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Supply Chain Recovery May be Painful Featured

Supply Chain Recovery May be Painful person forming heart with their hands

The COVID-19 pandemic exposed the modern supply chains as just a house of cards that can collapse when they are put under pressure. Many businesses caught flat-footed by lockdowns and restrictions of movements have found the recovery process difficult to navigate. The clogged ports and shortages of materials resulted in backlogs across the supply chain hubs. While things are starting to unwind, trade channels continue to face challenges making it hard for operations to return to normal. Assuming that a new wave of the virus does not emerge, the worst-hit industries are expected to recover at the beginning of 2023 or the end of this year.

Starting in 2020, companies responded to the difficult moments inflicted by the pandemic by cancelling their production plans, only for the upswing in demand to blindside them. Furthermore, the containment measures and restrictions that governments came up with triggered labour shortages. It also led to factory shutdowns because of reduced consumer spending, affecting consumer goods and services.

As demands continue rising, manufacturers have resorted to raising capacity utilization rates as a way of responding. Since the start of this year, the US and German electronics manufacturers have raised their utilization rates by five and seven percent, respectively. On the other hand, the auto industry has not been able to keep up with the other sectors. This is due to the backlog of investment in industrial infrastructure. When the disruptions in the supply chain ease, we expect a faster clearing of backlogs. However, the surging fuel prices are also expected to reduce the recovery speed of supply chains. With these challenges, export-led economies have resulted in recovery being choked by supply bottlenecks which affect factories. Similarly, the surging cost of shipping and high fuel prices have led to inflation.

The omicron variants have become mild, promoting the governments to loosen the restrictions. This has resulted in positive outcomes for companies, as snags are slowly unwinding. According to a survey by the Institute of Supply Management (ISM), there are signs of improvements in the US labour and supplier delivery performance for three months running.

The severity of the disruption has affected global industrial production and the ability to accommodate consumers' strong demand, resulting in a drawdown in inventories because of demand. While the recent data suggest that the inventory bottlenecks have begun to ease in various sectors, there is an exception in some industries like the automotive industry, where there is a global shortage of semiconductors which hamper production. Due to the time it takes to build chip factories or expand existing ones, this is another challenge that emerged during the pandemic. While the challenges in this industry largely remain, around half of the respondents expect disruptions to their businesses to end only in the second half of 2022.

Most people expect that shipping pressures will lift off once the goods supply issues ease and capacity is built, leading to industrial output accelerating. However, this may not mean smooth sailing. Rather, there are challenges associated with labour shortages, which may affect recovery. In the US, recovery is underway although labour shortages are expected to continue, this will unwind as unemployment benefits are no longer available.

Although things will get better with time, any resolution will depend on the future developments that may affect supply chains and strain them. For consumers, it will be some time before they can experience what they used to experience before. However, they should not expect pre-pandemic levels in many aspects like pricing and availability. According to various executives in the manufacturing sector, they expect the prices of raw materials to rise.  

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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