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Companies Eye Digital Tools for Supply Chain Fortification

Global manufacturing output has recovered from the pandemic shock, although supply chain disruptions and rising prices continue to weigh on companies. Moreover, transportation problems are expected to extend well into 2022 and hinder the performance of the manufacturing sector. To better shield from similar risks in the future, manufacturing companies are investing in digital tools. Production digitisation is anticipated to make supply chains more flexible, improve productivity and expand sales networks.

Component shortages and rising costs put pressure on supply chains in 2021

The global manufacturing sector has recovered from the COVID-19 shock in 2021. The industrial production index in the largest economies reached pre-pandemic levels in summer 2021. However, depleted inventory stocks, rising commodity prices and shortages of certain components, such as semiconductors, continue to put pressure on global supply chains. Even though demand is recovering, industries such as automotive, hi-tech goods and aerospace are struggling with scattered supply chains and cannot operate at full capacity.

Industrial Production Index in Selected Countries, Jan 2020-Aug 2021

Source: Euromonitor International from national statistics

According to Euromonitor International’s Voice of the Industry COVID-19 survey, conducted in April 2021, around a third of companies globally indicated that shortages of supplies and transportation problems would continue to affect their supply chains in the coming six months. Supply chain management remains a top priority for manufacturers and companies, leading them to continue to invest in supply chain diversification, digital strategies and improved communications within the company and with clients. Greater transparency and communication can make supply chains more flexible and help companies to better adjust to the changing situation.

Which of the following do you think are the most likely effects of the COVID-19 pandemic on your company’s supply chain in the next 6 months?

Source: Euromonitor International Voice of the Industry COVID-19 Survey, April 2021

Besides supply shortages, inflation and rising transportation costs are other issues impacting global manufacturers in 2021. To a large extent, rising inflation has been caused by depleted inventories and recovering commodity prices, and inflationary pressures are anticipated to ease in 2022 as the supply of materials gradually improves. However, transportation bottlenecks remain an issue and will take longer to solve. For example, the average price to ship a 40ft container reached around USD8,400 in July 2021 – four times larger than the year before. This especially affects industries with long supply chains that are heavily reliant on international trade, such as hi-tech goods, machinery or household goods. Transportation costs are anticipated to increase further as the Christmas holiday season is approaching. Thus, manufacturers are likely to continue production localisation and automation efforts to manage soaring transportation costs.

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