might mean we see a lower-than-normal demand coming into peak season this year. Similar to post GFC, we might see an oversupply and under demand which will present its own issues for the supply chain,” he says.