Inflation Archives - USC Consulting Group

The COVID-era supply chain disruptions are slowly but surely easing up for manufacturers around the globe. While the worldwide market is not yet fully recovered, signs point to a strong resurgence in 2023, with a return to normalcy by 2024. Even though good news is on the horizon for manufacturers, there are still a number of challenges to be aware of that will impact day-to-day operations. Here’s an overview of a few of the top manufacturing challenges for 2023, and how to handle them.

Challenge: Legacy technologies

Many manufacturers operate with legacy technologies — outdated hardware or software systems. These outdated systems can cause disruption for an organization in a few key areas.

The first problem: Legacy technologies can cause efficiency issues. Since these systems can be years (and sometimes decades) old, they simply don’t have the same features and capabilities of newer software on the market. Additionally, these legacy systems can pose a security risk. Older technology doesn’t have the same safeguards as newer systems, and cybercriminals have a much easier time infiltrating outdated software than one that is up-to-date.

Despite these problems, manufacturers can be hesitant to change systems due to familiarity, not wanting to enact a full system overhaul, or a mix of the two.

Strategy: Invest in new technologies and smart warehouses

Investing in emerging technologies should be a priority for manufacturers heading into the new year.

It’s a wise strategy, not only to become more efficient and protect systems from infiltration, but newer technologies can increase safety in the workplace and free up employees to handle more productive tasks. A recent survey from Deloitte found that 85% of manufacturing executives think that some form of robotics on the production line could increase employee safety, and 78% agree that updated technology can minimize repetitive work, empowering employees to focus on more productive and impactful tasks.

Challenge: Inflation

Starting in mid-2022, inflation across all essential goods prompted public backlash, not to mention squeezing the wallets of consumers and businesses alike. Bearing the brunt of the blame was the global supply chain, and the bottlenecks and scarcity it caused in markets across the world. Although those pressures are easing headed into the new year, inflation will still be a factor in 2023.

Strategy: Re-evaluate costs during design

For manufacturers, inflation means more careful planning to ensure operations remain lean, mean and profitable.

One way of doing this is by implementing Design to Cost — a method in which a manufacturer combines cost management with decision-making during the design stage of a product. Rather than the normal method of thinking about costs after a rough design of a product is made, the unit and material costs are fully integrated during planning to ensure products are profitable.

This type of thinking seems to be the reality for manufacturers in 2023, as a recent Forbes survey found that 87% of manufacturing CEOs plan to increase prices in the new year. Therefore, it’s important for all manufactures to think ahead, and integrate material costs into their design process as soon as possible.

Challenge: Inventory uncertainty

Inventory uncertainty remains one of the manufacturing challenges in 2023. Despite the healing global supply chain, manufacturers still need to strike a proper balance between stockpiling inventory and buying just-in-time. Striking that balance can be tricky. Not getting it right can cause businesses to become over- or under-leveraged at a moment’s notice — affecting the bottom line in the process.

Strategy: SIOP

Sales, Inventory & Operations Planning, SIOP, takes the normal sales and operations planning process and makes inventory just as important of a variable and a strategic tool. Following this methodology helps manufacturers eliminate waste, increase efficiencies and achieve an optimal level between not enough and too much.

We recommend that the SIOP horizon be a minimum rolling 14-month period that gets updated monthly. The aim is to look ahead multiple quarters to make sure inventory is available exactly when you need it. Involving a wide range of departments such as sales, marketing, engineering and finance, SIOP is a system that involves the entire organization to ensure yearly goals and objectives are met.

If you would like to learn more about SIOP, download our (free) eBook, “Sales, Inventory & Operations Planning: It’s About Time.”

Keep moving forward

There will be manufacturing challenges in 2023 and beyond. By addressing your legacy technologies, adjusting to inflation fluxes, and taking the uncertainty out of your inventory management, you will be able to fine-tune your operations for optimal performance.

If your business could use some horsepower to power up your team on improvement initiatives, contact USC Consulting Group and we will put our over 50 years of experience to work for you.

