Originally published November 19, 2021, updated June 13, 2022
Supply chain problems dominate the news these days. One business lacks machinery parts and another can’t get their hands on office supplies. Trucks sit idle, warehouses are jammed, and cargo ships form flotillas. There are bottlenecks up and down the supply chain.
But what caused the supply chain crisis? Digital commerce played a part in creating the problem. Buyers wanted to purchase more online and we’ve made it possible. This frictionless purchasing path is driving up demand at a time when supply chains are fragile. Companies react to shortages by stockpiling supplies, thus exacerbating the problem and worker shortages can be found in every vertical. However, these are only a small part of the bigger picture in the complex system of global supply chains.
Supply Chain Crisis News: Effects on B2B Businesses
Supply chain disruptions seem like they’ve been with us forever. At the beginning of 2020, the COVID-19 pandemic ground supply chains around the world to a halt. In 2021, that was only made worse by the China-US trade war, post-Brexit concerns, global instability, a lack of skilled workers, and growing social unrest.
Today, the devastating war in Ukraine and the resurgence of Omicron in China has led to shortages across hundreds of industries and strained global supply chains even more.
As situations remain fluid and change relatively quickly, we’ll update this post bi-monthly as more information becomes available.
Week of June 15:
The DAX Transport Logistics Index has been dropping considerably over the past month. While shipping containers have been freed up due to Russia’s invasion of Ukraine and lockdowns in China, container costs have dropped significantly. Supply chain and labor shortages remain, translating to shipping and processing delays.
- How the automotive industry can succeed
According to McKinsey, the semiconductor shortage will likely sustain for at least three to five years. While supply chain issues, the pandemic, and insufficient capacity are certainly to blame, the rush to reorder semiconductors by automotive manufacturers is contributing to the problem. To build resilience and survive the crisis, the automotive industry must look for alternative sourcing models and build stronger relationships with suppliers.
Inflation in the US beat last month’s record and reached 8.5%, with EU numbers not far off at 7.4%. Such figures impact how companies plan for the future, shrouding long-term economic forecasts with even greater uncertainty. Recently, a Moody’s report identified the plastic packaging industry (directly linked to oil prices) at significant risk to cost increases. Meaning profit margins will be affected in the future.
- Supply chains in the pre-commerce stage
The pre-commerce stage, which depends on product design, marketing, and strategy-forming, is crucial in forming an end-to-end product development process. The B2B business model, according to the article, places design at the forefront of innovation and user needs at the forefront of design.
- Rising food prices are a global issue
Surging food prices mean that the lower end of the income ladder will suffer most. Low-income households spend a higher share of their income on food compared to their middle-class counterparts. What’s more, prices for low-cost foods such as breads and cereals are among those that have risen the most.
Week of June 1:
- Agricultural food crisis in pictures: some countries affected more than others.
Reuters recently published a picture essay showcasing the many ways the war in Ukraine is affecting food prices and supply chains. The food price index tracks international prices of globally traded food commodities and reached its highest peak since recording began in 1990. Lebanon, the country that heavily relies upon Ukraine wheat imports, saw more than a 300% price increase.
- How to prepare for a drawn-out supply chain crisis.
The intensity of the supply chain crisis in the Eurozone will depend on the length and severity of the war. Accenture published a report with many helpful diagrams of what to expect and how to plan for various scenarios. In an ongoing war scenario, economic losses could reach €242 billion (2% of GDP), or €920 billion (7.7% of GDP) in a protracted war scenario.
- European aerospace supply chains in rough position.
Aside from agriculture and chemicals, Russia and Ukraine are key suppliers of metals and alloys for the aerospace and defense industries. Sanctions and restrictions on Russia, as well as disruptions in Ukraine, are putting pressures on global metals prices. Furthermore, industry experts fear that additional sanctions on Russian metal suppliers can be imposed, causing even more pressure on the industry.
- Insurance premiums for shipping companies on the rise.
Global insurance premiums for both aviation and marine shippers are rising steadily, which are passing upward pressure on shipping rates. The insurance spike, which rose to 11%, masks moves in some sectors, and only covers the first few weeks following the invasion. The area around the Black Sea and the Sea of Azov remains particularly volatile, with insurers charging millions of dollars for a seven-day policy.
