The global supply chain had a tough year. Not only was the world still grappling with the challenges brought on by the pandemic, but companies also had to deal with record levels of inflation and increased global political tensions.

Beth Ward

As a result, companies suffered major disruptions, including staffing shortages, congested ports, and rising costs of nearly every type of material. There is also increased pressure from consumers and local governments alike to be more eco-friendly.

With all of the major challenges, we also saw new methods of supply chain management emerge over the course of 2022. Now that we’re at the end of the year, let’s take a look at some of the trends that developed, what was successful, and what to expect for 2023.

Global supply chain challenges

There have been several major challenges that tested the global supply chain over the last year. Let’s look at how inflation and the looming recession has changed the industry.

1. Inflation affects supplies, services

Inflation has driven the cost of everything sky-high. From supplies to services, everything is more expensive. About 71% of global companies stated the cost of raw material as their number one supply chain threat going into 2023. Not only does this affect service providers’ bottom lines, but it also drives prices up for consumers. In 2022, consumer prices experienced the largest 12-month increase in the last 40 years, increasing 9.1% over the last year alone.

Inflation is directly linked to two other major supply chain disruptions. Global tensions over goods have erupted all around the world this year. The Russian invasion of Ukraine caused roughly 7 million people to flee Ukraine, creating a massive humanitarian crisis. Several global superpowers placed sanctions on Russia for this move, which drove up the cost of essential goods such as food, oil, and gas.

2. COVID-19

Another massive world-changing event that shook supply chains around the globe is the COVID pandemic. The pandemic also contributed to inflation, but it had some unforeseen effects that we’re still grappling with today such as the labor shortage, factory closures and border restrictions.

The pandemic also permanently changed consumer behavior. People shifted to ecommerce to fulfill their essential needs. About 68% of consumers said they will continue to buy essential products online, creating a new challenge for traditional, physical stores, as well as greater pressure on the supply chain to deliver those goods.

Most notably for the supply chain, the queues at ports have been a massive challenge that we have yet to solve. Lines of hundreds of cargo ships long formed off the coast of some of the biggest ports in the world. It took months to process this backlog and wait times at ports remain high. Over the course of this year, ships have been stalled for an average of seven days, which is up 20% from the start of the pandemic.

These problems are, of course, interconnected. The pandemic caused the labor shortage, which then caused the backup at ports, and eventually caused prices to increase to make up for lost time. Let’s take a look at some of the ways companies have been trying to tackle these massive challenges they faced over the last year.

How sellers face economic challenges

The challenges that the supply chain experienced over the past year has forced companies to make drastic changes to keep up. Technology is improving constantly and new tools are coming on the market that can significantly help companies to overcome these challenges.

In particular, automation technology has really helped to keep the supply chains afloat over the last year. The labor shortage caused factories, warehouses, and transportation to be understaffed, which slowed production. To compensate for the lack of manpower, companies have turned to artificial intelligence and other digital tools to fill the gaps.

1. Digital twins replicate real-world changes to simulate effects

In particular, digital twins have become a popular tool for warehouses and factories to test staffing changes and new technology. A digital twin creates a virtual, real-time representation of a process or environment by using sensors, data, and IoT connectivity. Digital twins can replicate changes to the environment and simulate the effects of those changes without having to deal with the repercussions in the real environment. Digital twins can also help ease the effects of the staffing shortages and can even increase warehouse efficiency by 25%.

Automation and the use of digital twins will also help to increase visibility into production. Visibility is key to sustaining an efficient and profitable supply chain. Luckily, there are plenty of ways companies can increase visibility such as utilizing blockchain for greater security. Prioritizing data management and real-time analytics has proven to increase end-to-end visibility in the supply chain.

2. Risk management

Risk management has also become a topic of conversation among supply chain managers. Because there were so many unforeseen challenges over the last year or two, companies are now thinking on the preventative side for how to tackle these challenges. Again, visibility is key in having a solid risk management plan — including contingency plans for possible disruptions — since so many of these issues were unpredictable and cost companies hundreds of millions of dollars.

Prioritizing risk management and automation is expected to continue into 2023. This will be seen in increased investment in automation technologies like AI and digital twins.

3. Sellers shift to circular supply chain models

One new trend we expect to see next year is a shift from the linear supply chain model to a circular one. This is in large part due to the increased awareness and pressure from regulatory agencies to be environmentally friendly.

Currently, many supply chains use a linear model. That means they bring in materials that are then processed through the supply chain to its final destination, where excess materials and waste are put into landfills. With a circular model, companies repurpose and reuse excess materials and waste in the manufacturing phase of the supply chain, minimizing waste. Not only will shifting to a circular model be better for the environment; it will also be better for your bottom line. That’s because repurposing materials will cut spending costs on raw materials.

4. Emission reduction improves supply chain processes

There are also some trends that will help toward cutting down on emissions throughout the entire supply chain process. Eco-friendly warehouses are popping up all over the world. These warehouses have advanced energy management systems that use gauges and timers to monitor energy use throughout the facility. In the United States, the highest amount of greenhouse gas emissions come from electricity and transportation, so shifting to eco-friendly warehousing could significantly impact the domestic environmental footprint.

One other trend we expect to see regarding eco-friendliness: Big companies will begin to partner with local suppliers. This will cut down on transportation costs. It will also create a symbiotic partnership between big companies and local businesses, ultimately helping to fuel local economies.

Conclusion

As someone in the supply chain industry, I know just how daunting it can be to incorporate many of these changes into your company. But the events we’ve experienced over the last year were unprecedented and had catastrophic effects all over the globe. And who knows what challenges lie ahead? It’s better to be prepared and as automated as possible. That way, when another major challenge strikes, we can keep our businesses running.

Beth Ward is the chief operations officer of Smart Warehousing.

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