The supply chain crisis of 2021 is expected to normalise in the second half of 2022, according to an expert with over 15 years experience with multiple MNC supply chains.
Dr Warren Loo Puai Keong was speaking on ‘2022 Worldwide Supply Chain Trends’ during the webinar organised by the School of Business & Administration and the Penang Regional Centre on 2 January 2022, and attended by over 60 people.
The supply chain disruptions in 2021 were material scarcity, increasing freight prices, difficult demand forecasting, port congestion, changing consumer attitudes and digital transformation, he said.
He mentioned the global shortage of computer chips – affecting electronics and car production – and construction materials, while sea freight charges skyrocketed up to 700% in 2021 due to shipping container shortages and the increase in demand.
Loo asserted it was difficult to predict demand due to the lockdowns and new variants which had led to panic buying by households and businesses. He said the shipping demand surges worldwide are causing delays and port congestions, and that changing consumer attitudes have boosted online shopping and prompted many businesses to adopt e-commerce.
“Because of backlogs and unfulfilled orders, the supply chain crisis from 2021 will continue at least for the first half of 2022. Businesses will start to recover with increased output, but increases in new orders and employment are slow as people wait and observe, and with new variants, the market confidence is reserved and there is interruption to the recovery phase.”
He felt the supply chain disruptions will persist for the first half in 2022, namely chip shortages, forecast adjustment, rise in prices, fraud, looking for a great supplier, and transportation.“Many companies will realise that during the material shortage, people crazily placed orders with different distributors. It gave a false forecast of market needs, but this will slowly be adjusted to reflect reality.”
He said the rise in prices in 2022 is due to the material shortages from 2021 as well as the backlogs along with the increase in transportation costs, warehouse costs and labour costs. “When all these operating costs increase, the business will have to adjust the price of the product supplied to the market.”
Loo predicts fraud cases to rise as individuals exploit the demand to sell counterfeits at very low cost. Some companies may also review their partnership with existing suppliers, and look for alternative suppliers who can supply even in bad times. Freight prices will continue to increase because of container shortages as new Covid-19 cases pose a threat to the supply chain.
Despite the challenges, he foresees worldwide supply chain to normalise by second half of 2022 for the following reasons – cooling down of consumer spending on durable goods; less acute input shortages as inventories have returned to or even exceeded pre-crisis levels in most sectors; and reduced shipping congestions.
He said businesses had over-forecasted in 2021 due to panic buying, but now the market is starting to absorb the inflated forecasts for a more accurate depiction. Secondly, there are less acute input shortages as inventories have returned to or even exceeded pre-crisis levels in most sectors, because people have stopped over-stocking. He also foresees reduced shipping congestions with government initiatives implemented to improve the flow at ports.
Meanwhile Louis Ng, a Supply Chain Specialist, in his talk on ‘2022 Malaysia Supply Chain Overview’, said the 2020-2021 lockdowns had caused huge supply chain disruptions as businesses were unable to plan for inventory, warehousing and manpower.
He remarked that though companies have adopted e-commerce, yet “over 77% of SMEs in Malaysia remain stagnant at the basic digitalisation stage”. Manual workforce is still needed on-site to check on inventory and pack items at the warehouse.