We wish we could tell you that the business environment will improve in 2022. But we cannot. It is not that we are pessimists. And sure, some prognosticators would imply that the setbacks we have been experiencing since the pandemic swept through our country two years ago are easing. Sadly, we think they are misguided.
Again, it is not because the executive team members here at Strategic Systems Group (SSG) are pessimists. We do not tend to see the glass as half empty. But we are pragmatists. And we have spent the last 30 years watching, carefully watching, and analyzing trends and cycles. We have guided our clients through good times and bad. Through years of recession and though years of booming business.
The landscape for business is often a mixed bag, with a pendulum that swings toward improvement in some areas mixed with declines in other areas. That is the most common scenario. The business environment is not clearly delineated in black and white. More often, there are swathes of gray areas which derive from uncertainty.
You do not need a degree in economics or a Master of Business Administration (MBA) to see what the current landscape looks like, or for that matter, what the handwriting on the wall most likely portends to the future, at least for the next year.
The challenges are many, and they’re all inter-related:
Persistent Staffing Shortages
We hear a lot about how people can make more money not working than working. And that may be true. But even if that is the case, it is not the only contributor to staffing shortages. Consider the fact more than 800,000 have perished. Not all of them were in the workforce because they were either too old or too young. But some percentage of them were in the workforce and no longer are. More than 51 million Americans have contracted COVID-19, and there are also close to 100,000 new COVID cases reported every day. And those folks exposed others, all of whom are then, at least in theory, quarantining for ten days. It all adds up to many people who are not showing up for work, not because they choose to but because they cannot, thus creating persistent staffing shortages.
Ongoing Supply Chain Disruptions
Here again, some predicted that the supply chain will be back to normal by the end of 2021. Then, as that date approached, they moved that date out to the end of the first quarter in 2022. Unfortunately, that still appears to be overly optimistic. Most of the issues are pandemic related with persistent staffing shortages, as discussed above, causing delays at ports where there are not enough workers to offload container ships, which then means that there are scores of ships lined up outside our ports, waiting to be waved in. But the source goes back further than the ports. It goes back to the farms, factories, breweries, and distilleries across the globe that have been unable to operate at pre-pandemic levels due, of course, to labor shortages which once again are primarily pandemic related.
If, for example, there are not enough workers in plants producing the computer chips for our smartphones and cars, then the chips are not being shipped. One example is Google phones. Google announced the release of its newest Pixel, the Pixel 6. But you would be hard-pressed to find one in any Verizon store across the country. The reason? A shortage of chips.
One of our colleagues is an importer of wine, beer, and spirits. He tells us that the breweries he orders from in Hong Kong, Thailand, and the Philippines cannot produce enough beer to meet demand. And yes, you guessed right. The issue is labor shortages. But even if the breweries were able to ramp up production, there is no guarantee that they could get those containers to the port. And if they did get to the port, there is no guarantee that they could get on a ship.
High and Rising Costs of Shipping and Ground Freight
Basically, there is a perfect storm. Labor shortages create production shortages, and production shortages create shipping delays which are exacerbated by port delays. And then what happens? The cost of shipping and ground freight goes up meteorically. In many documented cases, shipping and ground freight rates have quadrupled. Yes, they are actually up as much as 400%. The producers raise their prices. Then the shippers raise their prices. Then the importers have no choice but to raise their prices to their distributor networks (unless they want to operate at a loss, and why would they want to do that?). And then the wholesale distributors raise their prices to their retail outlets. And then, of course, consumer prices for these goods go up.
It is a chain reaction, which is why it is called “supply chain.”
Looming Inflation
The annual inflation rate for the United States is 6.8% for the 12 months ended November 2021 — the highest since June 1982. When will the Federal Reserve step in to curb this trend? Will it be soon enough? Will it be effective enough? Here is what a recent Bloomberg Opinion article stated:
“In a move labeled by some as a hawkish pivot and by others as a great reset, the Federal Reserve’s policy committee just went in one meeting from its often-repeated characterization of inflation as “transitory” to portraying it as the “No. 1 enemy” facing the economic recovery. While seemingly abrupt and drastic, this policy change is much needed and highly welcome. That’s the good news. Less good is that it is not sufficiently bold, at least as yet, and especially because it is coming so late.”
Putting all of that aside, we need to be more conscious of the fact that the Fed can only control, or attempt to control, inflation within the borders of the United States. However, many of the issues businesses face today are heavily influenced by the global economy. It is therefore unclear how much the Fed can actually do.
No Magic Bullet
Everyone thought that the vaccine would be the magic bullet that would cure everything and everyone. And we were moving steadily toward 70% herd immunity, although not as quickly as we might have hoped. Then came Delta, and vaccinated people were getting sick. They called it “breakthrough” cases. So, boosters were introduced. Yet another stab (pun intended) at a magic bullet. Then came Omicron. And now we are seeing that fully vaccinated people are contracting COVID. More “breakthrough” cases. Perhaps it is time to come to terms with the reality that there is simply no magic bullet. Masks are back, perhaps here to stay.
The good news is limited:
Lessons Learned
The good news is that we learned a lot about coping with a pandemic. Companies figured out how to accommodate a mobile workforce; figured out how to conduct business as usual, or nearly so. That infrastructure is still in place and will serve us well moving through 2022 and beyond. The investment in that infrastructure has already been made. And in many cases, it has proven to be a boon for U.S. companies that realized, for example, they could occupy and pay for considerably less office space. They could efficiently conduct virtual meetings, virtual interviews with potential new hires and train new hires virtually, too. The cost savings were not trivial.
More Affordable Technology
We have also seen the cost of technology go down, which is not surprising given that historically that has always been the case. Midmarket companies can now access better, more advanced technologies that were often available only to the Fortune 500. The playing field has been leveled.
How ERP Can Help You Cope, Transcend, and Thrive
Finally, let us look at what ERP (Enterprise Resource Planning) technology can do for companies that are trying to cope with the persistent staffing shortages, ongoing supply chain disruptions, rising shipping and ground freight costs mentioned above. Companies do not want to manage merely; they wish to transcend adverse business conditions and thrive.
Fully integrated ERP software systems, available at predictable monthly costs, provide the means for increased productivity with automation across every department – from financials to Inventory Management and from Human Capital Management (HCM) to Supply Chain Management (SCM). Business Intelligence (B.I.) tools pave the way for informed business decisions.
Streamlined processes and Increased productivity translate into cost reductions throughout the enterprise.
Learn More about ERP
Call Strategic Systems Group (SSG) at (310) 539-4645 or reach out via our contact form today!