Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

2022 Supply Chain Predictions

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2022 supply chain predictionsARC analysts have published predictions about supply chain technology trends at the beginning of the year in past years. This year we have decided to lead with our predictions about the broader supply chain function – as supply chain itself has become such a hot topic in executive suites, corporate earnings, general news media, and even our own personal lives.

Supply Chain Disruptions Will Diminish, but Remain Substantial

Supply chain disruptions, product shortages, and inflation are top of mind for the average consumer today. It is therefore unsurprising that these characteristics are central to our 2022 supply chain predictions. However, I believe that our reasoning and the factors behind these topics will generate some thought and hopefully provide some insight into the mechanics of today’s supply chains and markets.

COVID-19 has greatly impacted supply and demand, and it’s reasonable to assume that COVID-19 impacts will be with us to one degree or another for some time. We expect direct impacts to diminish in 2022. However, we expect the secondary effects and the responses to these disruptions to exert longer-term impacts on supply chains and their functioning.

Inflation Will Hinder Supply Chain Resiliency, Supply Diversification Efforts

The disruptions caused by COVID-19 came in the form of port delays, warehouse quarantine requirements, and travel restrictions. Many companies have taken steps to mitigate these types of disruptions in the future. However, risk mitigation efforts often come at the expense of higher supply chain costs. There is typically a trade-off between greater efficiency or greater reliability/responsiveness. The current high rate of inflation places cost pressures on companies, as they typically cannot pass 100 percent of the increases onto buyers. As a result, companies are likely to forego substantial supply chain risk mitigation efforts that will drive up costs. Instead, they are likely to carry higher levels of inventory as a lower cost alternative. The move away from risk mitigation will leave supply chains at greater risk to future disruptions than would be the case if risk mitigate efforts were established. The move toward carrying higher levels of inventory will initially increase GDP growth numbers as inventory restocking occurs. However, this process will also increase inventory carrying costs and place additional pressure on demand for existing facilities and square footage.

Labor Shift – It’s About Want Not Need

It’s time to shift the dialog about labor in logistics. It’s not about availability of jobs and workers. It’s about work appeal and interest in work. Simply stated, logistics jobs need to be more competitive with alternatives.  The rate of e-commerce growth and the resulting labor requirements is substantially greater than the growth in the labor pool. This means that labor must shift from other functions to logistics. Doing so will require a more competitive offer to attract logistics workers. A more competitive offer can include a better work environment and better monetary compensation.

Warehouses are likely to address the increasing workloads with a combination of labor and automation. Working with modern automation and robotics offers labor pools with an interesting work environment, exposure to modern technology, and the development of skills that will likely be in growing demand in the future. Furthermore, experience with modern computing technology, in the form of handheld operating systems, also develops transferrable skills that will more likely be desirable by future employers. Adoption of modern technology in these ways can increase the quality of work, offer the development of more transferrable skills, and increase labor retention. These functional improvements, in conjunction with more competitive compensation, will likely be necessary to attract and retain workers.

Companies Embrace the Need for Speed

The pandemic rewarded companies that could move fast and punished those that could not. Agility is now talked about at the board room level. Supply chain digitization efforts are now focused on gaining end-to-end visibility from the supplier’s supplier to the customer’s customer. The pandemic made it clear that there was a need for collaboration. Supply chain collaboration networks (SCCN) are getting increased attention as a critical component in building robust supply chain control towers. Meanwhile, companies who have embarked on the control tower journey are discovering just how difficult they are to build. The key building blocks for the modern supply chain control tower includes data from key supply chain partners, robust supply and demand planning, and a master data management/data harmonization layer that helps to normalize the data and can then feed accurate data to the planning engine or team members.

But being able to react with speed is also a matter of culture. To sustain speed, companies must build those capabilities into the company. The agile methodology, initially used to speed software development, is now being embraced as a better and speedier project methodology. The ability to create tiger teams – a specialized, cross-functional teams brought together to solve a critical issue – that can move quickly and effectively, is core to embracing the need for speed.

Artificial Intelligence Will Transform Trucking

Artificial intelligence (AI) has been, and will continue to be, a key component of transportation management systems (TMS). Aside from improved ETAs, AI plays a role in other aspects of transportation management. Shippers learn which carriers meet on-time service levels and which do not, which lanes typically carry more chance for delays, and whether there is an optimal number of stops before shipments become late. AI aids shippers in better understanding how to drive efficiencies without sacrificing service levels.