- The good news: shipping container prices are dropping.
While costs for containers have been dropping since March, analysts are saying it’s far too early to celebrate. Incidentally, the war in Ukraine, the lockdowns in China, and the dropping demand led to a decrease in prices. Congestion in much of the world’s supply chains continues persisting, costs for raw materials are going up, and global uncertainties continue to mount.
Week of May 18:
- China’s zero-tolerance COVID approach idles factories, slows raw materials deliveries, and worsens container shortages.
While the impact doesn’t appear to be severe at the moment, it’s likely only the beginning. We’ll be seeing more disruptions to the global supply chain – from sneakers to electronics to automobiles. That is especially true as outbreaks in smaller Chinese cities appear, and the war in Ukraine continues.
- Aside from supply chain issues and inflation, businesses also face overhiring.
Businesses can’t catch a break lately. Since 2020, many had to deal with lockdowns, rising costs, higher interest rates, and labor shortages.
According to Barrons, retail giants such as Amazon and Costco have seen falling stock prices, likely due to massive hiring sprees that outpaced sales numbers. If sales drop further, it could mean more bad news for investors, suppliers, and retailers.
- Harvest of War: The war in Ukraine will soon affect the world’s food supply.
India restricted wheat exports last week, shaking up the global agricultural supply chain.
Typically, this would not be a cause for concern, but when done against the backdrop of the war in Ukraine and global food uncertainties, it only underscores the bleak prospects for the global wheat market. The result? We’ll likely see greater shortages and prices driven up even more.
- Ukraine’s wheat harvest is unlikely to fall. The problem is getting it out of the country.
Despite an ongoing conflict, roughly 80% of Ukraine’s crop has gone into the ground. If Russia does not make further territorial gains, harvesting should not be a problem. However, getting supplies shipped out of the country will be a challenge. Usually, 90% of grain exports flow through ports into the Black Sea, but that route is closed due to the Russian military presence in the area.
- Re-shoring is becoming popular for manufacturers of oversize or bulk items such as furniture.
Manufacturers seek facilities near where they sell to eliminate growing shipping costs and delays. They also look at eliminating unnecessary storage space entirely. For one furniture manufacturer, the answer was creating an on-demand product development process that reduced the cycle time for product development, launch, and modification.
Week of February 15:
- Canada’s Freedom Convoy blocks busiest US-Canada crossing over the weekend (partially reopened since).
- Freedom Convoy disruptions cost auto industry $300 million in parts shortages and work stoppage.
- Trucking rates between Canada and US soar dramatically due to trade interruptions between the two countries.
- Supply chains in the US remain the most vulnerable while China is least vulnerable to shocks, according to study.
- Reshoring initiatives are getting more attention in Washington and among US manufacturers and distributors.
- Over 93% of Amazon sellers lost revenue from supply chain disruptions (same as traditional sellers).
- Making sense of the inflationary, economic, and political challenges that resulted in the supply chain crisis.
Week of February 1:
- Why the supply chain crisis is a hidden opportunity for B2B organizations.
- How the packaging industry is adapting to the global supply chain crisis.
- Supply chains, inflation, and omicron add up to a pessimistic global outlook.
- Experts look ahead at what the supply chain will look like in the coming year.
- The CHIPS Act has the potential of making American chips more competitive.
- Robots and automation promise to enter the mainstream for supply chains.
- Sourcing the right manufacturer with supply chain crisis management in mind.
Supply Chain Crisis Explained: How It Started
Disruptions around the world have led to shortages of everything from industrial to consumer products. These issues cannot be traced to a single culprit. Resources are scarce, costs are up for everything from labor to transportation, and there’s simply not enough capacity to meet rising demands.
Here are some of the biggest drivers of disruptions and delays we’re currently seeing.
1. The COVID-19 pandemic
At the height of the pandemic, many manufacturers shut down or reduced operations. However, restarting operations has proven to be more difficult than expected.
