January 2023

Medical equipment has been in short supply since the start of the COVID-19 pandemic. However, even as the public health crisis subsides, supply chain uncertainties persist, leading some manufacturers to reconsider some of their long-standing supplier relationships.

US dependence on Chinese medical suppliers is overblown — but still real

The United States has long been dependent on China for a range of medical supplies and equipment. While the degree of dependency is sometimes exaggerated by pundits and commentators, U.S. medical facilities still import a significant volume of equipment from China, including medicines, personal protective equipment, testing kits and more.

One report from the U.S. International Trade Commission near the start of the pandemic found that among 203 medical product categories analyzed, China is the dominant source of imports for 32 of them.

Commenting on the report, the Cato Institute concluded that, "far from suffering some sort of major 'dependence' crisis … the United States generally imports essential medical goods from a diverse (and everchanging) group of foreign suppliers."

Medical facilities in the United States consider diversifying their suppliers to offset their overreliance on China.Medical facilities in the United States consider diversifying their suppliers to offset their overreliance on China.

Slowdowns in China are concerning but limited in impact

Much of that is due to changes U.S. manufacturers and government officials implemented in the first days of the COVID-19 pandemic. As the virus swept through China and the Chinese leadership instituted strict lockdowns to combat its spread, U.S. officials worked to identify alternative suppliers and build stockpiles of key medical supplies.

Despite this diversification of medical suppliers, further COVID-19 outbreaks in China in 2022 and 2023 and the resulting manufacturing slowdowns have created shortages that individual facilities have found it difficult to address.

Officials are on guard, waiting to see how the measures taken at the start of the public health crisis will stand up to the latest closures.

"We're looking a lot for potential early warning signs in the medical supply chain for any kinds of disruptions," said one U.S. official to NBC News. "At this point, we haven't detected any current or likely disruptions, at least to the flow of drugs or devices or supplies of PPE (personal protective equipment) to the United States given what's going on in China."

Manufacturers might not be willing to wait and see

Still, official reassurances aside, some medical facilities might begin reconsidering their options, which could be a significant economic boon to China's neighbors and other suppliers.

Medical Design & Outsourcing identified Malaysia, Thailand, Vietnam, Costa Rica and Mexico as potential candidates before the pandemic, and manufacturers in other sectors are already considering moving operations to countries like India and Vietnam.

While it's yet to be seen if the latest COVID-related disruptions will lead to a complete rethink of the manufacturing relationship with China, those conversations are likely already taking place in boardrooms across the country.

As suppliers increasingly look for ways to overcome operational challenges in their warehouses, some are beginning to leverage smart warehouse technology like automation and artificial intelligence to improve the productivity of their warehouse associates and enhance their processing efficiencies.

Reflecting this trend, the global smart warehouse technology market is expected to surge over the next few years, reaching a valuation of $29 billion by 2028, according to data from KBV Research.

Popular smart warehouse technology in use today

There is an extensive range of smart warehouse solutions currently used by some of the largest (and highest-performing) companies. Among the most common are:

  • Warehouse management systems: WMS software centralizes all supplier and inventory data in a single system, giving your warehouse managers complete oversight of all fulfillment functions. Managers can use this information to make data-driven decisions about their internal processes to optimize performance and improve output.
  • Robot palletizing solutions: These machines automate the tedious and time-consuming process of packaging materials onto pallets for storage and transportation. Not only do robot palletizers drastically enhance processing efficiencies and improve production speeds, they also reduce the incidence of human error for better quality outcomes.
  • Internet of things (IoT) devices: You can equip materials in your warehouse with advanced IoT sensors to digitally track their movements throughout your supply chain. IoT devices can support your inventory management functions while giving you precise tracking information about specific items for more accurate reporting and forecasting.

As smart technology becomes an increasingly important part of daily operational procedures, expect organizations to rely on it to bolster their supply chain management strategies.

Warehouse management software could help companies transform their central tasks and processes.Warehouse management software could help companies transform their central tasks and processes.