But AI is moving beyond this dynamic. While dash cams have been in use by trucking companies for years to help prove innocence in the event of a crash, for example, AI has entered the fold. AI-enabled dash cams will become more commonplace, as they monitor the driver while also using data to help the driver make better decisions. AI video telematics are combined with vehicle cameras and sensors to understand what is happening both inside and outside the truck in real-time to make for a safer and more efficient trip. The data that is collected, at least according to some, can also be used to help with infrastructure planning and development. This can be combined with data available to a TMS to better understand which roads are safe or unsafe, which roads have low bridges, and which roads have the least traffic. While autonomous trucks might be the future most people are looking for, AI-enabled dash cams for safer trucking is the new reality.

Is it too Early For 2022 Predictions?

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2022 predictionsWith Christmas goods in stores before Halloween this year, I thought there was no reason that we shouldn’t also get a jump on 2022 predictions. Many major challenges of 2021—capacity constraints, ecommerce growth and driver shortage—are rolling over into 2022 and, in addition, the environment and machine learning are becoming more important for logistics and supply chain professionals. Here’s what to look for in 2022.

Global supply chains will be busy, congested and chaotic.

There will be no slow down after the holidays and global supply chains will continue to be challenged. With U.S. import volumes still climbing (see Figure 1), limited processing capacity at key West Coast ports and the International Longshore and Warehouse Union (ILWU) contract expiring next summer, importers will be scrambling to maintain the inventory they need to support the demand increase. There will be little relief in 2022 unless the factors driving the increased import volumes—a strong economy and the fundamental shift in consumer behavior to purchase more goods and less services—change. Importers will look for near-term strategies to move their shipments away from congested trade lanes or process containers further inland to minimize the impact of lead time variability that has dramatically increased in 2021. Near or re-shoring sourcing strategies will be evaluated to “shorten” supply chains and gain greater control of supply chain performance.

2022 predictions

Online buying will fuel home delivery growth, challenges and new strategies.

The pandemic’s ecommerce boost will continue in 2022 as the changes in consumer buying behavior become more structural. This is clearly an opportunity and challenge for retailers and last mile logistics companies. The increase in volume will tax already tight last mile delivery capacity, and speed and reliability will either come with a premium price or remain as uneven as it has been over the last two years. For example, Amazon’s Whole Foods business is now incrementally charging for delivery to offset increased delivery costs. We anticipate that more companies will reevaluate their “free” delivery strategies. Retailers will also look for alternative delivery strategies such as combining deliveries for individual customers or geographies to minimize delivery costs and maximize the available delivery capacity.

The Great Resignation will accelerate existing driver exodus, increasing the focus on retention.

Whether long haul or last mile, the driver shortage is endemic and will continue to materially impact retail, distribution and logistics companies. While finding new drivers to replace or add capacity will remain important, it’s also much harder to find drivers than in the past. Instead, in 2022, companies will focus more on driver retention and productivity. Lowering turnover—which has traditionally been high—puts less pressure on the number of drivers that need to be hired and keeps the more experienced ones improving delivery performance. Keeping drivers driving and reducing stress will be the top retention priorities. Companies will need to a better job at reducing wait times and improving driver quality of life through routes that are more realistic to execute, don’t result in extended wait or on the road time and facilitate more predictable hours.

Sustainability will become an opportunity, not a challenge for supply chains.

The focus on sustainability will increase in 2022 and it won’t just be from consumers. Many investment funds are taking an increasingly stronger stance on companies’ sustainability strategies and actual performance. This powerful combination will push companies to move faster to reduce their impact on the environment. It also presents an excellent opportunity for supply chain and logistics professionals to raise the visibility and value of supply chain strategies and operations. Productivity enhancement is at the heart of any good supply chain performance improvement program and almost always results in greater efficiency, reduced paper and other waste that directly translates into reduced greenhouse gas emissions. Equally, many consumers are looking for delivery choices that help the environment, which presents retailers with the opportunity to look at innovative ways to combine or steer deliveries to reduce the mileage associated with home delivery. This will not only benefit the environment and delight the consumer but will also result in lower delivery costs for retailers.

Machine learning will go mainstream in supply chain technology.

Machine learning (ML) will continue to be quickly adopted by supply chain technology providers because of the rich supply chain data that exists to teach ML algorithms. The result will be more accurate plans, estimated-time-of-arrival (ETA), improvement recommendations, etc. that make supply chain and logistics operations more productive and reliable. Rather than displace existing supply chain technology, ML will augment it through embedded uses, such as optimizing stop times, delivery locations, drive times and ETAs, or as part of greater data analytics solutions that are used to provide deeper insights into supply chain performance.

While 2022 will be a challenging year for logistics and supply chain professionals, the “C-suite” will recognize that their supply chains need to be world-class to help drive revenue and profitability. There will provide plenty of opportunities to show the value of advanced logistics and supply chain strategies, tactics and technology—and transformation will not only be the key to success but, for some, the key to survival. How is your company getting itself ready for an enigmatic 2022? Let me know.

As Executive Vice President, Marketing and Services, Chris Jones (CJones@descartes.com) is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.

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