When will supply chains return to normal?

Discussion
Photo: @5byseven via Twenty20
Jul 25, 2022

While congestion has lessened at West Coast ports, global supply chain disruption may linger for years due to economic conditions, rising inflation and global tensions, according to a survey of U.S. supply chain executives from Carl Marks Advisors.

The survey taken over May and June found that more than half of executives do not expect a return to a “normal” supply chain until the first half of 2024 or beyond, while 22 percent expect disruptions to continue until the second half of 2023.

When asked what “magic levers” could bring supply chain costs under control in 2022 and help mitigate uncertainty, the leading responses were: an end to the war in Ukraine, cited by 32 percent; lowering fuel costs by 20 percent, 31 percent; outlawing supply chain profiteering/corruption, 21 percent; and raising interest rates quickly and significantly to halt inflation, 10 percent.

“With no apparent end to the Ukraine conflict in sight, we would expect fuel costs to continue to put pressure on supply chains for the remainder of the year and possibly beyond,” said Peter Keogh, managing director, Carl Marks Advisors. “Moreover, with the U.S. economy potentially entering a recession, we could see an extended period of uncertainty.”

More encouragingly, Citi economists in a report earlier this month said logistics pressures from excessive consumer demand for goods — a central driver of inflation and the supply imbalance — are lessening, although that signals “recession risks” and may drive an inventory pileup.

Citi cautioned against declaring an “all clear” on the supply front, citing labor strikes, COVID-related factory disruptions, the Ukraine war and year-end holiday shipping pressures as potential risks.

More bleakly, some believe massive investments in automation, nearshoring/onshoring, ships, warehouses and truck drivers will be necessary to manage an uncertain trade environment. Beyond heightened geopolitical risks, dealing with climate change, including an increased number of natural disasters, pose newer risks.

Craig Fuller, CEO at FreightWaves, wrote in a column in May, “Historical models no longer work — as the world becomes far less predictable, peaceful and safe — and supply chains are far more exposed to supply and demand shocks.”

DISCUSSION QUESTIONS: When do you see global supply chains becoming at least more predictable? What are the biggest unknowns?

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"I hate to say it out loud, but supply chains will never be normal again. We now live in a world full of unknowns that are outside of our control."

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27 Comments on "When will supply chains return to normal?"


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Dave Wendland
BrainTrust

The title of your post, Tom, is likely a fairy tale. The “normal” that we became accustomed to will never return … and, honestly, that’s a good thing.

Many companies had placed far too much reliance on international sources thus creating a choke point that was unsustainable. Combine that with “just-in-time” inventory practices and the results of a pandemic, and the traditional supply chain couldn’t handle the situation.

Predicting the future is difficult, but here are three things I see emerging:

  1. Locally-sourced and multi-sourced options;
  2. Reduced inventory (right-sized and optimized assortments);
  3. Technology (AI-powered decision making and autonomous trucking and/or shipping).

As for the unknowns, I would include the following:

  1. Inflation (consumer spending);
  2. Global unrest (conflicts such as Ukraine and potentially Taiwan);
  3. Ongoing health issues (pandemics, etc.); and
  4. Workforce availability.
Dave Wendland
BrainTrust

Here’s another terrific article on the topic from my friend, Jason Reiser.

DeAnn Campbell
BrainTrust

I hate to say it out loud, but supply chains will never be normal again. We now live in a world full of unknowns that are outside of our control. Future pandemics, political unrest, wars, climate disasters, or increased difficulties in obtaining raw materials are now constant possibilities. It’s time to reinvent the supply chain system to be less reliant on one or two dedicated sources. The only consistency we will see going forward is the need for capacity to flex quickly and often.

Dave Wendland
BrainTrust

You nailed it, DeAnn!

Nikki Baird
BrainTrust
There is still too much backlog clogging the supply chain — I’ve heard from retailers that they’ve been receiving things now that they had ordered for Holiday 2020. So when we talk about “inventory pile-up” it’s both a combination of the classic bullwhip effect in the supply chain (over-ordering in expectation of getting less wreaking havoc by signaling way more demand than actually exists), and still working through the backlog that built up during the early part of the pandemic. But I question the idea of the supply chain going back to “normal” — it was not normal before the pandemic, so returning to 2019 really shouldn’t be the objective. Before the pandemic started, supply chains didn’t adequately price risk into cost, they were too stretched and fragile, and their carbon footprints were already being questioned (and now being questioned even harder). There’s a new normal ahead for supply chain: more resilient, shorter, more responsive, more sustainable. But it’s going to require a lot of work — work that is more difficult because of political… Read more »
David Naumann
BrainTrust

Supply chains continue to become more complex and unpredictable. The global nature of supply chains creates more dynamics that impact the flow of goods — political, economic, climate, labor, and very unpredictable elements like the recent pandemic. With the unpredictable nature of supply chains, retailers need to develop agile supply chain processes with contingency plans to adapt to disruptions.

Ken Morris
BrainTrust

Everyone’s supply chains will return to normal on Friday, September 23, at 3:21 a.m. Eastern time. That’s also “Save the Koala Day,” by the way.

