The Impact of Inflation and Labor Shortages on Supply Chain

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The global economic landscape is in a constant state of flux, and it’s continuously being shaped by a myriad of factors. However in recent years, significant events such as the COVID-19 pandemic, technological advancements, and market fluctuations have led to significant disruptions and impacts. For example, two notable trends that we’re seeing across the board in the economy are inflation and labor shortages. Both of the most recent instances of these scenarios were sparked by the coronavirus pandemic, and we continue to feel their impacts today, especially when it comes to the supply chain.

Here’s what you need to know about the state of supply chain inflation and labor shortages today, including how we got here, and what inventory-based businesses can do to best insulate themselves from the potential negative impacts of these trends.


The State of Inflation and Labor Shortages in 2024

While supply chain inflation and labor shortages are two distinct issues, they have similarities in the sense that these most recent episodes started during the coronavirus pandemic, which sent shockwaves throughout the economy. So, where are we right now when it comes to both inflation and labor shortages?

Starting with labor shortages: the U.S. Chamber of Commerce says that companies of every size and industry across America are “facing unprecedented challenges trying to find enough workers to fill open jobs.” Some of the latest data shows that there are millions more job openings than there are unemployed workers.

How did we get here? Analysis by the USCC shows that during the pandemic, more than 120,000 businesses temporarily closed, leaving 30 million workers unemployed. The landscape of unemployment hasn’t been the same since, with jobs being added at a much faster rate than workers are filling them.

Inflation is a different story, but one that also has roots in the pandemic. Supply chain issues, followed by geopolitical tensions, led to sharp jumps in prices in 2021 and 2022. Inflation hit a 40-year high by June 2022, before things started to finally improve. Now, in 2024, while inflation is on the decline, and consumer confidence is improving, it’s not yet a thing of the past.

These two issues impact all industries and consumer habits. However the supply chain is particularly vulnerable to the effects of labor shortages and inflation, and inventory-based businesses are still feeling the impacts of these scenarios today.


How Inflation and Labor Shortages Can Impact Supply Chains

How can both supply chain inflation and labor shortages impact inventory-based businesses?

Firstly, labor shortages can generally lead to unfilled roles in the supply chain. But aside from the overall labor shortage, the supply chain is also being impacted by a specific skills shortage, where skills gaps are leading to a shortage of qualified workers. Supply chain executives today say their biggest challenge right now is “recruiting and keeping qualified workers,” with a majority saying they’re “struggling with ongoing specific talent shortages.” These labor shortages can be seen at all stages of the supply chain “from sourcing to production, logistics, and delivery of goods and services.”

When it comes to inflation and the supply chain, it’s a complex scenario that acts as a “vicious cycle.” For example, the White House says that during the pandemic, the impacts to the global supply chain “drove up prices,” due to supply chain disruptions and delays. Simultaneously, inflation itself started to impact the global supply chain, as consumers were left with less disposable income, all while inflation drove up costs for everything from materials to transportation. What we ended up with was a scenario where costs were higher, budgets were tighter, and supply chains were vulnerable. While supply chain inflation is in better shape today than it was even just a few months ago, leaders in the supply chain are constantly on alert for potential disruptions and economic pressures.

These recent episodes of inflation and labor shortages have demonstrated the importance of one thing: supply chain resilience.


Strategies for Supply Chain Resilience

Supply chain inflation and labor shortages can happen at any time and are not only restricted to these most recent incidents. But these cases have acted as a “wake-up call” for many businesses in the supply chain, and have demonstrated the need for protocols and systems to beef up resilience.

Here are some strategies for boosting supply chain resilience in your inventory-based business:

1.  Take steps to mitigate the effects of labor shortages

All businesses in the supply chain can benefit from improving staffing and hiring practices. Even if your business isn’t currently being impacted by labor shortages, it doesn’t mean it’s in the clear: experts say that by the year 2030, “more than 85 million jobs could go unfilled because there aren’t enough skilled people to take them.”

So, to mitigate the effects of a labor shortage, you can do several things. Firstly, emphasize workforce skill development and training, to keep your current team members well-trained and engaged. You can invest in employee training programs to enhance workforce skills and ensure adaptability. Additionally, cross-train employees in different roles to create a versatile, resilient workforce.

Another way to combat labor shortages is to deploy advanced supply chain technology. While we’ll cover this in-depth in a moment, supply chain technology can help you automate certain tasks, reduce redundant workloads, and improve your bottom line, all of which can help you best combat the impacts of labor shortages.

2.  Understand how to operate in an era of inflation

While your business can’t stop inflation, it can learn how to best function during it. Take steps to build general resilience in your organization by conducting regular audits to identify vulnerabilities and areas for improvement. This proactive approach allows your business to refine its strategies and processes, instead of retroactively trying to recover.

Next, you can work to build relationships with your suppliers and vendors. When you have strong relationships with your third-party partners, you’ll have clear communication, mutual understanding, and collaborative problem-solving efforts, which can enhance overall resilience.

Also, take advantage of data and analytics to inform your decision-making. Inventory analytics can help you improve your inventory management efficiency and reduce operational costs, even during a period of inflation. Similarly, demand forecasting can be an essential tool that allows you to predict future stock needs, taking into account different forecast hierarchies and special events (such as natural disasters and other scenarios of unusual demand).

3.  Diversify your suppliers

Build resilience by diversifying suppliers across industries and geography. This can help mitigate risks associated with regional disruptions, or issues with specific vendors (such as delays or production issues). A diversified supplier base reduces dependency on specific regions and vendors, minimizing the impact of localized challenges.

4.  Take a strategic approach to inventory management

While taking an active, strategic approach to inventory management can help you improve your revenue and operations overall, it can also help improve outcomes during challenging times. For example, when you’re effectively managing stock and avoiding scenarios such as stockouts and long lead times, you’ll have a better buffer against the impacts of inflation and will ensure you have the proper availability of inventory. But if you’re mishandling your stock, leading to excess or stockouts, you’ll have even more trouble correcting these situations during challenging times.

5.  Invest in supply chain technology

Today’s advanced supply chain technology can enhance visibility, improve profitability, provide an optimal customer experience, and can also create resilience to the impacts of inflation and labor shortages. For example, StockIQ’s intelligent supply chain planning suite can help your business improve turns and service levels while reducing stockouts and excess. You can be prepared for the future with forecasting, order optimized quantities with replenishment features, and take control of your inventory with advanced inventory planning dashboards.

Build Resilience with StockIQ

Today’s supply chain inflation and labor shortage issues represent an ongoing situation: inventory-based businesses need to be prepared to succeed in the face of challenges. And if you’re ready to build resilience, overcome supply chain challenges, and optimize your operations, StockIQ is here to help.

StockIQ is a supply chain planning suite that gives you the tools you need to run efficiently, improve forecast accuracy, and reduce inventory levels. Contact us today to get started.

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