Operational advantages throughout your company

While increasing efficiencies and improving productivity are among the primary advantages to deploying smart warehouse technology, organizations stand to experience numerous other downstream benefits as well. These include:

  • Investing resources into high-value priorities: Automating the manual, repetitive functions of your warehouse liberates your human capital and lets warehouse associates focus their creative resources on more complex problems. It also directs your limited bandwidth to higher-value priorities that drive innovation and create new value for your customers.
  • Facilitating scalability during high-demand seasons: Streamlining your operations with a leaner workforce gives you the capacity to scale up or down depending on your needs. It allows you to handle a larger volume of inventory without creating bottlenecks or inaccuracies while keeping costs within budget.
  • Improving customer satisfaction: On the whole, smart warehousing technology reduces labor and operational costs (which suppliers can push down to consumers) and enhances processing times for faster (and more accurate) shipments. All of this leads to greater customer satisfaction, loyalty and long-term profitability.

Used strategically, smart warehouse technology can play a vital role in future-proofing your business and increasing your operational resilience in the face of endemic supply chain challenges.

High inflation has been one of the lingering consequences of the COVID-19 pandemic. According to the U.S. Department of Labor, the Consumer Price Index in November 2022 had increased 7.1% over the previous 12 months. Resurgent consumer demand, business closures, transportation disruptions and port congestion have all conspired to put pressure on suppliers and raise the cost of doing business.

Many suppliers and manufacturers have struggled to adjust their management and logistical structures to keep pace, forcing them to push increased costs down to consumers. While this can help them maintain profit margins in the short term, it only contributes to the rise of prices across the supply chain and the long-term persistence of inflation, putting businesses in a double bind.

Regardless of the possible solutions, inflation is likely to pose several challenges for suppliers and manufacturers throughout 2023 (and beyond). These include:

1. Increased foreign exchange risk exposure

Many manufacturers and suppliers today maintain business relationships across international borders, meaning they often have to deal in multiple currencies and balance fluctuating exchange rates. Inflation tends to impact countries in different ways, however, and less stable currencies are often unable to weather the crisis and maintain their value.

Businesses that buy from suppliers based in countries with weaker currencies could expose themselves to significant risk if the values of those currencies drop too much, while those that sell to certain buyers might make bloated returns that artificially inflate performance reports and revenue projections.

Businesses might respond to inflation by overstocking warehouses, which could make inflation worse.Businesses might respond to inflation by overstocking warehouses, which could make inflation worse.

2. Raw materials procurement could fuel further inflation

Raw materials are in short supply and many manufacturers are finding it difficult to source the materials they need to fuel their production processes. As Zurich Insurance noted, manufacturing executives often respond to supply shortages by purchasing excess raw materials to bolster their inventories.

While this might help the few fortunate companies that can secure needed materials offset the impacts of supply shortages, it can have wider, negative consequences for other stakeholders across the supply chain. Procurement surges cause demand to increase further, which puts even more pressure on suppliers to deliver sufficient quantities of raw products.

3. Rising interest rates make it harder to access capital

The U.S. Federal Reserve has increased interest rates in an effort to tamp demand and stabilize prices. Raising interest rates makes loans and credit lines more expensive, however, making it difficult for suppliers and manufacturers to access capital they need to address the unique economic challenges posed by rising prices.

Without fast access to cheap capital, businesses have to institute stricter oversight and better management of their cash flows, ensuring budgets are tightened and receivables are properly processed to limit the impact of reduced working capital. If they don't, they might not have the cash reserves to sustain normal business operations.

As demand for solar panels continues to increase, manufacturers' overreliance on China-produced polysilicon and other raw materials used in the production of solar panels could put the solar supply chain at serious risk.

Geopolitical tensions between the United States and China and the lingering consequences of the COVID-19 pandemic have both caused serious disruptions in the market that have already had downstream consequences for stakeholders throughout the supply chain.

China sits atop the world's supply of polysilicon

China is the world's leading producer of polysilicon, a raw material of tiny crystals that is used as one of the basic elements in solar panel manufacturing. The polysilicon crystals are melted down to produce ingots, which form the basis of the photovoltaic wafers in finished solar panels.

In 2021, China controlled 79% of the world's production of polysilicon, according to research from the International Energy Agency (IEA). Further, the world's leading three producers of polysilicon are presently all based in China, according to Bernreuter Research.

The global solar market is highly exposed to geopolitical tensions between the United States and China.The global solar market is highly exposed to geopolitical tensions between the United States and China.

