How is 2023 foreseen for the Supply Chain?
According to Bloomberg, we are about to head into the "hangover" of 2023. Last year left supply chain industry in a not-so-comfortable situation, forcing it to experience a time of change and adaptation.
Inflation and recession? A year of uncertainty
Uncertainty is one of the words of the year. Global economic growth is slowing considerably due to high inflation and rising interest rates. This situation combined with escalating geopolitical and social tensions are setting the stage for a recession. Although most predictions follow this same line, it is worth remembering that there is no precise way to detect exactly when this recession will come.
The only certainty we have is that it will be a year of uncertainty.
2023 will be a better year, but supply chains will still cause headaches."
- Oren Klachkin, economista jefe para EE.UU. de Oxford Economics en Bloomberg
We enter 2023 cautiously, companies seem to be entering this year more cautiously than they did in 2022. Last year we saw the first half surge in demand give way to a slowdown during the second half of the year.
This decline in demand has negatively affected companies as they start the year with a surplus of inventory, which negatively affects production for the first few months of the year.
Companies' costs soar. With inflation, the costs of energy, raw materials and wages have skyrocketed. In addition, we are coming from a few years with extremely low interest rates that have only been rising for a few months, this historic rise in interest rates is making financing for companies more expensive.
Given the current macroeconomic situation, a significant drop in demand is expected this year. This drop in demand with high inventory levels is going to negatively affect companies and expected economic growth.
The speed at which supply problems are solved will be key to how quickly inflation comes down."
- Oren Klachkin, economista jefe para EE.UU. de Oxford Economics en Bloomberg
China will no longer be the world's factory
This 2023, as we have been seeing, production costs are not falling as much as expected. Before the pandemic, China was at its peak as a producer, it was the "factory of the world." The way the Chinese government has dealt with the pandemic has created strong internal pressures.
The discontent is not only from its citizens, but the business world has also learned that heavy dependence on China is a major risk to the stability of international trade. Companies have already begun to look for alternatives, to offshore production to reduce the threat of dependence on China.
In Europe, new laws on ethics and supply chain have already been in place for a few years now. We already saw it in 2017 in France and the Netherlands and we see it in the recent new German regulation. There is also talk of very likely European legislation to penalize human rights violations in supply chains. These laws are being vetoed for many Chinese companies, something that makes it even more difficult for this country to remain an export leader.
We will also continue to see the trend of relocating industry closer to the end consumer. With the automation of production and logistics, labor is no longer a key competitive advantage for outsourcing production. As society is becoming increasingly aware of the environmental impact, a logistics model is being promoted where the supply chain is shortened, bringing production closer to the end consumer. This trend is set to accelerate the offshoring we are talking about.
2023 A year of adaptation
According to Forbes, the word of the year in this sector will be Adapt. We have already mentioned that this will be a year of change, so companies will be forced to adapt to these new circumstances.
Digital transformation is already inevitable, the growth of e-commerce since the pandemic is skyrocketing and more and more companies will adapt e-commerce as a complementary way to face-to-face sales.
Supply chain automation is a booming market, investment in solutions related to this process is in the spotlight of major investors. These solutions are becoming increasingly efficient thanks to new technologies such as AI or blockchain among others.
What is clear is that it will be a year of uncertainty. In the face of this uncertainty the top priority for companies must be to adapt. Although companies are focusing on being more conservative and reducing risks, 2023 can be a time of opportunities, a time to innovate and adapt to new trends.
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