When 2020 ended, we thought the worst was over. 2021 seemed like the fresh start that companies needed after a year of Covid-19 related complications. Full of optimism and ready to get back on track, brand executives quickly learned that returning to normal was not going to be easy. As we draw near to the end of the year, supply chain disruptions are still present and are now expected to continue well into 2022. Thus, this blog is dedicated to helping you plan your supply chain in 2022
According to Business Wire, managing supply chain disruptions in 2022 is the top priority for 90% of sourcing executives. With that in mind, let’s reflect on what we’ve learned in 2021 so you can take the proper steps towards stabilizing your brands’ supply chain in 2022.
Tackling Shipping Delays
Shipping delays are undoubtedly one of the biggest supply chain obstacles that companies faced in 2021. Delayed shipping was initially due to factory closures in Asia, but as they reopened, the pain point shifted to ships. Ninety percent of the world’s global trade is shipped by sea, with 70% in containers. Congested ports in LA moved operations to 24/7 and forced some to send vessels to the east coast. However, New York and Savannah ports are experiencing a backlog of their own.
Next year, shipping delays will continue. Looking to 2022, companies continue to weigh the pros and cons of reshoring and nearshoring sourcing materials and manufacturing. With most U.S. imports coming from China, shipments are taking three times as long to arrive.
Nearshoring to Mexico or other countries in Central and South America has gained popularity because of lower shipping costs, but our southern border has other perks, too. Manufacturing labor costs in certain regions of Mexico are 20% lower than in China, meaning greater efficiency at a lower price. The Peso has steadily declined against the U.S. dollar over the last 30 years, reducing the effective labor rate inflation to about 3% per year. Unlike China’s Yuan, which has been pegged to the dollar, the currency can’t appreciate from the world’s market under current policy and is more susceptible to inflation, spikes, and unsteady wage growth. Mexico’s steadier wages make it easier to predict future costs, while China’s proves riskier.
A way to test Mexico’s waters is to use their shelter model. Using the shelter model, foreign companies can operate under an established Mexican entity, making it faster and less expensive to expand. Foreign companies have full control of the manufacturing process, own all assets, and control IP. While the employees are technically employed by the shelter company, they are trained and directed by the manufacturer.
Diversification in Your Supply Chain
Supply chain resiliency is a top concern moving forward as many industry leaders try to reduce vulnerabilities. One of the top vulnerabilities is relying so heavily on one country’s exports — China. As the top manufacturing hub, China accounts for nearly 30% of the global manufacturing output. Besides lower production costs, China’s business ecosystem makes it a one-stop-shop. The network of suppliers, manufacturers, and distributors rely on and work together, creating a constantly evolving relationship. However, China’s appeal has diminished as continued tariffs and pandemic disruptions have made it more expensive and difficult to get products delivered on time.
The first step in creating a diversified supply chain is to not keep your eggs all in one basket. Solely relying on one manufacturer means you have little to no flexibility if problems arise. The pandemic and its aftermath have highlighted that the “world’s factory” isn’t as appealing as it used to be. Instead, working with a network of suppliers gives you more security in your supply chain. Other Asian countries such as Vietnam, Malaysia, and Thailand also have incredible manufacturing capabilities. So do many countries closer to home – Mexico, Colombia, and Peru to name a few.
Check out Blacksmith’s sourcing and manufacturing country profiles here.
Supply Chain Visibility is More Important Than Ever
With never before seen disruptions, the current state of supply chains illuminate how important visibility is. Supply chain visibility refers to the transparency of tracking a product from the initial shipment to its final destination. The 2021 State of Supply Chain Execution report found that 63% of manufactures and 60% of logistics providers believe that creating end-to-end visibility is the single greatest return on investment of all their execution strategies today. However, Forbes pointed out that while 92% of executives believe visibility is critical, only 27% of companies have achieved it.
Outdated sourcing technology is one of the main reasons why visibility is low. Many sourcing teams haven’t fully adopted modern technology. The 2021 Voices of Sourcing report showed that nearly a quarter of their respondents relied mostly on manual processes and spreadsheets. To gain more visibility, supply chains must become more digital. Digitally functioning, automated supply chains have the power to integrate IT, operations, and data to improve performance.
Making supply chains more automated isn’t an overnight process, but working with a sourcing company will help increase your visibility now. In fact, 94% of decision-makers believe partnerships with supply chain/logistics companies are necessary. Working with a supply chain company offers you expertise in the market trends and visibility in manufacturing.
If you’re still planning your supply chain for 2022, Blacksmith International is here to help optimize your supply chain. With over 20 years in the industry and factory partners around the world, we’re able to help our clients better navigate and avoid significant disruptions. Contact us today if you help to stabilize your supply chain in 2022.