During the past few years, supply chains have been in the spotlight because of global shutdowns, international conflicts, major weather events and more. Modern customers need assurances from businesses that high-quality goods will arrive when promised. And in the increasingly competitive ecommerce world, businesses need to take proactive steps to implement efficient and cost-effective supply chain management processes to maintain their reputations and keep their customers satisfied. But businesses can only address the challenges they can identify. This article explores some major supply chain challenges and offers tips on how companies can overcome them.
Why Are Businesses Facing Supply Chain Challenges?
Some business leaders expected the supply chain disruptions caused by recent global events, such as the COVID-19 pandemic, political unrest and weather-related emergencies, to ease as industries began to return to “normal.” However, as time goes on, many are finding that challenges have continued much longer than expected. In a December 2022 CNBC survey of 341 logistics managers, 61% of respondents described their current supply chain as “not operating normally,” and 29% predicted that normalcy won’t return until at least 2025 — if at all. With businesses still experiencing the ripple effects of the upheaval of the past few years, identifying challenges and proactively addressing supply chain weaknesses have become important strategies for mitigating risks and satisfying customer demand, especially for businesses dealing with increased volatility and uncertainty in their customers’ spending habits.
Meanwhile, as ecommerce becomes more popular and customers have more options than ever, a streamlined and efficient order fulfillment process is crucial to ensure that customers can get high-quality products delivered to their doors or local pickup locations quickly and reliably. Businesses unable to adapt are more likely to experience abandoned carts as customers jump to businesses that can satisfy their needs.
- Modern supply chains are more global, interconnected and prone to disruption than they have been in the past.
- Businesses need to take proactive steps to identify and mitigate the impacts of supply chain challenges and disruptions.
- Addressing supply chain challenges before they become major bottlenecks can increase customer satisfaction, reduce costs and create a more efficient and effective operation.
Supply Chain Challenges Explained
Most businesses need to rely on the supply chain to source materials, produce goods and deliver orders to customers. But with increased globalization, companies of all sizes may rely on international suppliers for raw materials or third-party logistics (3PL) providers for last-mile delivery, and that increased complexity and reliance on external factors bring risk. The 2022 Economic Report of the President states, “The globalization of production has also made supply chains more vulnerable to disruption.” The report lists several causes for this increased fragility, including cyberattacks, labor strikes, supplier bankruptcies, industrial accidents, climate-induced weather emergencies and even businesses’ propensity for reducing excess inventory. Businesses can improve their supply chain operations by creating contingency plans and improving visibility, often by leveraging technology, such as enterprise resource planning (ERP) systems or a supply chain control tower. A more agile and resilient supply chain is more likely to adapt quickly to disruptions and changing customer demands — keeping customers happy, costs low and goods flowing smoothly from one end of the supply chain to the other.
15 Key Supply Chain Challenges
Decision-makers, especially those tasked with managing the supply chain, must be aware of potential challenges to effectively mitigate risks and minimize damage when disruptions and breakdowns occur. Here are 15 key supply chain challenges and best practices for navigating them.
1. Increased Material Scarcity
Shortages of raw materials, such as glass, plastics, lumber and metals, can cause delays, as manufacturers cannot continue production without a steady supply of basic materials. Raw materials shortages were the most cited supply chain challenge in the 2023 Hubs Supply Chain Resilience report, with 61% of the 334 respondents choosing it as a top supply chain disruption. Shortages can increase costs for supplies, cutting into profits and often leading to higher prices for customers. Many businesses meet this challenge by diversifying suppliers and improving communication and collaboration with vendors, thereby decreasing the likelihood of an unexpected shortage due to a regional issue, such as a weather event. Companies can also use business technology solutions, such as an ERP system, to track supply levels and maintain minimum stock, gaining an edge on competitors that buy supplies only as needed.
2. Lack of Supply Chain Visibility
One of the most important ways to meet supply chain challenges is to identify them before they become major issues, which can be difficult without visibility into operations. Businesses with a high level of end-to-end (E2E) visibility can track supplies, components, finished goods and information as they move through the supply chain. This allows decision-makers to quickly identify bottlenecks and address problem areas and is especially important for businesses with a fragmented supply chain that relies on external partners. Slowdowns anywhere in the supply chain, either from internal and external processes, can ripple throughout an organization and cause frustrating and costly delays. Businesses can increase their visibility by implementing new technology, such as automated data collection and reporting, to gain real-time insights into supply chain workflows.
