the impact of the supply chain crisis on the manufacturing industry.

When the pandemic hit, it took mere days for supply chain shortages to impact manufacturing plants across the globe. Unable to secure the necessary materials, many organizations had no choice but to slow, or even halt, production. These supply chain disruptions caused a ripple effect that left store shelves empty and consumers struggling to find the goods they needed.

Even with the pandemic now subiding, supply chain disruptions remain. Many experts agree that supply chain shortages could last for at least another two years, if not more.As a manufacturer, you already know that just waiting for things to improve is not enough. Now, is the time to examine your current supply chain processes and strengthen your current supply chain networks.

Before you can start this process, however, it’s important to understand the reasons behind the current supply chain disruptions as well as how this crisis is specifically impacting the manufacturing industry. This article takes a closer look at the impact of the supply chain crisis on the manufacturing industry.

what are supply chain shortages?

Supply chain is the backbone of the manufacturing industry. It’s the process of securing the parts, goods and raw materials necessary to complete the production of specific goods and products. Supply chain in manufacturing is extremely complex. It includes networking with various suppliers and managing the shipping and delivery processes.

A supply chain shortage is caused by one or more disruptions in these processes. Disruptions are not a new challenge for manufacturers. What is new, however, is the number of disruptions impacting multiple points in the supply chain process simultaneously. These disruptions, in turn, caused a ripple effect that eventually impacted nearly every manufacturing plant in the world.

why is there a supply chain shortage?

As mentioned above, supply chain shortages aren’t a new challenge for the manufacturing industry. For the most part, companies have learned to mitigate small disruptions without typically causing extensive delays in production. While the pandemic spiked supply chain shortages, the reality is that supply chain challenges are more complex than just one issue. While the current supply chain crisis is likely to be analyzed for years to come, several causes have already been identified, including:

talent shortage

The UN International Labour Organization states that when factoring in both reduced working hours and actual job loss, there was a total loss of 255 million jobs across the globe due to the pandemic and a 4.4% drop in global gross domestic product during the pandemic.

Today, the manufacturing industry is still facing significant labor shortages, which are not expected to end any time in the near future. In fact, the National Association of Manufacturers predicts that over 2 million manufacturing jobs will go unfilled by 2030 in the United States alone. To further escalate things, the growing skills gap is making it even more difficult for manufacturers to find the skilled workers it needs to properly integrate supply chain technology that can help streamline their processes.

For instance, a backlog, spurred by the labor shortages, at refineries across the world is making it difficult for manufacturers to source the raw materials they need, such as copper, zinc and iron. Significant labor shortages in the transport industry also are making it difficult for manufacturers to both obtain the supplies they need and deliver final products to the consumer.

running close to capacity

In recent years, there has been a trend in the manufacturing industry to physically store less inventory onsite and instead depend on their supply chain network to deliver the supplies as needed. This running close to capacity model helps organizations save money, reduce waste and improve efficiencies in the supply chain process.

For the most part, this business model worked well, and organizations were able to secure the materials they needed when they needed them. Supply chain shortages were often limited to one type of material or to a specific region, and manufacturers were able to find alternative solutions to minimize production delays.

When the pandemic hit, everything changed. Both production and transport of raw materials and supplies came to a halt or were significantly delayed. Due to limited onsite inventories, many manufacturers found themselves facing severe shortages in just a matter of days or weeks.

To overcome this challenge, manufacturers took steps to increase their onsite inventories. These companies had to seek out reliable storage solutions for this increased inventory amidst a global pandemic.

lack of diversified supply chain networks

Manufacturers maintain very complex, multilayer supply chain networks to source the materials needed for production. Naturally, most companies seek out cost-effective suppliers that offer the quality materials they want. As the logistics industry has become more globally intertwined, more and more manufacturers began to rely heavily on national and international suppliers, which worked well until COVID-19 hit.

Border closures halted some international trade, making it impossible for manufacturers to obtain the materials needed for production. Even some national trade options were disrupted due to COVID-19 concerns. During this time, manufacturers had to scramble to find alternative local and regional suppliers to fill in the gap. In some cases, this just wasn’t possible, which halted production altogether.

For example, the semiconductor chip shortage led to significant production delays in the automotive and electronics industries. In fact, a recent study shows that the global auto industry lost as much as $110 billion due to this shortage in 2021.

As national and international trade begins to stabilize post-pandemic, 93% of supply chain leaders state that they are committed to building more flexible and resilient networks.

how is the supply chain crisis impacting manufacturers?

