A ‘painful and chaotic’ 2020 will likely lead to more stockpiling & shifts in manufacturing
In short, companies want more options. But those options are quite spendy.
After a chaotic 2020, companies are building in new backstops and inventory buffers in the face of global economic uncertainty. This will likely include multi-shoring and higher inventories, the WSJ said.
Why Are We Going Backward?
The ‘State of Logistics’ report showed that spending on logistics and shipping as a share of GDP fell to 7.6% in 2019 from 7.9% the previous year. Well that sure sounds promising, but hold your horses… While corporate supply chains actually grew leaner in 2019 vs. 2018 as a measure of T&L spending, that progress is being reversed by volatile swings in demand:
Overall inventory carrying costs will rise 5% to 10% if businesses adjust their supply chains to keep more stock on hand.
Let’s look at a few other notable predictions as companies retool their supply chains for resilience:
- Companies will now need more warehousing space to keep goods on hand due to manufacturing interruptions and secondary waves of infection
- Production will shift from China to other parts of Asia and closer to home
- Transportation and warehousing providers will need to invest in technology to improve efficiency and increased support for online shopping
- There will be short-term carrier cutbacks and bankruptcies, especially small- to medium-sized truckers that rely on industries such as automotive and hospitality
- Shippers are looking for more flexible warehousing options
- Rapid e-commerce growth is fueling increased U.S. parcel delivery costs, which grew 8.5% from the year before, and higher trucking costs, which rose 3% last year
Cutting through the Chaos
Offsetting these new costs and stopping the costly reaction of stockpiling is easier than you think. The problem usually lies with 1 of 5 costly triggers which you can easily fix. Curious?