US-China tensions have hit solar markets

The inherent challenges of the overconcentration of the world's supply of polysilicon were put on display in 2021, when it was reported that a significant portion of China's polysilicon output — 42%, according to the above IEA report — came from the country's Xinjiang province. Xinjiang has been in international news in recent years due to allegations of forced labor and cultural genocide in the province.

The United States moved to ban some polysilicon imports from Xinjiang, which seems to have already created bottlenecks. Reuters reported that thousands of shipments of solar energy components have been locked in ports in the wake of the new regulations. These challenges are likely to persist if the United States imposes further restrictions on polysilicon imports originating in Xinjiang.

China's polysilicon suppliers have suffered under COVID-Zero

A more immediate concern for global solar manufacturers is the lingering effects of the COVID-19 pandemic. China's aggressive approach to curtailing the spread of the virus (termed "COVID-Zero") has forced many polysilicon suppliers to shut down operations (or at least greatly curtail their manufacturing output).

In a statement, the China Silicon Industry Association reported that the prices for raw materials like polysilicon dropped significantly at the end of the 2022, which puts severe financial pressure on normal business functions, while many manufacturers were also operating well below normal capacity.

Global solar panel manufacturers' dependence on Chinese markets will continue to disproportionately expose them to disruptions and slowdowns as China implements new measures to fight the virus.

Supply chain challenges have dominated international headlines, and much of the focus has been on the fallout from the COVID-19 pandemic and the lingering consequences of the public health crisis.

However, climate change poses a more fundamental threat to global supply chains, as extreme weather events, sea-level rise, unpredictable weather patterns and new compliance regulations all conspire to restrict the ability of suppliers to move goods between markets.

Sea-level rise could impact critical transportation hubs

Sea-level rise poses serious risk to ports and other transportation centers located on or near major waterways. In a recent report, the National Oceanic and Atmospheric Administration (NOAA) projected that sea levels could rise by roughly one foot by 2100, a significant increase that could cause serious damage to transportation infrastructure located near the world's rivers, oceans and lakes.

As Yale Environment 360 points out, ports are critical distribution centers to a much wider (and more complicated) network of suppliers, vendors and manufacturers. When transportation centers near critical waterways are unable to deliver goods beyond their central distribution points, manufacturers located further inland are unable to source the raw materials needed to deliver finished products.

Flooding could severely impact the resiliency of global supply chains.Flooding could severely impact the resiliency of global supply chains.

Changing weather patterns might hurt global food supply

Many Americans don't realize that much of the food they consume travels along highly integrated supply routes before reaching their plates. In 2021, the United States imported roughly 15% of its food supply, according to the U.S. Food and Drug Administration (FDA).

Climate change could have serious impacts on the global production of food that might severely disrupt those supply chains. Agriculture depends on the relative predictability of the climate, but as weather patterns like rainfall and temperature become increasingly unpredictable, farmers are finding it more difficult to produce a high enough crop yield to meet global demand.

Furthermore, climate change is disrupting the natural habitats of many plant and animal species, fundamentally altering the ability of livestock and foodstuffs to thrive. Even where the ability to produce at normal levels remains sustainable, food quality could ultimately take a hit as drought, flooding and extended frost periods take their toll.

Red tape may place additional burdens on suppliers

As the public becomes increasingly concerned about the impact of climate change, government bodies are responding by introducing new compliance regulations to promote more sustainable business practices.

While effective, these restrictions also create additional bureaucratic hurdles that producers, suppliers and manufacturers must navigate to transport raw materials and bring finished products to market.

Even as stakeholders adjust to the new regulatory environment and relieve bottlenecks, the added costs of doing business will likely be pushed down to customers, adding further costs to other stakeholders along the supply chain.

With the supply chain better but not back to normal and carriers overworked by never-ending "next-day deliveries," retailers are turning to drone technology as a huge breakthrough when it comes to order fulfillment. So much so, some believe that 2023 will truly be the year that drones as a means of transportation will truly "take off."

But as it happens, when the retail industry history books are written, 2022 may be remembered as the period in which drone delivery took flight, as two of the country's largest organizations spent the year staking their place as authorized users.

Last year, Walmart successfully completed thousands of orders that were dropped off via the sky. Indeed, according to a company announcement obtained by Supply Chain Dive, the big box retailer performed 6,000 of them in 2022 across seven states, including Arkansas, home to its corporate offices.