Supply chain visibility starts with accurate data
3. Increased Freight Prices
Freight prices can increase for several reasons, including higher shipping demands, rising fuel costs and shortages of shipping containers or materials. Rising shipping costs impact most businesses, but ecommerce companies need to be especially aware of changes in their shipping costs, as they often make up a large portion of their expenses. Keeping transportation costs down was the top response in Coyote Logistics’ 2021 Top Supply Chain Challenges survey of over 500 logistics decision-makers. Many businesses meet this challenge by partnering with logistics experts or implementing transportation management systems (TMS) to find areas to reduce costs, such as route optimizations and restructuring delivery fleets. By making improvements to shipping processes, companies may be able to save money while speeding up deliveries and creating a more reliable experience for their customers — even in the face of rising freight prices.
With all the added global pressure on supply chains in recent years — from international conflicts to changing tariffs — it’s no surprise that many businesses are reevaluating where and how they conduct business. Many companies are choosing to move operations closer to their home base, where they can maintain more control and reduce shipping times. In fact, the 2022 Interos Annual Global Supply Chain Report found that 51% of the 1,500 suppliers surveyed “are expected to be reshored or nearshored in the next three years.” However, it’s important to create contingencies when making big changes, such as moving a manufacturing plant, switching suppliers or other major shifts. During the restructuring period, businesses may want to store extra inventory, for example, to cover the transition and the onboarding period as new facilities, staff and partners come up to speed. While a typical goal of restructuring is to create a more efficient and effective supply chain, businesses should be careful not to accrue losses that could offset gains and turn off customers during the change.
Maintaining open communication can be a challenge —among both external partners and internal systems — especially for businesses with complex supply chains with many involved parties. Communicating and collaborating with partners, such as suppliers, can help alert businesses to any expected shortages or problems while there’s still time to work around the issues and maintain supply continuity. Internal operations can also be improved by effective communication, as siloed processes may have unnecessary redundancies or inefficiencies that can be improved by taking a holistic view of the supply chain. For example, procurement and manufacturing operations may have some overlap in their quality control procedures, wasting time and resources to complete checks that have already been done. With transparent communication, these inefficiencies can be minimized, and the supply chain can be streamlined to deliver goods faster without decreasing quality.
6. Complex Demand Forecasting
Volatile demand has been an especially difficult challenge in today’s market, due in part to rapidly evolving customer spending patterns and product virality in the ecommerce world. Modern businesses often use a combination of historic data and market research to forecast demand more accurately and prepare for any predicted fluctuations. In recent decades, businesses have typically adhered to a leaner inventory stock, as shown by St. Louis Fed inventory data. But while this “just-in-time” model has been widely adopted because it can reduce costs and waste, it requires reliable forecasting to predict future demand and produce “just enough” of a good, which can present challenges for businesses that sell goods with unpredictable demand swings or long production cycles. Effective and complex demand forecasting reduces the likelihood of overstocks, which can accrue higher carrying costs, and stockouts, which can lead to empty shelves and customers turning to the competition to satisfy their needs. Businesses often leverage technology, such as ERP systems, to generate more accurate and robust demand forecasting than less sophisticated methods can produce.
7. Port Congestion
Ports can create shipping issues for supply chains in two primary ways: congestion and climate-related challenges. Port congestion has improved since its peak in early 2022, but spikes may still occur and cause delays. For example, the number of container ships awaiting berths at U.S. ports increased fourfold between March 14 and April 25, 2023, according to the U.S. Department of Transportation’s Bureau of Transportation statistics. This can be caused by a myriad of factors, such as seasonal shifts in demand, changes in international trade or new shipping regulations. The docks themselves have been presenting new challenges as well, as changes in weather patterns have left some ports unable to accommodate the volume of freight ships they once did. Germany, for example, experienced unusually hot and dry weather in August 2022, causing a water-level drop of 19 cm in some areas of the Rhine. This left vessels unable to traverse the waterway, as reported by Reuters, and economists are estimating a loss of up to half a percentage point in overall growth in Germany this year from this disruption alone. Businesses that rely on sea freight can mitigate these risks by using suppliers in regionally diverse areas and maintaining some domestic locations that can ease the pressure on overseas operations.