Rising and falling infection rates impact various parts of the world differently. For example, China requires a rapid shutdown of factories and shipping centers at the first sign of infections. China’s actions create a domino effect on manufacturers and shippers in Malaysia, Indonesia, and Vietnam. These countries serve as an essential source of apparel, consumer goods, and computer chips for cars and electronics.
Aside from reduced manufacturing capacity, new cases of the Delta variant threaten to reduce manpower at busy container ports around the world. These concerns extend to the trucking industry, making it harder for trucks to cross borders. Moody analysts warn that supply chain disruptions will get worse before they get better.
As the holiday season approaches, deliveries will be delayed, increasing costs, squeezing profits, and stalling GDP growth worldwide.
2. Increased demand
Consumers have gone out less and thus spent less during lockdowns. Combined with government checks, this has led to pent-up demand.
Deloitte forecasts consumer spending will grow 8.1% by the end of 2021, rebounding from a 3.6% contraction in 2020. This increase amounts to trillions of dollars in spending in a relatively short amount of time, straining producers. The result is more orders, but also more frequent out-of-stocks, delays, and rising prices.
Secondly, manufacturers have been cutting costs in the face of the pandemic, trimming inventories to match demand. Now, faced with shortages, they are ordering extra supplies, increasing the strain on distribution systems.
3. Worker shortages
Before the pandemic, manufacturers faced a growing worker shortage. Today, similar shortages plague the entire supply chain, from dockworkers, warehouse staff, truck drivers, railyard workers, and maintenance specialists.
To make matters worse, the labor participation rate (the percentage of people employed or actively looking for work relative to the whole population) remains unchanged at around 60 percent, dropping 1.7 percentage points lower from the start of the pandemic.
Fear of infection has kept many away from the workplace, while government policies keep others at home. The combination of workforce reductions, unemployment benefits, government payouts, and workplace shutdowns reduced workplace participation to record low numbers.
While unemployment levels continue trending down, they are yet to reach pre-pandemic levels.
4. Transportation woes
Much of the Western world offloaded its manufacturing to Asia because global trade has made container shipping inexpensive.
Once the pandemic began, importers began to see their first disruptions, which only accelerated as economic activity picked up. By the summer of 2021, container shortages and bottlenecks at ports tied supply chains in knots and drove shipping costs up. These developments forced brands to seek alternative sourcing possibilities and even consider air freight for high-value products to bypass gridlocked ports.
Another contributing factor is circulation. While there are plenty of dockworkers, trucks, containers, and truck drivers, they are often in the wrong place or not equipped to handle retail loads. Shipping lines want their containers in Asia, refusing to send containers inland. Truck drivers can’t easily switch from industrial shipping contracts to retail.
The same can be said about warehouses. While the US has plenty of warehouse space, vacancy at port cities remains low, driving up rental growth rates.
5. Social unrest
Those in low-wage occupations who lost their jobs due to the pandemic have had a more difficult recovery. Many were already economically vulnerable and remained at a disadvantage as the pandemic accelerated.
Some governments and workplaces introduced vaccine mandates, which put an additional strain on worker participation. In the U.S., the vaccine mandate is on hold as it makes its way through the courts and it is difficult to estimate how employment levels will be affected.
Lastly, there is a rise in strike activity. Disillusion with pay and workplace conditions caused by the pandemic, workers across all sectors are walking out in record numbers. More than 100,000 US workers either went on strike threatened to strike in October giving rise to the hashtag Striketober.
6. Energy issues
The worldwide energy shortage is one of the most acute in recent history, and it comes as energy demand is increasing. Rising oil prices are felt everywhere, from manufacturing facilities to the gas pump, leading to higher costs for producers and retail consumers. And green initiatives are making energy more expensive and less available.
Germany’s move away from fossil fuels includes a plan to close down all nuclear and coal capacity within one to two years at a time when its population and economic output continue increasing, sustaining demand. This makes them more reliant upon Russia and less self-reliant. Across the European Union, the master plan to achieve carbon neutrality has member states moving from long-term contracts to short-term pricing making energy even more costly.
