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Persistent supply chain shortages, transportation capacity constraints, rising freight costs and a global pandemic that refuses to yield are all making life difficult for procurement professionals right now. Add extreme U.S. weather events and geopolitical issues like Brexit to the mix, and it’s clear that some of the biggest pain points segued from 2020 right into 2021 without missing a beat.
As the world emerges from the global pandemic and works to right itself this year, here are five challenges that may continue to keep procurement professionals up at night as we move further into 2021:
1. There’s a global ocean container shortage (and rates are going up). A shipping container shortage created by unloading holdups in China and delays on the return of vessels to the U.S. is causing complexities for importers and exporters right now. This, in turn, is creating supply chain delays for buyers who are waiting for the shipments to arrive from China and other countries. China is sending more exports to the U.S. and Europe, CNBC reports. That’s because its economy bounced back faster than expected once the country got the pandemic under control. “As a result, containers are stuck in the West when they are really needed in Asia,” CNBC adds. As with any supply-and-demand environment, the container shortage is also driving up transportation costs. In December, for example, spot freight rates were 264% higher for the Asia-to-North Europe route, compared with a year earlier, CNBC reports. For the route from Asia to the West Coast of the U.S., rates were up 145% year over year.
2. Electronic components are in short supply and high demand. Pre-COVID, electronics buyers were already dealing with component shortages in some sectors. The global pandemic exacerbated the problem, which has yet to be resolved. Along with broader supply chain shortages that have ebbed and flowed since March 2021, there’s now a global silicon chip crisis underway. When auto manufacturing was suspended in 2020 due to COVID-19, NPR says that the “global semiconductor industry planned accordingly, and arranged to sell more computer chips to other buyers.” When people started buying more new cars, plants resumed normal operations. As a result, demand for chips outpaced supply. In January, Ford announced that it would halt production at one of its German plants, the “latest sign that a global shortage of computer chips is putting carmakers under increasing pressure and threatening their recovery from the pandemic,” CNN reports.
3. U.S. ports are congested. Bloomberg says that ships are “piling up” outside Los Angeles and other major U.S. ports as American companies try to restock warehouses and consumers—lacking travel and other entertainment options during the pandemic—buy more products for their homes. “Compounding the logjams are issues on land like sick longshoremen, social-distancing restrictions for those who are working, and shortages of equipment and truckers to move the containers,” Bloomberg adds, noting that Ikea has alerted customers to potential disruptions from global transport delays and Whirlpool is paying more for faster options like air cargo to get its components and products on time.
4. Doing more with less remains a priority for most companies. “Even companies that fared better during the pandemic must still brace for ongoing instability for some time,” The Hackett Group warns in a new report. “Procurement must continue to focus on its core mission of spend cost reduction, leveraging digital tools, and business partnerships to maximize savings.” For example, The Hackett Group says that specialized procurement technologies can “elevate the strategic sourcing process” and that leveraging new data sources can widen the marketing intelligence available to sourcing teams.
5. Supply chain risk is lurking around every corner. Supply assurance became a top priority for companies last year, and now procurement is being tasked with further strengthening its third-party risk management approaches. “While many procurement organizations feel confident in their existing risk management programs, the mandate is clear to accelerate and enhance these capabilities,” The Hackett Group states. “This means engaging risk monitoring across a broader set of risk exposures at earlier stages of the supplier life cycle—during the beginning of the sourcing process—and continuing to monitor and mitigate risks using real-time data and insights through the full supplier lifecycle.”