8. Environmental and Social Impacts
Focusing on the environmental and social impacts of a supply chain is more than just a public relations play to reach more eco-conscience consumers — though expanding the customer base is a worthy enough goal on its own. Many businesses strive to create a sustainable supply chain for a multitude of reasons, including reducing reliance on external supplies by minimizing waste, lowering utility costs by reducing energy consumption and staying ahead of upcoming regulatory and legislative standards as governments continue to focus on green initiatives. To find areas to reduce the environmental and social impacts of their supply chains, businesses can conduct a supply chain audit, often with sustainability experts, to identify areas for improvement, such as replacing outdated equipment or identifying more fuel-efficient shipping methods.
9. Data Sharing
Supply chains often rely on several management teams that may rarely, if ever, interact face to face. Despite this, decisions made in one department can have major impacts up and down the supply chain. A manufacturer replacing inefficient equipment and increasing output, for example, may bring about a raw materials shortage and a quicker influx of goods awaiting shipment. Without a centralized database for information and a way to share it with relevant parties, departments can be left unprepared for shifts in the supply chain, from minor tweaks to major changes. To address these challenges, many businesses implement digital supply chains — a virtual system that provides real-time data and insights into performance and keeps decision-makers throughout the supply chain on the same page.
10. Customer Behavior and Demands
Consumer habits have changed as more shopping has moved online and customers have begun to expect quick and affordable, if not free, shipping. According to a June 2022 survey of online consumers conducted by Santa Clara University’s Retail Management Institute, 90% of the 1,186 respondents expect free delivery within five days, with 62% expecting it within three days. Inventory management must be flexible enough to meet these new customer expectations, whether it be for retail locations, shipped goods or a hybrid “buy online, pick up in-store” model. Businesses can meet these challenges by investing in more effective inventory allocation processes, such as automatic inventory-level alerts and a warehouse management system (WMS), to ensure that goods are in stock and can be quickly shipped to fulfill orders or restock retail locations and distribution centers.
11. Supplier Relationships
Businesses that don’t give supplier relationships the attention they deserve could find themselves at a disadvantage. Suppliers are often on the front lines of supply chain challenges and can be valuable assets in early identification of potential risks and contingency planning. And when scarcities or disruptions occur, a business that has strong relationships with its suppliers may be the recipient of preferential treatment, as many suppliers will try to satisfy their most loyal and valuable customers’ needs first. Even when the supply chain is operating smoothly, a healthy relationship with suppliers can lead to discounts, better credit terms, priority deliveries and other benefits. This rapport can also help vendors gain a better understanding of their customers’ goals to foster collaboration and find effective strategies to reach those goals.
12. Supply Chain Fragmentation
Disjointed operations can hide inefficiencies and create delays as goods or information move through the supply chain. Supply chain fragmentation often occurs when businesses use multiple suppliers, manufacturers and/or distributors, especially when operations are spread across international boundaries. For example, a business may source materials from all over the globe before assembling them in an American factory, and syncing data across those organizations can be challenging. By enhancing collaboration and data sharing among separate teams, businesses can integrate siloed operations and increase visibility for stakeholders looking for areas to make improvements. This ultimately streamlines operations, reduces lead times and creates a more cost-effective and efficient supply chain.
13. Digital Transformation
Every year, companies implement new technologies to create a more effective supply chain, including automated data collection and internet of things (IoT) devices, which give real-time status updates as goods move through the supply chain. More than 99% of respondents to the 2022 Interos Annual Global Supply Chain Report said that “there were clear benefits to be gained by investing in software solutions for supply chain risk management.” But transforming the supply chain can present challenges, especially for larger companies replacing complex operations with new systems. Businesses should ensure that effective training programs are in place to prepare staff for new technology and procedures, because failure to do so could lead to a loss of institutional knowledge and experience as frustrated company veterans struggle to adapt. By striking the right balance between state-of-the-art technology and field-tested best practices, businesses can repeat past successes and prepare for future challenges.
14. Clearing Warehouses
Over time, warehouses can become cluttered with old, unsold inventory or encumbered by poor layout and management. This can lead to incorrect inventory counts and delayed order fulfillment as workers waste time finding items in a disorganized warehouse. In addition to general planning and cleaning procedures, modern businesses can meet these challenges through warehouse audits and implementing the right technology, such as automated sorting and picking robots, often as part of a larger WMS. By clearing warehouses of unsellable inventory and debris and implementing a regimented organization system, businesses can reduce lead times and ensure that customers and staff have access to up-to-date information on what’s in stock and how long it will take to fulfill and deliver orders.