Meanwhile, control of oil and gas production is concentrated in a few countries, namely OPEC nations and Russia. These energy producers can control output to artificially inflate prices. China has energy problems of its own. Record flooding impacted coal production and increased demand for liquid natural gas, further straining supplies.
Domestically speaking, oil and gas production in the U.S. will continue to lag well behind demand. The current administration put a pause on new oil and gas leases that lasted until June when a Federal Judge issued an injunction. Even with leases in the Gulf of Mexico becoming available, it will take months for new production to come online and even longer to impact prices.
Supply Chain Crisis in 2022: Why Things Are Getting Worse
Last year, challenges revolved around post-COVID demand spikes in the face of increased safety precautions and suspended manufacturing work. This has continued as Delta and Omicron variants threatened manufacturing plants and port workers around the world.
Fast forward to today, and the world is faced with even more, not fewer, challenges. The China-US trade war shows no signs of resolution. Any industry relying on semiconductors – be it automotive, appliances, gaming consoles, or other electronic systems is experiencing shortages.
The food security situation, exacerbated by the war in Ukraine and climate change, is already leading to price increases and presents worrying signs of a collapse in food supply among developing nations.
At the time of its invasion, Ukraine was the fourth-largest exporter of corn and wheat, and the world’s largest exporter of sunflower oil. More than 80% of Egypt’s, East Africa’s, and other Middle Eastern countries’ grain come from Ukraine and Russia. Exports have been halted either due to blockades of Ukrainian ports or due to Russian sanctions. Both countries are critical for nitrogen, phosphorous, and potassium fertilizer exports, a lack of which will lead to lower yields. Record droughts in the US, Europe, and India caused by climate change only worsen the situation. Virtually any food product involving grains and seeds boosts their prices, and experts don’t expect crop production to recover for years after the fighting has stopped.
Almost immediately after Russia’s invasion of Ukraine and the subsequent sanctions on Russian energy exports, worldwide oil prices have soared. Brent oil prices rose to their highest level past the peaks of 2014 and 2008. As the European Commission banned the purchase of Russian gas in May 2022, many countries saw 50-200% cost increases for electricity and general living expenses. In the United States, the Biden administration tapped into local oil reserves and scrambled to craft new oil deals with Saudi Arabia, Venezuela, and Iran to increase oil production. Not all countries came onboard with the idea. Saudi Arabia and the United Arab Emirates declined requests by the United States.
Last year, we saw bottlenecks, lack of space, and containers at many American ports. These issues still haven’t fully resolved themselves. Even as COVID-related restrictions ease off, ports remain strapped for staff and lack the infrastructure to process cargo efficiently. Coupled with an ongoing labor shortage, trucks and container ships began to accumulate and wait outside ports for days and weeks. The trucking industry also felt the brunt of this crisis. An industry short on drivers saw a mass exodus due to conflicts over COVID mandates, poor working conditions, and compensation.
As Shanghai plots a path out of its recent COVID-19 lockdown, brands are treating it as a wake-up call to diversify themself off Chinese suppliers. While the Chinese port city, one of the busiest in the world, kept its ports open, it has imposed stringent movement bans, banning unapproved vehicles from the streets.
Even before the pandemic, Levi’s worked to reduce reliance on China. The retailer decreased its manufacturing capacity in China from 19% to single digits. Moving forward, Levi’s is well-prepared for further COVID-19 lockdowns in China. They can quickly move their capacities to other areas within China and across borders. According to CEO Chip Bergh, “We can quickly move our pieces, our manufacturing to other places on the map.”
How Technology Can Address Supply Chain Challenges
Difficult supply chain conditions have led many companies to rethink their supply chain operations. A big part of that is digital technology, which promises to bring innovation to an industry that needs it. Here are some ways technology can help organizations build stronger, more resilient, and more adaptable supply chains.
Spot potential problems early
Supply chains are complex, whether they’re global or local. Until recently, most manufacturers and distributors only concerned themselves with efficient operations, monitoring, and reporting. Today, B2B businesses must continually monitor supply chains, spot upcoming disruptions on the horizon, and keep customers informed every step of the way.