Vik Gopalakrishnan, vice president of innovation and automation for Walmart North America, noted his delight at an historic achievement.

"I'm incredibly proud of our team for creating the largest drone delivery footprint of any U.S. retailer and providing customers with an incredibly fast – and innovative – option for delivery. We're encouraged by the positive response from customers and look forward to making even more progress in 2023."

The other states in which drones were deployed for customer delivery were primarily in the South and included Florida, Texas, North Carolina and Virginia. Mountain West customers saw them as well, specifically in Utah and Arizona.

As one of the largest organizations in the world (all companies, not just retail) and with more than 4,700 brick and mortar locations in the U.S., it may not be too surprising that Walmart leveraged this high-end delivery method given its considerable resources. But Walmart is hardly alone when it comes to drones: Entities like FedEx, UPS, DHL and Domino's Pizza have used drones for delivery either last year or prior to it. Also, even small-business restaurants use drone services for some customers.

More drone deliveries are expected in 2023 and beyond.More drone deliveries are expected in 2023 and beyond.

Amazon Prime Air introduced in parts of California and Texas
Another major player in drone investment is Amazon. The e-commerce giant announced in June 2022 that it received a go for launch from the Federal Aviation Administration after seeking its approval. That green light herald the creation of Prime Air, a delivery service that uses UAVs to make quick (60 minutes or less) drop-offs to customers who are within sufficient range of a warehouse equipped with drone capability. While Prime Air has not been formally rolled out to all Prime subscribers, it is now available for use in test locations. These include Lockeford, California and College Station, Texas, according to reporting from ARS Technica.

Speaking to KTXL, a FOX TV affiliate in Sacramento, Amazon Air Spokesperson Natalie Bank said these parts of the country will be the first to experience a service the company believes will soon be more widely available.

"We are starting in these communities and will gradually expand deliveries to more customers over time," Bank said.

Experts say drones for now will only be used to deliver smaller items, such as certain types of food, home supplies and paper goods. According to Walmart, the company sells over 20,000 items that are drone drop-off eligible, each weighing 10 pounds or less.

In one form or another, virtually all industries are utilizing automation to facilitate their work processes for greater efficiency, speed and accuracy and to lower costs. Chief among those users are retailers, leveraging the technology in their warehouses and distribution centers to improve the flow of goods in and out of their facilities and to save on costs by minimizing downtime and errors. From conveyor belt systems to robotic arms to material handling equipment for picking and packing, warehouse automation is no longer the exception — it's the rule, particularly among major brick-and-mortar and e-commerce retailers.

Given its ubiquity, a few questions arise: What will warehouse automation look like in 2023? Will warehouse occupancy grow to accommodate the infrastructure? How will it address business owners' supply chain challenges? Here are a few predictions:

1. Surge in robots-as-a-service usage
Robots as a service, or RaaS, refers to the delivery of robotic solutions on a subscription or pay-per-use basis. Similar to software as a service (SaaS), RaaS allows businesses to use robots without having to purchase and maintain them.

According to Supply Chain Brain, due to the ongoing labor shortage, RaaS will likely gain more traction in the months ahead to plug unfilled roles that would normally be held by individuals.

Moving forward, employers will need to make decisions on their paths forward by asking themselves tough questions. Why has the labor shortage persisted as long as it has? What inducements, beyond better pay, will encourage more people to apply? How much money are they saving through RaaS, and if so, does it make sense to expand their use? These are all key questions that will chart the path forward for organization.

RaaS will likely expand in warehouses over the coming months as warehouses grapple with labor shortages.RaaS will likely expand in warehouses over the coming months as warehouses grapple with labor shortages.

2. Humans will become more relevant, not less
In light of the fact that automation continuous to flourish — inside and outside of warehouse settings — some believe that humans are on the cusp of being fully replaced, a feeling they've had for a while. Several years ago, for example, over a quarter of respondents in a Gallup poll believed they'd be out of a job within 20 years because of automation. 

Experts say otherwise. That's because warehouse automation needs to be overseen by human beings to guard against malfunctions, for maintenance and to ensure the equipment starts and stops when its supposed to. Machines are also designed to perform more repetitive tasks rather than those that require contemplation and critical thinking. Organizations that rely on warehouse automation — such as retailers and logistics companies — are still actively recruiting people, despite their increased usage of robotics.

