In a recent webinar on the state of risk and trends in supply chains, Resilinc CEO, Bindiya Vakil, and Director of Supply Chain Risk Consulting, Hirra Akhtar, described how aftershocks arising from the pandemic continue to disrupt supplies and logistics, and that these disruptions will continue well into 2022.
Calling the disruptions in semiconductor supply chains “the shortage of our lifetime,” Vakil said she sees no respite ahead. “This won’t endure just for the next six or 12 months but for the foreseeable future because there aren’t any near-term solutions to re-balance supply and demand.”
Even the rush to invest in new semiconductor manufacturing is exacerbating the shortages. “Companies and countries investing in new capacity is also driving shortages because the equipment to make semiconductors is highly automated,” said Vakil. Even the equipment used to make semiconductors requires a lot of semiconductors, accordingly “lead times for new semiconductor manufacturing equipment are out 12 months.”
When it comes to the enduring congestion in freight and logistics, Akhtar and Vakil reported that the team is hearing from customers – across virtually all industries – that delays are cutting into production and revenues and freight-expedite costs are impacting profits. “The global logistics network is experiencing disruption at a scale we’ve never seen,” said Vakil. Much of it is caused by surges in COVID-19 in China, Vietnam, and other Asian exporters. But there are also continuing challenges with forecasting demand in this unprecedented time.
“On-again, off-again re-openings are defying our demand forecasting models, which are usually based on historic consumer buying habits,” Vakil said. “Companies have had to retool their manufacturing and distribution networks again and again. After stay-at-home policies early in the pandemic forced food manufacturers to shift to smaller package sizes, they shifted back to large packages with re-openings of restaurants and other food service venues. Then the Delta variant hit, changing demand again.”
Vakil and Akhtar reviewed some of the trends highlighted in Resilinc’s forthcoming H1 2021 EventWatch report. One notable datapoint: factory fires and other types of factory disruptions increased significantly in the first half. Resilinc’s research indicates that staffing issues arising from the pandemic were a major source of the spike. “Why would a factory fire or chemical spill occur as a result of COVID? Because of less preventive maintenance, less attention to debris that collects near hot worksites, fewer safety audits taking place,” said Akhtar.
But COVID-19 wasn’t to blame for all disruptions. Extreme weather, some of it likely exacerbated by climate change, forced many suppliers to cut back or shut down production. “The February 2021 Texas freeze impacted chemical, resins, plastics supply chains,” said Akhtar. “Drought in Taiwan is causing big headaches for the highly water intensive semiconductor wafer fabs. The U.S. West is experiencing record heat waves and droughts which are impacting hydropower.”
Vakil said the most recent report by the Intergovernmental Panel on Climate Change has galvanized public and corporate sentiment to reduce greenhouse gases associated with supply chains and to plan for greater physical risks from extreme weather. “Even in the most optimistic IPCC scenarios in which global emissions begin to drop sharply, we will still see global temperatures peaking. Supply chain planning should take into account further acceleration of climate disruptions.”
On a related theme, Vakil urged supply chain managers on the webinar to pay more attention to potential environmental, social and governance (ESG) issues hanging over their suppliers. “We’re watching this extremely carefully now,” she said. “Although global supply chains have been responsible for lifting hundreds of millions of people out of poverty, there is a dark side to supply chains, and that is the price paid by poor and destitute who migrate for better employment only to find an unkind world taking advantage of their situation.”
As EventWatch’s AI engine and natural language processing scours formal and informal news sources in more than 100 languages, the alert system is picking up more instances of ESG problems at suppliers. “That doesn’t mean that that supply chains are becoming more exploitive, but rather it’s due to the increased scrutiny from NGOs, cellphone videos on social media and in many cases increased government regulation and enforcement.”
“A strong ESG monitoring and screening program has become very essential,” she said.
Akhtar added that in addition to active monitoring of ESG-related news, Resilinc customers use its vast supplier database and supplier risk profiles to screen for potential ESG violations in their supply chain. “A leading global pharmaceutical company used our supplier screening tools to screen nearly 30,000 potential suppliers as it sought to vet new vendors in the first half of 2021.”