Supply chain monitoring tools are a must for manufacturers, warehouses, and logistics companies. For example, companies should integrate data between business systems such as a B2B eCommerce platform, CRM, BI, and ERP. Integrated systems provide customers with insights into your supply chain before they place their orders. And with increased information flows, businesses can make informed decisions and apprise customers of their order status.
Enable flexibility and agility
With supply chain challenges projected to last well into the next year, now’s a good time to think about supply chain flexibility. Digital solutions can increase data visibility and make informed sales projections that consider various supply chain elements simultaneously.
Today’s uncertainties make quick sourcing ability, capacity changes, or fulfillment flexibility a must-have for many supply chains. Technologies that include flexibility to extend and customize are well suited for the task. Flexible workflow automation capabilities simplify complex processes, minimize errors, and make it easy to enact changes as necessary.
Better prepare for the future
Visibility and agility are great, but businesses need the ability to act according to changing circumstances. Whether it’s quickly growing suppliers, boosting communications, making contingency plans, or expanding operations – it all requires a stable foundation.
A strong B2B eCommerce presence gives businesses greater maneuverability in the face of delays and disruptions than would be possible with brick-and-mortar infrastructure. Brands can adequately respond to demands, grow their stores, launch new ones, or roll out to additional regions. It also helps them grow when things do get back on track.
Improve the customer experience
Even before the pandemic, the customer experience was the key differentiator, more important than price. Companies that weren’t paying attention to customer experience before the pandemic quickly learned during the pandemic that experience is very important to customers.
Sales channels, whether offline or online took on new roles. New experiences powered by innovative solutions – such as BOPIS have become the norm for many operations. And most importantly, businesses that innovated and offered new options to customers moved up the ranks in their markets.
Keeping Customers Satisfied In Uncertain Times
Supply chains play a massive role in customer satisfaction as it impacts the things that matter to customers: availability, price, and delivery times. However, when supply chain elements are out of your control, it may seem there’s not much you can do. We reached out to a number of brands to find out how they manage less-than-perfect supply chains and keep customers satisfied in these uncertain times:
Focus on visibility and flexibility
Businesses can start delivering better customer experiences in a number of ways, believes David Reid at VEM Tooling. The first is integrating operations and segmenting processes where possible. The added transparency with their suppliers can also enhance efficiency and responsiveness. It also helps with managing inventory levels while minimizing planning cycle time.
While delivering on time isn’t always possible, it can be optimized. For instance, real-time vehicle tracking and optimized delivery routes based on traffic conditions improves the delivery of goods to clients and makes the most of the driver, fuel, and vehicle resources.
Utilize intelligence and data
Online retailers can implement AI powered eCommerce to pinpoint low stock conditions so that replenishment can be triggered earlier. This ensures stock doesn’t reach critically low levels and negatively impact the customer experience – a must-have for today’s supply chains, thinks James Khoury of Zendbox.
However, some supply issues cannot be resolved with technology alone. There’s a limit to what a business can do, and the customer may need to change their approach and plan purchases differently to guarantee their timely delivery.
Introduce discounts and promotions
One of the easiest things to do when affected by supply chain shortages is to adjust sales and marketing strategies. Kyle MacDonald from Mojio, a manufacturer of electronics for the trucking industry is honoring its new and long-time clients with a holiday discount off various product lines.
Investing in technology, warehousing, and inventory can alleviate some supply chain pain. Understanding challenges outside of your control and keeping open lines of communication will minimize their effect on the shopping experience of your customers.
Share alternatives with customers
It’s a slippery slope if a popular product is suddenly unavailable due to an external event, says Sarah Jameson from Green Building Elements. Customers expecting a product delivery have little patience for any justification, regardless of how legitimate the cause may be.
This mentality also applies to digital shops. If you’ve built a flexible and dynamic eCommerce platform on which to operate, you should be able to design messaging that informs customers when a popular out-of-stock item is encountered and what alternative items you do have in stock that serve as a suitable substitute.
Keep your relationships strong
As our lives get busier, we often forget the importance of a simple personal follow-up. Tanner Arnold, President, and CEO of Revelation Machinery, says that if you want to go above and beyond in customer service, make it a habit to follow up.
