- Daily Zen
As the Covid-19 pandemic continues to take its toll on businesses, demand continues to rise. Companies are struggling to meet their production goals. This has led to a supply chain crisis affecting key ingredients such as raw materials and components.
According to the IMF’s forecast, the demand for manufactured goods is expected to grow by 2.6% between now and 2024. However, due to the increasingly global supply chain shortages, manufacturers have been unable to keep up with growing demand.
This article discusses manufacturing challenges and how the current supply chain issues will impact your business in the future.
Manufacturers face several supply chain shortages preventing them from meeting increased demand for their products. Some examples include:
1. Manufacturing Backlogs
Inventory management is critical to maintaining profitability and global supply chain efficiency within any industry. Inventory should be maintained at an optimal level to ensure customers receive products quickly while minimizing costs associated with storage space. Companies must balance inventory needs against customer demands, shipping schedules, and cost-related factors. When planning inventory levels, businesses must consider potential fluctuations in demand and production time.
While many manufacturing firms rely on forecasts to predict future requirements, forecasting errors can result in excess inventories or low inventory levels. For example, when a manufacturer anticipates lower than normal demand during peak season, they may not order enough parts leading to a surplus. Conversely, if demand spikes unexpectedly, overstocking could lead to excessive waste. A large amount of unneeded inventory wastes both capital and operating expenses.
2. High Inventory Levels
If a company does not maintain sufficient capacity, it may face higher costs of storing unused inventory while waiting for orders to increase. This can cause a significant loss in profit because the firm loses money on each item sold, regardless of whether or not the buyer uses the product.
To avoid this supply chain crisis, business leaders must plan ahead. Forecasting needs can often help determine whether or not a business should order additional supplies before a current order reaches its maximum quantity. In other words, forecasting helps a business decide if they should purchase more than what’s ordered right now. Also, companies that anticipate rising demand can reduce the amount of cash spent on purchasing new inventory in case their current stockpile runs out.
3. Lack of Qualified Workers
Another major cause of the supply chain crisis is the lack of a suitable workforce. For a strong team, a business must provide opportunities for employees to develop skills. The ability of an employee to perform specific tasks depends largely on their education and experience. Additionally, employers will require some degree of training to ensure their skilled staff fully understand responsibilities and complete job duties.
When a factory faces labor shortages, businesses usually either hire temporary workers or train existing employees to fill vacant positions. Temporary hires offer flexibility but typically last only until a position becomes available. Recruitment agencies often find qualified applicants who match open jobs and assign them within 24 hours. However, there’s no guarantee that these workers won’t leave once hired.
This current supply chain issue can be solved with the right training for employees. However, training programs work better in cases where the employee already has relevant experience. Instructors teach current workers how to handle certain tasks like packaging products or managing inventory. While this approach is slower than hiring new hires, it offers a way to fill jobs without investing too much in training an individual.
4. Shortage of Raw Materials
The unavailability of raw materials is one major cause of the global supply chain issues. When raw materials such as metals, textiles, rubber, glass, or food become scarce, prices increase dramatically. This causes a domino effect worldwide as producers and retailers try to keep up with domestic demands and global competition. Businesses should consider stockpiling raw materials when possible to prevent this from happening. Doing so avoids costly price increases and gives customers plenty of time to save money for the future.
5. Covid-19 Pandemic
The coronavirus pandemic has caused many businesses to close temporarily or permanently. As a result, millions of people have been cut off from employment and livelihoods. It’s estimated that unemployment rates will continue to rise globally through mid-2022.
It’s difficult to predict just how long the supply chain crisis will last. Many economists expected the economy to recover partially after summer 2021. However, the impact of Covid-19 on the global economy remains unpredictable at best. That means businesses need plans ready to support recovering demand.
6. Economic Slowdown
Many firms choose to operate during slow economic times to lower overall operating expenses. Sometimes this decision is based on accounting regulations, but other times small businesses simply want to be cost-effective. However, the timing of these decisions often leads to unexpected disruptions over the following years. When financial losses exceed revenue gains, firms may stop production entirely or sell off assets to recoup costs.
7. Other Reasons
There are other reasons why supply chain issues exist in manufacturing operations. For example, businesses also struggle when employees exceed staffing requirements. Companies may face difficulties attracting good talent due to uncertainty regarding the firm’s future performance. Likewise, problems getting enough funding mean expansion projects may never start.
There you have it —the major causes of the supply chain crisis rocking 2022. Although the list above details some common shortcomings, every business experiences unique supply chain shortages. Regardless of the reason behind low profits or supply chain issues, your team needs to explore solutions to boost sales and reduce costs.