In the off chance that my prediction is off, then here’s what I really think about this:

We have already been burned by the offshore supply chains, and many retailers and their suppliers are moving to real-time, nearshore or onshore alternatives. It will take years to pull this off, but leaving yourself open to never-ending pandemics and unpredictable political conflicts leaves us no choice.

David Spear
BrainTrust

We’ll see global supply chains become somewhat predictable again near end of 2023/early 2024. Of course, this assumes the Fed continues to raise rates to tamp down inflation and there are no more gigantic spending bills. The big unknowns include increasing tensions between China and Taiwan, nukes being introduced in the Ukraine/Russia fiasco, and multiple hurricanes that disrupt oil production in the Gulf.

Dion Kenney
BrainTrust
24 days 6 hours ago

The issues challenging the US economy are not like prior challenges. As mentioned, global instability is at a dangerously high level, and at a time when US supply chains have become more reliant on international trade. The resulting inflation is consequently different than previous inflationary periods, being driven by logistics rather than manufacturing capacity limits.

As a result, it is impaired supply-side issues impacting economic activity rather than the more usual consumer pull-back from spending. The latter is a leading cause of recessions, whereas the former is a driver of inflation. So we could anticipate that pandemic-driven pent-up demand may not decline for the foreseeable future, and a recession may not be as likely to occur until demand softens significantly from current levels.

Mohamed Amer, PhD
BrainTrust

The real lesson from the last two years is that supply chain models have been structurally based on a low volatility world, which no longer exists. Geopolitics pressures, domestic polarization, demographic changes, and food and water insecurities all operate on top of the current economic cycle and tightening the money supply. The supply chain networks that thrived for the past four decades are out of sync with geopolitical realities today and moving forward. Manufacturing, sourcing, and demand patterns are changing, and any equilibrium they find will be short-lived. The most crucial action for companies in the retailing world is to increase their capabilities of proactively identifying, assessing, and mitigating risk. The days of operational stability and certainty are in the rearview mirror.

Brandon Rael
BrainTrust

A return to the global supply chain normalcy is a fallacy, and we should expect the continued global impacts to make the situation even more challenging and unpredictable. With the great digital acceleration and global supply chain disruptions, businesses are challenged to drive profitable and sustainable growth while mitigating operating costs in our uncertain and inflationary economy.

Agility is the name of the game as suppliers and procurement teams will need to take a more innovative approach to drive a flexible operating model that is a mix of nearshoring and a decreased dependency on offshoring. Contingency planning and a more prescriptive supply chain operating model are crucial, as the unprecedented events, such as the Ukrainian war and other global disruptions, are not ending any time soon.

Lisa Goller
BrainTrust

Global supply chains may be more predictable over the medium term at the earliest. The biggest unknown is how many companies will stay agile amid inflation, labor shortages and global trade tensions. Expect more investments in automation, local sourcing and the employee experience.

Richard Hernandez
BrainTrust

Supply chain consistency is getting better, but this was through developing alternative options to find the necessary products for our shelves. To others’ point, I don’t there will a back-to-normal path with regards to supply chain. Retailers will continue to be flexible in finding other solutions to fill empty shelves.

Joel Goldstein
BrainTrust

The way it was will not be again as the other experts explained. However, I do believe with electric self-driving semi trucks and automation coming into the warehouses we will see a significant drop in the cost of logistics in the long run. It may take another 10 years but it’ll move back to a point where it’s less of a factor in the end consumer price.

Scott Norris
Guest

The labor shortages in trucking, railroads, airlines, and ports are no surprise — we were talking about the inevitable reckoning a good ten years before the pandemic. All COVID did was accelerate the trend, but not even by all that much. It’s good to see the Federal government finally seriously investing in rail capacity, but we’ll need a sustained investment at all levels in education and promoting logistics jobs. 10 years seems too short when getting a highway interchange or runway extension planned and executed takes longer….

Dick Seesel
BrainTrust

As long as traditional supply chain models overreact to collapsing demand — followed by resurgent demand — it’s hard to see a return to normalcy anytime soon. And it’s not just about the post-pandemic world, either. Chip shortages have plagued one industry after another, with companies like Intel finally seeing the need to ramp up domestic production.

Ron Margulis
BrainTrust

Two major changes will happen as the global supply chains transform coming out of the pandemic-induced disruptions — product storage will be pushed ever closer to the point of consumption and just-in-time inventory systems will be dismantled for nearly all production cycles. The push to move inventory closer to the consumer was already happening in 2020 and was, like so many other things in retail, accelerated by COVID. Just-in-time inventory is a clear victim of the pandemic. Risk management dictates that for all but the most consistent operations (are there any?), it no longer makes sense.

Oliver Guy
BrainTrust

Supply chains are restructuring right now, so this is a tough one. Previously they were designed to be lean and to leverage a global footprint. Increased disruption due to geopolitical events, increased cost of transportation and other factors are forcing a re-think.

Supply chains need to become more agile — resilient to disruption and more responsive, but at the same time become more sustainable because consumers now expect this.

