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July 28, 2022

Supply chain disruption: when and how does it end?

Automation, micro-fulfillment and alternative sources are all tools in the supply chain toolbox.

In recent weeks, various schools of thought have emerged on the recovery of the global supply chain. This piece from The Street says that even as the US Federal Reserve hikes short-term interest rates to reduce demand imbalance, “there are some signs that the supply chain is in the process of healing on its own.” On the other hand, many are saying the supply chain won’t recover until 2023.

The Cognizant take

We asked Girish Dhaneshwar, Cognizant’s Supply Chain Advisory Leader, to cut through the fog. He says the supply chain upheaval that began with the pandemic continues to be felt worldwide. “Not only have several retailers discussed this on the record,” he says, “but we also see glaring symptoms within our own clients.”

For example, he says, retail clients are experiencing acute out-of-stock situations in stores, and delivery times are far longer than they used to be. The labor shortage in distribution centers and stores is pervasive across the industry.

“The supply chain crisis is not likely to end anytime soon,” Dhaneshwar adds, citing myriad reasons such as geopolitical uncertainty. Moreover, suppliers continue to reel under the impact of labor shortages driven first by COVID-related absenteeism, then by the Great Resignation, he says.

Demand volatility that began with the pandemic rendered forecasting models obsolete, throwing supply planning into disarray. “The resulting breakdown has evolved into a new problem,” Dhaneshwar says. “Supply shortages are now distorting the real demand picture.”

How are retailers reacting? “We’ve seen some do an inventory pull-forward earlier in the year to stock up,” Dhaneshwar says. “However, that strategy is now backfiring—for example, Target is saddled with inventories that they cannot get rid of.”

He adds that retailers are focusing on automation to address labor shortages through such measures as warehouse automation and micro-fulfillment technology in stores. Alternative supply sources, too, have gained new urgency.

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