3. Dip in warehouse demand
While warehouse automation may be expanding, demand for warehouse space is slowing, largely due to the dramatic increase in interest rates fueled by inflation and actions of the Federal Reserve. That's expected to continue into 2023 as mortgage rates tick higher.

According to Cushman & Wakefield data obtained by Supply Chain Dive, the amount of occupied warehouse space fell over 9% in the fourth quarter compared to the third. The commercial real estate firm added that warehouse supply will push higher in 2023 because demand is declining at the same time as contractors are completing construction.

Organizations are poised to continue investing in warehouse automation, but in spaces they already occupy.

When history is written, the current recession may go down as one of the more unusual ones for the United States' economy. Unlike the Great Recession in the late 2000s, when hiring fell virtually across the board and the unemployment rate grew in response, many industries are still feverishly seeking job applicants, which has kept the national jobless rate quite low. But other major employment sectors — such as IT and finance — are downsizing due to poor earnings and diminished demand.

An industry that's in the former category is manufacturing, as a new report shows the overwhelming majority of employers in the sector are experiencing a workforce shortage.

More than 3 in 4 manufacturing companies are experiencing problems with hiring and retaining skilled workers, according to a newly released survey from the National Association of Manufacturers (NAR). With 76% of polled respondents indicating as much, staffing shortages were second only to supply chain disruptions as producers' most common challenge.

Chad Moutray, the NAR's chief economist, pointed out that hiring and maintaining staff have been persistent pain points for producers for quite some time now.

"Companies continue to have workforce issues," Moutray explained, as reported by Supply Chain Dive. "Some are raising wages and still are having difficulties finding anybody, which is holding back their ability to expand and stay productive."

What's also impeding their output is retention. According to the U.S. Chamber of Commerce, as of October, manufacturers have the highest quit rate of all industries at 5.5%, with wholesale and retail trade in a distant second (3.2%). As a result, 40% of job openings in manufacturing are unfilled, U.S. Chamber of Commerce data also shows.

Hiring woes continue to plague manufacturers.Hiring woes continue to plague manufacturers.

Similar to other industries, when it comes to insufficient employment, the pandemic was the tipping point. Many producers were already experiencing problems with hiring and then the measures designed to curb the transmissibility of COVID-19 forced some employers to cut their payrolls. But with those same manufacturers now hiring again, workers remain on the sidelines, despite business owners raising wages to attract them back. Producers expect to keep doing so for the foreseeable future, according to the NAM poll.

It isn't all about the money
More money can't be their only strategy, according to Paul Wellener, vice chair of industrial products at Deloitte. Wellener told Supply Chain Dive that other incentives individuals seek include flexible work arrangements and opportunities to learn new skill sets through training. Training has been more of a focus for manufacturers of late but also even before the pandemic. In 2019, for example, they collectively spent $26.2 billion on internal and external training programs, according to NAM figures

Manufacturers are also increasingly embracing remote and hybrid work environments. As a Gallup poll in 2021 revealed, approximately 9 in 10 respondents at the time said they wanted to continue taking advantage of the ability to work from home when the lockdown measures were fully lifted. A majority said hybrid was their preferred work environment.

From far-reaching wildfires in states that typically don't get them in the summer to a spike in Category 4 hurricanes in the fall, the devastating repercussions of climate change play out across the country on a regular basis. While weather as a rule is variable, evidenced by the natural changes in air temperatures from seasonality, the data proves that the planet's temperature is on a steady track higher. Just this past November, for example, the earth logged its ninth warmest November on record, according to the National Oceanic and Atmospheric Administration. Given weather phenomena affect human behavior, it's fair to say that climate change has both a direct and indirect impact on the supply chain. And according to a new threat assessment, manufacturers may be in the eye of the storm, with increasing heat impeding their productivity.

In a report released by the United Nations, if the earth temperature's keeps rising at its present pace, then the average U.S. worker in product-based industries will lose approximately 0.4% hours of productivity over the course of a full year. This estimates comes courtesy of the UN's Human Climate Horizons Project, an initiative that offers insight on how climate change may impede people's ability to flourish.

Given there are over 8,700 hours in the typical calendar year, a four-tenths of a percent dip in productivity may seem infinitesimal but as climate expert Hannah Hess told Supply Chain Dive, that's a significant decline in a country of over 350 million people in the world's largest economy.