15. Inflation and Labor Pressure
Larger economic trends, such as labor shortages and inflation, can present major challenges to supply chain operations. According to the American Trucking Associations, truck driver shortages reached record highs in 2021 and 2022, for example, impacting delivery times and shipping prices and causing a ripple effect throughout the supply chain. Labor shortages increase the need for employee retention and recruitment programs to prevent understaffed shifts and gaps in business continuity. Higher prices, like those caused by inflation, can affect the bottom line and put pressure on businesses to cut costs. Companies can turn these pressures into opportunities to streamline operations and implement leaner practices, such as finding cheaper suppliers or investing in productivity-enhancing equipment. Making lasting changes now can help businesses come out the other side of difficult economic periods with a stronger and more efficient supply chain.
Overcome Any Supply Chain Challenge With NetSuite
Modern supply chains have created unique challenges as they become more complex and far-reaching, and managers need more visibility than ever to meet these challenges. With NetSuite Supply Chain Management, businesses can identify risks to effectively plan contingencies and address weaknesses before they become major issues for customers. And with sophisticated demand forecasting and scenario planning, NetSuite gives businesses the tools they need to prepare for tomorrow’s supply chain obstacles.
NetSuite’s centralized solution allows businesses to effectively share data throughout the supply chain and maintain the open communication necessary to quickly adjust operations when new challenges arise. NetSuite’s cloud-based solution gives up-to-date reports with predictive analysis to inform decision-making at any time and from anywhere. Business leaders and supply chain managers can use NetSuite’s tools to reduce order fulfillment times, create a more efficient supply chain operation and ensure that customers’ demands are met on time and at the level of quality they expect.
Every business faces its own unique challenges. But as supply chains continue to go global, some challenges have become near-universal, and businesses must have plans in place to proactively address them. By creating open lines of communication, implementing new technology and tearing down siloed and fragmented processes, businesses can streamline their operations and create more resilient and agile supply chains. Companies with high supply chain visibility are better able to adapt to rapidly changing customer demand and pressures from external economic forces, such as labor shortages, inflation and even changing weather patterns. Identifying supply chain challenges and being prepared to meet them head-on are crucial steps to driving long-term success.
Supply Chain Challenges FAQs
How can companies mitigate the impact of supply chain disruptions?
Companies can mitigate the impact of supply chain disruptions by conducting supply chain audits to find weaknesses and plan contingencies to reduce risks. Common contingency plans include diversifying suppliers, creating more sustainable operations and streamlining and integrating a fragmented supply chain.
What are some common logistics and transportation challenges in supply chain management?
Some common logistics and transportation challenges include inflation, higher freight costs and port congestion. Businesses can meet these challenges by focusing on finding areas to cut costs, investing in productivity-enhancing technology and diversifying shipping methods.
What are the main challenges in supply chain?
The main challenges in the supply chain typically stem from increasingly global and complex operations. These challenges include shipping delays and a lack of flexibility needed to keep up with changing markets and customer demand. By increasing visibility, businesses can create a more agile supply chain that can quickly respond to changes and risks, thus minimizing negative impacts and outperforming the competition.
What are the five primary challenges of supply chain management?
Five primary supply chain management problems are customer service, cost, risk management, maintaining supplier relationships and employee retention.
- Customer service includes meeting customer expectations of speed and quality and adapting to changing demand.
- Costs include procurement of materials, production and shipping and are a major factor in how a business prioritizes its supply chain improvements.
- Risks can be internal, caused by inefficient processes, or external, stemming from partners or larger economic trends. Analysts can use data collected from multiple sources to help prioritize and manage the largest supply chain risks their companies face.
- Maintaining supplier relationships can help businesses identify problems, such as material scarcity or upcoming international regulatory changes, early and pivot operations to mitigate damages.
- Employee retention and labor pressure can cause understaffing and a loss of institutional knowledge. Businesses must strive to balance new investments with tried-and-true methods to maintain successes and gain a competitive edge.
Why is the supply chain struggling?
The supply chain is struggling due to increased complexity caused by globalization. As supply chains rely on more moving parts, especially those located internationally, there is a higher likelihood that problems will go unnoticed. Businesses can emphasize visibility and integration to overcome these struggles and create a more resilient supply chain.
What is causing supply chain issues in 2023?
Supply chains in 2023 are still feeling the effects of the COVID-19 pandemic and the lingering impacts of global shutdowns, as well as large shifts in consumer spending. Additionally, wars and political unrest have added significant pressures on global supply chains. Inflation and labor pressures are also driving prices up and affecting productivity for supply chain operations.