If no news is good news, then the distribution industry is aching for some quieter times. Nearly every news outlet in America is covering turbulence in the industry.
Every part of the supply chain was stressed in 2021. Issues that were considered temporary—like COVID-19 shutdowns—are persistent, and the side-effects have been longer-lasting than companies anticipated. Consumer demand has continually outpaced manufacturers’ abilities to produce and transport goods.
The silver lining is that business is good—just too good for most distribution companies to manage. Few firms can fulfill all their customers’ orders.
Why? Manufacturers are suffering the same product and shipping delays as consumers, so they lack equipment they need to ramp up capacity. Ports are full, so finished products are sitting idle and filling up storage units. Spare warehouse space has been exhausted. And there are not enough workers or drivers to transport goods to their final destinations, which contributes to higher freight costs overall.
2022 Distribution industry outlook
None of these issues will be resolved quickly—or completely. Distribution firms are operating under a new set of rules. As they enter 2022, manufacturing and supply chain leaders should watch for these emerging trends:
● The end of just-in-time (JIT) inventory: Historically, manufacturers have tried to closely match production to consumer demand, delivering just in time orders. Consumer demand has been a wild card since the pandemic, and distributors need more flexibility than JIT principles allow. They need better methods for predicting consumer demand, more flexibility in their production systems, and mechanisms to clear inventory when demand shifts.
- A shortage of workers: Labor shortages aren’t new to distribution – but they’re at critical levels now. In this worker’s economy, companies have been trading craftsmen and truck drivers without drawing new talent into the career field. Distributors need creative strategies to recruit and retain their essential workers, and to manage rising labor costs.
- Increased transparency and alignment: Distributors are demanding more visibility into their supply chains—from raw material acquisition to last-mile transportation. That includes more insight into partners’ businesses (specifically their pain points) and tighter strategic alignments. Distributors need earlier warnings when instability is ahead—and more ways to respond. Rather than shrink supply chains to tighten control, expect some distributors to expand their partnership networks to protect against potential service gaps.
- Higher-speed digital transformations: Innovations that were on two or three-year roadmaps are being fast-tracked to build resiliency right now. Distribution firms are investing heavily in data and analytics technologies so they can spot and respond to the industry’s next disruption. Companies are also prioritizing tools that can help them address current constraints. Robots aren’t coming to replace human jobs – but to supplement human production. Firms are looking for information security tools to protect their assets, and predictive tools to figure out demand and make more-informed decisions.
- Steep learning curves: Most companies aren’t positioned to pursue digital transformation projects alone and will be making big outside investments to build now-essential capabilities. But collecting, validating and formatting data is just part of the equation. Distribution companies need staff who can interpret the data and explain how and where it impacts the business. There’s a cultural shift ahead, too; new technologies and processes only help if line managers, shop floor workers and drivers are willing to accept and adopt them.
- Wild cards: Inflation rates, tax policies, regulations and consumer demand are just a few factors that will stay “up in the air” as we enter 2022. Pay careful attention to changes in the market and prepare flexible, contingency-based plans rather than set-in-stone strategies for the future. Many pressures will unwind themselves as the year unfolds—but you never know exactly what’s coming next.
Chris Blaylock, is a partner at Wipfli, a business consulting firm.