Supply chain executives dealt with a variety of headaches over the past two years. Disruptions, delays, workarounds and all-out stoppages became all too familiar as COVID brought the fragility of the world’s supply chains into full view. Even consumers are now experts in supply chain woes. As 2022 draws to a close and 2023 waits just around the corner, what can supply chain executives expect from the coming year?

Unfortunately, challenges still lie on the road ahead. Disruption is still with us. Those headaches haven’t gone away. But, hang in there. We see reasons for optimism, too.

Supply chain trends for 2023

Here are some of the trends we’re seeing, and challenges supply chain executives will likely be experiencing in 2023.

Backlogs and logjams

Shortages and congestion at ports worldwide are expected to continue into 2023. If you didn’t see this coming, you’re not alone. In October 2021, economists said supply-chain bottlenecks would be the “biggest threat to growth” for the next 12 to 18 months, but predicted those bottlenecks would ease up during mid-2022, according to the Wall Street Journal.

That didn’t happen. Shortages will continue to make product more difficult to get. Similarly, port congestion remains an issue, but not due to the COVID restrictions that kept cargo ships floating in the harbor, unable to dock. With the exception of China and its zero-tolerance COVID policy, this time, the cause of that congestion will be the lack of trucks to take that cargo where it needs to go.

Lack of skilled workers

Speaking of the shortage of truck drivers … all industries are experiencing problems recruiting, hiring and retaining employees, and jobs all along the supply chain are no exception. Unemployment rates are at historic lows, but talk to any hiring manager and they’ll tell you they can’t get people in the door. The U.S. trucking industry estimates it is down some 60,000 drivers. Warehouses and manufacturing facilities are experiencing labor shortages, too, as a result of an aging workforce and high turnover rates. All of this directly impacts the supply chain, causing manufacturing and delivery delays and creating a ripple effect that extends all the way out to the end user.

Unsteady global relationships

The war in Ukraine doesn’t show any signs of resolving soon, and its impact on the supply chain will continue until the situation there improves. According to Consultancy.eu, the continued war will have an “impact on the costs of raw materials, energy, logistics and digital services.” The report further stated that oil and gas prices in Europe have skyrocketed, due to the high dependence on imports from Russia.

But the war in Ukraine isn’t the only geopolitical cause of disruption to the supply chain. China is continuing with its zero-tolerance COVID lockdowns. If you saw reports of the recent closure of Shanghai Disney, with thousands of guests trapped inside and unable to leave for days until they showed a negative COVID test, you’re aware of this ongoing situation in China. It will undoubtedly affect the manufacturing industry there, even potentially shutting down factories and ports.

Extreme weather events

Are you noticing that we seem to be having a “100-year flood” or the worst hurricane on record or extreme droughts and wildfires regularly? All of these can contribute to a situational supply chain backup, affecting not only manufacturers and truckers in areas that are hit by extreme weather, but those relying on that delayed supply down the line. Climate woes in the U.S. are also contributing to issues like historic low water levels. In October 2022, the water level was so low in the Mississippi River, it resulted in a jam of more than 2,000 barges carrying corn and soybeans.

Inflation

There is a kind of chicken-and-egg scenario with inflation and supply chain disruption. Prices spiked because of supply chain disruption, helping to increase inflation, which in turn feeds price hikes … which in turn affect the supply chain. According to U.S. Bank, the cost of living in the U.S., as measured by the Consumer Price Index, rose by more than 9% from June 2021 to June 2022. The November 2022 rate hike by the Fed, the sixth this year, is intended to mitigate inflation in an effort to help solve the problem.

Bottom line: Hang in there

While these challenges persist, signs point to an easing in supply chain woes in 2023, especially in the area of port congestion. Sea-Intelligence reported in October 2022 that 50% of congestion issues have been or are being resolved. The report predicts the industry being back at “normal” capacity in early 2023. When the logistics industry can get product to where it needs to be on time, that’s half the battle.

At USC Consulting Group, we’ve been helping our clients up their efficiency, deal with supply chain disruption and create more profitable operations for more than 50 years. We’re here to help. Give us a call today.

Tag Archives: Inflation