Pandemic-related supply chain issues were supposed to be temporary, but the distribution industry has found itself consistently in the news for almost two years now due to delays, shortages and fears it’s only going to get worse.
Consumer demand continues to outpace manufacturers’ abilities to produce goods and distributors’ abilities to transport them. Manufacturers aren’t able to ramp up capacity because they’re also suffering from product and shipping delays. Finished products are filling up ports and warehouses. And there just aren’t enough drivers to transport goods, contributing to higher freight costs.
Wipfli’s 2022 distribution industry outlook
In 2022, these issues are going to linger, with none being resolved quickly or completely. The distribution industry must learn to operate under this new normal. Distribution, manufacturing and supply chain leaders should watch these six emerging trends in 2022:
1. Just-in-time practices won’t return
Just-in-time (JIT) orders used to be the norm, and for good reason. They allowed manufacturers to match production to consumer demand, saving both time and money. But since the pandemic began, consumer demand has been unpredictable. Now, distributors need far more flexibility in their production systems than JIT gives them, better ways of predicting consumer demand, and the ability to clear inventory when demand shifts. 2022 isn’t the year JIT practices return.
2. The worker shortage will get worse without action
For years, the distribution industry has been grappling with a labor shortage. The difference is that this shortage is now at a critical level. It doesn’t help that companies have been competing with each other for existing craftsmen and truck drivers instead of attracting new talent into the field. In 2022, distributors need to employ more creative strategies to recruit and retain employees while managing rising labor costs.
3. Distributors will demand increased transparency and alignment
The need for flexibility is going to drive distributors’ demand for greater visibility into their supply chains — everything from raw material acquisition to last-mile transportation. This will require greater insight into and strategic alignment with their partners’ businesses. Instead of shrinking the supply chain to tighten control during periods of instability, distributors are expanding their networks and partnerships to protect against potential service gaps.
4. Distributors will invest in higher-speed digital transformations
Digital was important before the pandemic. Now, it’s essential. Distributors that planned certain innovations into two or three-year roadmaps are now fast-tracking these innovations in order to build resiliency. Many are investing in data and analytics, which can help them identify the next disruption and give them more time and greater flexibility in their response.
Distributors are also prioritizing technology that can help them address current challenges and constraints. Technology is an excellent way to supplement human production and allow workers to focus on higher value activities, which includes strategic decision-making. Firms are implementing predictive tools to help determine demand and make more informed decisions. And as cybercrime continues to rise — and grow more sophisticated — they’re also looking for information security tools to protect their assets.
5. Digital transformation will come with a steep learning curve
Distributors are pursuing digital transformation projects, but they aren’t doing it alone. To build essential capabilities, they’re making outside investments and working with third parties on the planning, implementation and change management necessary to make digital transformation a success. They’re investing in the training their employees need to interpret data and make strategic decisions. They’re investing in the time needed to help line managers, shop floor workers and drivers understand the why of the new technology and processes so they actually adopt them.
6. Inflation, tax changes and other wild cards will stay in the news
Inflation was a huge topic in the latter half of 2021, and tax policies have been consistently in the news ever since the presidential race. These two subjects, along with regulations and consumer demand, will stay in the news and “up in the air” in 2022. Distributors should watch for changes in the market and prepare flexible, contingency-based plans that allow them to pivot quickly and strategically.
How Wipfli can help
An ever-changing market makes it challenging for distributors to grow and thrive. But Wipfli advisers know how to help you innovate, self-disrupt and unlock the full potential of your business. Learn more about our distribution services.
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