The Big Shortage: Lessons from 2021 on How to Navigate Supply Constraints

From semiconductor shortages shutting down car factories to timber prices skyrocketing due to unprecedented post-lockdown demand, supply chain leaders have had their hands full trying to keep business going.

As the second pandemic year comes to an end, Gartner Senior Director Analyst Joel Knox takes a look back and answers some of the biggest questions around supply constraints—and shares how to move forward.

Severe supply constraints have impacted industries ranging from consumer electronics to snack foods to industrial equipment. Yet some organisations fare better than others. What are those leaders doing differently?

I would not be surprised to see the phrase “whack-a-mole” become 2021’s supply chain phrase of the year. There is really no better comparison for today’s supply chain than a game with a seemingly random series of challenges that are coming at an increasing velocity. That is why only very few—if any—companies have managed to navigate the current environment unscathed.

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Those that are weathering the storm most effectively are not just trying to predict problems but are also finding ways to recognise them earlier and course-correct quickly. In procurement, leaders are leveraging visibility and intelligence at lower tiers in the supply chain to reduce their response time to events. On the product side, companies are designing products to allow for secondary sets of components without sacrificing product quality, or they are trying to shape demand around available products. 

Across the supply chain, leaders are also focussing on improving reaction times—that is to say reducing the time to shift between suppliers, transportation routes or alternate production facilities. It might not be the most interesting focus area, but those building the internal muscle now will fare better as source constraints begin to work their way through the rest of the supply chain.

Planning and sourcing are vital to predict and navigate supply constraints. How must internal processes change to accommodate that?

So far, planning for many organisations has been an internally focussed activity. There has been an unspoken assumption that supply is unconstrained once we get past the first tier of the supply base, but many issues actually occur at much lower tiers. 

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The last 18 months have been a wake-up call. Planning and procurement need to partner to create visibility into lower tiers of the supply base, identify risk points and integrate critical supply into the planning process. That means an increased investment in commodity intelligence and true integrated planning processes with key suppliers—and it cannot stop at tier one. Planning teams also need to shrink communication lags through the supply chain by improving supplier visibility.

Is there even a way to shape demand in order to align with constraints?

Absolutely. To a certain extent, the effectiveness of any one tactic varies by industry. However, companies across a range of industries have shown that demand shaping is possible. The simplest application of demand shaping is lead time. I can ship product A now, or you can order product C and wait a few weeks or months. Stepping up from there, we have seen companies successfully use price to shift customers to an alternate product or delivery slot.

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What has been really interesting is that companies are recognising that reducing portfolio complexity itself can be a demand-shaping activity. Things like lowering the number of options or product configurations available can go a long way in helping improve availability, depending on the constraint.

Do you foresee more constraints in the future, or is the worst behind us?

This is a question that is perplexing economists all over the world. That said, I have a hard time seeing a path towards “normalcy” any time soon unless we see an unexpected drop in demand. At the end of the day, increased capacity takes time to build. For many industries that is measured in years, not months. And it assumes that capacity is being built at all, which is not universally true.

Supply chains are complex. It takes hundreds, if not thousands, of parts coming together at the right time. It takes sufficient capacity in transportation to get them where they need to be. And it takes labour to make them into something that the customer wants. It only takes one thing going wrong in any one of those areas to create a problem. With the tightness in seemingly everything, it is hard to imagine that we will not be in this environment for a while.