Supply Chains Face Uphill Battle in 2023
The height of the COVID-19 pandemic is officially three years past, yet today, in 2023, supply chain woes persist. For manufacturers, backlogged orders, sky-high prices, and staffing issues continue to hamper supply-side operations, making it difficult to meet demand. The question on everyone’s mind is, when will supply chains return to a semblance of normalcy?
Unfortunately, it doesn’t appear to be in 2023. As analysts release their forward-looking projections for the year ahead, supply chain troubles remain prevalent. Manufacturing supply chains face an uphill battle at a time when economic alarm bells are ringing.
Supply chain disruptions likely to persist in 2023
The year ahead is expected to be yet another challenging one for manufacturers worldwide. Not only has recession become a reality — proven by contracting PMI data — but supply chain woes are set to persist throughout the year and may even worsen.
Geopolitical conflicts, inflation, recession, climate change, and even unexpected events like weather and disasters are fueling supply chain disruptions. These considerations all have a significant impact on access to goods and raw materials, as well as their rate of flow to their final destination.
A multitude of underlying problems is driving supply chain uncertainty for the year ahead (and beyond). Producers must recognize them and respond accordingly to both the risks and opportunities.
What’s causing supply chain uncertainty?
In 2023, manufacturing experts continue to predict port holdups, reduced ocean freight availability, and surging cybercrime will hit producers hard. Other considerations weighing heavily on supply chains include:
- Price volatility. Supply chain leaders should anticipate increased costs related to production, raw materials, and transportation. Price spikes are affecting the types and amounts of goods available and forcing manufacturers to rethink costing strategies as they face cash flow strain.
- Staffing shortages. Even with the worst of the pandemic behind us, staffing shortages in supply chain-related positions continue. A growing number of workers have simply retired or quit warehousing and truck-driving jobs, causing supply chain snags.
- Materials scarcity. Nearly one-third of manufacturers can expect to experience limited availability of raw materials in the year ahead, according to analyst projections. Delays in the shipment of certain goods, especially those in Asian countries, are negatively impacting supply schedules.
- Rising interest rates. To address historic inflation, the Federal Reserve has raised interest rates consistently over the past year. As rates continue to increase, smaller suppliers feel the weight of a higher cost of capital. Suppliers pass on the impact of higher costs to the consumer or cut back inventory levels and risk supply chain disruptions in the future if they attempt to absorb the costs.
- Reshoring efforts. Many producers are working to reduce their dependency on suppliers from a single region, relying instead on suppliers who are geographically closer to production and distribution centers. As they migrate supply chains, snags and lags are bound to occur.
Recession: a good thing for supply chains?
While supply chain disruption seems to be the new norm, some level of relief is in sight. Unfortunately, the path runs through recession. As manufacturers address supply-side issues, a drop in consumer demand might be what they need to mitigate the situation.
No one welcomes recession, but a pullback in demand could alleviate some of the supply chain stress while also leading to progress on long-term solutions (like reshoring). Although 2023 is set to be a challenging year for everyone, it may result in a more prosperous and secure future.