"Think of how your workforce responds when it's super hot outside," Hess explained. "Here's how those days are going to multiply over the course of the century. And here's how that is also projected to have a larger and larger effect over time on your workforce."

A new report from the U.N. warns about the effect of extreme heat on productivity.A new report from the UN warns about the effect of extreme heat on productivity.

Cold snap leads to delivery delays
It isn't just oppressive warmth that can reduce output; extreme cold does as well, which many scientists also attribute to climate change. In the days just before Christmas — typically the busiest time of the year for manufacturers, retailers and logistics entities — a polar vortex swept over much of the country, bringing with it freezing temperatures and driving snow. As a result, many recipients expecting packages didn't get them in the windows they were expected to arrive. Indeed, in the Midwest, on-time delivery performance was just 49% on Dec. 23 and a mere 37% on Christmas Eve, according to project44 data obtained by Supply Chain Dive. Airlines were also impacted by the massive snowstorm, causing thousands of delays and flight cancelations.

The UN report also warned of an uptick in flooding fueled by climate change. Flooding is unique among weather-related events, in that every part of the world is potentially vulnerable to it.

Experts warn the inevitability of the climate crisis necessitates manufacturers to adapt and do everything they can to ramp up production, such as through strategic investments and added staffing. Hess also urged business owners to "do your part" by reducing carbon emissions, a major contributor to climate change.

A well-oiled supply chain is heavily dependent on energy, and as much of the country pivots away from fossil fuels in favor of cleaner, more sustainable forms for its various transportation needs, the U.S. Postal Service (USPS) has announced its intentions to phase out its gas-powered service vehicles in favor of those that operate on electricity. If all goes according to plan, a substantial portion of its newly renovated fleet could hit the streets by the end of the year.  

Thanks in part to the Inflation Reduction Act and Bipartisan Infrastructure Law, the USPS is prepared to spend upwards of $9.6 billion on hybrid and all-electric automobiles, or what the USPS is referring to as "Next Generation Delivery Vehicles" (NGDV). These funds will pay for the manufacture and delivery of at least 60,000 service vehicles, the overwhelming majority of which will be all electric. With the goal of obtaining 106,000 all-new service vehicles overall, these purpose-built vehicles may eventually entirely replace the USPS's current fleet of 220,000 gas-powered vehicles. At a bare minimum, the USPS intends at least 40% of its carriers to be using battery electric when the phased transition is complete in 2028.

USPS Postmaster General Louis DeJoy said this initiative represents a significant milestone for the Postal Service as well as for Americans who rely on an efficient postal system for their letter and package delivery needs.

"We have a statutory requirement to deliver mail and packages to 163 million addresses six days per week and to cover our costs in doing so – that is our mission," DeJoy said in a press release. "As I have said in the past, if we can achieve those objectives in a more environmentally responsible way, we will do so."

The USPS' ubiquitous mail trucks will soon be replaced by next-generation delivery service vehicles.The USPS' ubiquitous mail trucks will soon be replaced by next-generation delivery service vehicles.

$3 million to come from legislation
Roughly one-third of the spending for the NGDVs will derive from the Inflation Reduction Act, which was passed by Congress and signed into law by President Joe Biden in August 2022. While much of that bill focused on lowering prescription drug prices for consumers, it also aims to increase the nation's domestic energy production and manufacturing without contributing to carbon emissions.

Additionally, the Infrastructure Investment and Jobs Act — which was passed in late 2021— is also expected to support the energizing requirements as more EVs — used by the USPS and ordinary Americans —  hit the road. For example, this bill earmarks $7.5 billion for a broader network of EV charging stations, with the goal of reaching 500,000 within the next decade.

"The $3 billion provided by Congress has significantly reduced the risk associated with accelerating the implementation of a nationwide infrastructure necessary to electrify our delivery fleet," DeJoy added.

The 40% commitment represents a substantial shift from the USPS's initial intentions. In February 2022, the agency said that 10% of its fleet would be battery powered. After receiving pushback from lawmakers as well as environmental advocates, the USPS upped it to 40% five months later.

While it's unclear the exact date by which the USPS will begin using more BEVs, it says that both homeowners and business owners should anticipate seeing more of them nearer to the end of 2023.