Reaching back to clients after a long period of time might also serve to remind them that your product or service is still available and that your customer service is outstanding. In some cases, following up with an old customer may prompt them to make another purchase or provide a word-of-mouth recommendation to someone else.
Just don’t forget about the back office. As supply chain situations develop, it’s important to distribute crucial information across all segments of operations. This way, your company will be better prepared in case a sudden supply chain crisis develops in the future.
How One Distributor Improved their Customer Experience
Forklifts are the backbone of any warehouse or distribution center. Whether you’re performing preventative maintenance or troubleshooting forklift issues, productivity losses due to downtime can be huge. And most of this downtime can be spent waiting for replacement parts.
TruPar specializes in forklift parts distribution and works with various manufacturers and distributors to fill its catalog of truck, stacker, scissor lift, and other related parts. The company supplies more than 45,000 customers across the US, Canada, and Mexico with 7.5 million parts from 600 brands. TruPar’s customers range from small to large businesses, and their expectations are high, even when supplies are scarce.
According to Sean McDonnell, TruPar’s CEO, it’s all about the customer. He maintains a strong customer focus and believes the company’s pursuit of improving the customer experience is paramount to success in the age of uncertainty. To that end, he invested in real-time eCommerce technology that provided him the foundation, visibility, and flexibility to get customers closer to their goals.
Real-time product prices
Real-time prices improve the customer experience and reduce friction and disappointment during rapidly changing market conditions. The rising cost of materials, manufacturing delays, or issues along the supply chain can impact part prices. By reflecting these changes in TruPar’s prices, the price displayed is the price paid.
Real-time product availability
Due to ongoing supply chain issues, distributors are experiencing unavoidable delays. When real-time availability is communicated to customers, they can avoid backorder surprises and place orders confident the part they need is in stock. TruPar pulls in product availability data from various locations for every product, giving customers availability data across warehouses.
Real-time lead times based on location
TruPar doesn’t stop with real-time pricing and availability. To minimize the negative impact of product shortages and delays, they provide the customer personalized shipping times based on their address. Customers are more comfortable and confident about their purchase and don’t leave the site to shop elsewhere. This increases conversion rates and customer loyalty.
B2B Sellers Should Prepare for Continued Difficulties
Supply chain issues are not going away, and traditional responses such as diversifying suppliers, building alternative networks, and sourcing closer to home may not be enough to keep goods flowing in your pipeline.
Countries and economies around the world are battered by trade wars, materials shortages, shipping backlogs, and war in Europe.
Customer expectations remain high, and B2B brands are forced to innovate and find ways to keep existing customers happy while attracting new customers as well. This can mean utilizing resources and technology in new and innovative ways. Technologies such as AI, eCommerce, CRM, ERP, BI, monitoring tools, and analytics allow brands to generate, test, and implement new solutions to their problems.
These technologies may help companies adapt their souring strategies, future-proof their business in an uncertain world, and proactively build resilience when others can only react.
Questions and Answers
Why is the supply chain in crisis?
What is causing the ongoing supply chain crisis and why is the crisis getting worse? The supply chain crisis was initially caused by the post-COVID buying surge, the resulting social and labour force issues, and backlogs in the supply chains. At the beginning of 2022, new challenges, such as the war in Ukraine, the Chinese COVID crisis, as well as Russian sanctions. They already spell trouble for food security, energy prices, and business spending.
What are the major supply chain issues?
The major issues affecting the supply chains include raw and finished goods shortages, the resurgence of COVID variants, the war in Ukraine, and difficulty sourcing suppliers. Larger players hold the advantage, as they have larger negotiating power. However, smaller players can utilize technology to build relationships and use their unique competitive advantage to sweeten the deal with suppliers.
How should brands build supply chains in 2022?
Diversification seems to be the name of the game for manufacturers, distributors, and retailers in the year ahead. Constantly building existing relationships and seeking out new suppliers is likely to shield SMBs from threats posed by external events and larger competitors. While this crisis will force brands to increase prices for customers, it’s important to be clear and authentic when communicating pricing increases to customers.