There have been numerous disruptions to the supply chain over the last two years due to the pandemic. Photo: RNZ / Kymberlee Fernandes
New Zealand supply chains are expected to be less disrupted but far more expensive next year, an expert says.
The industry has been hit by numerous disruptions over the past two years due to the pandemic, now the problem has shifted to an inventory crisis.
Experts and industry professionals warn that while disruptions may be declining, 2023 will see significant price escalations.
Massey University's Supply Chain Risk Analytics Network (SCRAN) has just released their 2023 risk outlook and have identified a large number of issues that may influence supply chains next year.
The report summarises a review carried out in November 2022, with feedback received from 172 supply chain practitioners.
"Inventory levels have been kept high to deal with disruptive supply chains over the past two years, while demand is now low," the report said.
Senior lecturer in supply chain management Dr Carel Bezuidenhout said supply chains had not recovered completely and businesses may continue a 'just-in-case' strategy going into 2023.
"The economy is going down, consumers are buying less, the holding cost for inventory is becoming a significant factor for supply chains going into 2023," he said.
He described the supply chain industry as being in a long Covid situation.
"We have a hangover from Covid, there is still shipping delays and interruptions especially in this part of the world in Australasia.
"In 2023 we can expect that long Covid to spill over and affect our supply chains, but at the same time we have geopolitical instability and those activities create shortages on certain products."
From empty shelves in 2021 to over-stocking factories in 2022, the supply chain has now shifted to an inventory crisis.
This drives a range of inventory related costs and places additional pressure on supply chain practitioners, especially when warehouses fill up and alternative storage needs to be secured.
Data from software company Unleashed shows New Zealand companies are holding twice the value of stock compared to pre-pandemic levels.
They looked at data from 4500 companies in New Zealand, Australia and the United Kingdom and found a similar trend there too.
In addition to rising inventory costs, Bezuidenhout said labour shortages were also driving cost pressures with higher salary expectations.
In 2021, the supply chain crisis was at its worst, with ships stuck at sea and businesses globally struggling to get goods. So some started ordering large quantities of stock, to fulfil current orders and to have a buffer for future orders.
Dr Bezuidenhout said this was a global issue and every supply chain in the world was experiencing some sort of difficulty.