These changes are likely to take quite some time, however, key places where disruption forces are taking place are already having an impact. For example, with concern in Africa regarding food supplies from Ukraine, African corporations are investing in local food production, thus shortening the supply chain.

Jeff Sward
BrainTrust

What the supply chain needs more than anything is predictability. At the factory level, it’s all about predictability from the retailers and predictability of raw materials. Of the “magic levers” mentioned, nobody has any control over any of them. None. Zero. So the one thing retailers can do is to stop overbuying. It’s totally understandable that they tried to hedge against the uncertainty in the supply chain. It is not understandable that they over bought to the level we have been reading about. The cancellations and other ripple effects from that over buying are now sending another set of shock waves back through the supply chain.

Factories are now holding orders through Fall 2022 and in some cases Spring 2023, so predictions of some kind of normalcy for early 2024 are not surprising.

Doug Garnett
BrainTrust

Perhaps we need a reminder that Normal is merely a setting on a washing machine — while “norms” can be calculated, they don’t often make any sense in real life.

It will take considerable time for the vibrations of the pandemic to damp out of the supply chain — supply chains are too tightly connected for it to be something quickly put under control.

Ryan Mathews
BrainTrust

More predictable supply chains are far different from, “life in the good old days.” There are simply too many variables today — COVID variants, Monkey Pox, the Ukraine, impact of Climate Change, and the stability of the Middle East — to answer this question with any accuracy. That said, I’m bearish in terms of timing.

David Slavick
BrainTrust

There is a huge shortage of truckers. Couple that with a weak infrastructure in the U.S. at our ports that cannot handle incoming volume even while running 3 shifts and you can clearly see that there is no end in sight. For the past two years, companies have relied on air freight to expedite supply in order to overcome challenges present. The new normal is here and there is no going back.

Craig Sundstrom
Guest

2025? Never? Almost half of our respondents have a very pessimistic outlook!

This seems to be one of those questions where everything depends on how the terms are defined: if “normal” means returning to 2019, then “never” is correct because time never reverses; but that was true five or fifty or 150 years ago. If someone asked in 1895 “when will we return to 1892?” the answer was “never” then, too.
But in the sense that I think the question was intended — lower shipping costs and shorter delays — it’s an ongoing process … already underway.

James Tenser
BrainTrust

I sincerely hope those long, brittle, vulnerable supply chains never return to “normal.”

So much is fundamentally wrong with those logistics concepts based on outdated military strategy and “economies of scale” at the point of production that we don’t have room here for my full diatribe.

Suffice to say that concentrating production while building massive nodes and choke points into a global system is ultimately unsustainable, wasteful and slow. Worse yet, it creates tempting targets for bad actors.
The retail consumer products industry must radically reimagine how it brings goods to market. Decentralization and localization of production is key. A “supply web” with hundreds or thousands of hubs will be ultimately much stronger, safer, more resilient and dare I say, cheaper over the long haul. Digital technology offers means to make this possible.

I’m convinced that the health and safety of the entire planet depends on this.

Gib Bassett
BrainTrust

The only thing certain about supply chains is that they will continue to suffer from poorly supported decisions that lack the timeliness or quality needed amid ongoing disruption and now, recessionary conditions.

With few exceptions (leaders) most organizations are making calls on forecasting and procurement based on what can be done, not what is best. What is best is having access to the right data given your market, customers, and suppliers, and applying the right form of analytics to support the best decision.

There is no easy button, but the fact is that few have mastered analytics value at scale in a manner like this. So, examining processes that suffer a lack of timeliness or are less than ideal because you can’t get the right data at the right level of detail, is a great first step to securing a future for your business in this new reality.

Anil Patel
BrainTrust
Persistent supply chain issues have taken a toll on many retail brands. COVID restrictions utterly disturbed the business operations. As several factories were shut down, restarting the complete maneuver takes time. Nevertheless, the issues should have been resolved by now, as the COVID restrictions have been lifted and the brands are up and running. I think that retailers’ resistance to change is the foremost reason why they are still struggling with supply chain disruptions. A lot has changed in the course of the past few years. Therefore, holding onto the processes and techniques followed pre-COVID won’t deliver the intended results. It is time to let go of traditional legacy practices and adopt new innovative mechanisms. Retailers need to stop blaming surging inflation, Russia-Ukraine tensions, and hiked fuel prices for the lack of their own capabilities. In fact, these crises have laid down an excellent opportunity to bring innovation to the supply chain. Gen Z and Millennials are striving to revamp their businesses by implementing out-of-the-box solutions. To compete, Gen X and Baby Boomer retailers must… Read more »
Nicola Kinsella
BrainTrust

What is “normal”? The real question is, when will we achieve some sort of stability or new normal. And the answer is, when we have more stability across all the inputs to supply (raw materials and manufacturing capabilities and capacity). In our highly specialized, globalized world, we’ve become too reliant on a few critical sources. We’ve also become highly reliant on certain locations for manufacturing. We need more options so we can distribute the demand and risk. And we need more supply chain agility.

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"I hate to say it out loud, but supply chains will never be normal again. We now live in a world full of unknowns that are outside of our control."

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