The ongoing supply chain crisis is not only frustrating global manufacturers, but it’s also significantly impacting these companies in a variety of ways, such as:

longer production times

Supply chain disruptions are definitely resulting in longer production times for manufacturers, which is both costly and time-consuming. If companies can not secure the raw materials they need, they could have no choice but to halt production until the necessary supplies are delivered.

Part of the problem is manufacturers’ inability to forecast their future needs. For production to run smoothly, manufacturers must know precisely what supplies they need and when they need them. Failure to have these insights could hinder the company’s ability to source the cost-effective supplies they need.

The reality is that we are living in unprecedented times, and consumer demands are fluctuating so rapidly that it’s difficult for businesses to keep up. Manufacturers still relying on outdated spreadsheets to manage their supply chain networks and processes may find it difficult, or even impossible, to accurately forecast future needs.

Fortunately, supply chain technology has made substantial advancements in recent years. In fact, the right technology can improve manufacturers’ ability to forecast future needs and help them better manage their supply chain networks.

higher costs

Studies show that the current supply chain crisis could cost businesses up to 45% of their annual revenue over the course of 10 years. Some of these losses are due to higher material and operational costs.

First, the increased demand for certain supplies, such as the semiconductors mentioned above, combined with ongoing inflation concerns has fueled a spike in material costs. While manufacturers can pass some of these added expenses on to the consumer, there is a real danger of outpricing their target customer.

Secondly, longer production times along with increased wages are also increasing the total cost of production. The manufacturing industry saw a salary increase of 6% in 2021. While this might not sound like a lot, at a time when companies are trying to control costs, any type of wage increase is difficult to manage.

Finally, the Russian-Ukraine conflict has led to higher costs at the gas pump. For manufacturers, this increase in petrol costs means higher transport costs for goods and materials coming in and out of the plant.

reduced customer satisfaction

A recent study revealed that 57% of consumers have been personally impacted by the supply chain shortage. This study also shows that 52% of consumers plan to refrain from purchasing goods that are shipped from overseas, and 36% would look elsewhere if it will take more than two days to receive their goods.

This is troubling news for manufacturers who are still struggling with multiple supply chain disruptions. The inability to provide consumers with the products they want in a timely manner could cause them to lose customers. Manufacturers who are unable to mitigate the impact of the current supply chain crisis are at a real risk of losing their businesses.

what steps are manufacturers taking to overcome this challenge?

Manufacturers who hope to remain competitive in the years to come must take steps now to improve their supply chain efficiencies. Here’s a quick glance at some steps manufacturers are taking to overcome these challenges.

upgrade supply chain technology

Excel spreadsheets are no longer an effective way to manage supply chain processes. The reality is that these supply chain networks and consumer demands have become too complex to be managed manually. In fact, studies show that the most successful companies were 2.5 times more likely to invest in supply chain technology and advanced analytics. Companies that want to survive in today’s market should strongly consider upgrading their current supply chain processes to include advanced technology.

improve hiring strategy

Being able to fill open positions at the executive level as well as on the plant floor is a must for manufacturers. Unfortunately, the ongoing labor shortage and growing skills gap is making this step extremely challenging for manufacturers. In fact, 78% of employers rank securing talent as their greatest challenge for 2022. Companies must develop strong hiring practices with the power to identify and attract the skilled talent they require, such as having a strong employer brand in place, investing in HR technology and developing a comprehensive retention program.

For example, investing in contingent workers can help your company obtain the talent it needs amidst a highly competitive job market. In fact, contingent workers can enable your company to scale up and down as needed to meet production demands in a changing market environment. Our Randstad teams can help you with this process. We provide end-to-end services and can handle everything from hiring contingent workers to shift scheduling depending on your company’s specific needs.

invest in employee training

With an increased demand for supply chain technology also comes an increased demand for skilled workers to manage this software. Companies may find it impossible to source this talent through hiring efforts alone. To overcome this obstacle, many manufacturers are taking steps to train their current workers with the tech-related skills the company needs both now and in the future. For example, workers with experience utilizing inventory management software and warehouse management systems are in high demand. Employers are also looking for candidates with data analytical experience and soft skills, such as critical thinking and adaptability, that show an aptitude for learning.

build a diversified supply chain network

If the pandemic revealed any problem areas within the supply chain process, it was the lack of diversified supply networks. Manufacturers who relied heavily on international and national suppliers found themselves stuck when borders shut down. To prevent this from ever happening again, 90% of manufacturers are committed to building a diversified supplier network that includes local and regional suppliers.  

Download our latest slide show to learn more about the supply chain shortage impacting the global marketplace, including the manufacturing industry.