The world has faced an increased frequency of black swan events over the past 3-5 years, with a rise in natural disasters, political unrest and a global pandemic. Subsequently, supply chains are facing major challenges related to price increases and disruptions amongst a backdrop of rapidly evolving customer demands. This blog addresses the current trends reshaping the supply chain landscape today and techniques businesses are applying to ensure their supply chains remain resilient under the current demanding market conditions.
1. Shift to a seller’s market
The past 20 years have predominantly been a buyer’s market as low inflation and numerous recessions gave procurement the upper hand. However, the recent black swan events, particularly the Covid-19 pandemic and the Ukraine war, have resulted in a widespread imbalance of supply and demand which has switched the advantage across to sellers. The past few months have displayed price increases of up to 300% and longer lead times of up to 200% in parallel to rising demand. Such significant hikes in prices, however, could lead to large pullbacks in capital spending in the longer term, particularly for discretionary goods and services, subsequently, the seller’s advantage may be short-lived for some industries.
2. Automation
The use of automation in manufacturing has accelerated, with advancements such as drones tracking warehouse stock in real-time, smart machinery identifying bottlenecks and performing fixtures, and additive manufacturing reducing waste. Nike, for example, installed 1200 automated machines which contributed towards reducing lead time from 60 to 10 days, as well as minimising 30% of production steps and 50% of labour requirements. Although automation is becoming necessary for business success, incorporating new technologies to seamlessly intertwine with company culture and ways of working remains a challenge, thus strong CSO leadership is imperative.
3. Strategic supplier relationships
Managing supplier relationships has developed into an instrumental enabler for business success. Whilst previously companies were able to segment their supply base more evenly between tactical and strategic supplier relationship management, the focus has now shifted predominantly towards building long-term strategic partnerships as a result of increased supply chain risk and uncertainty. Research shows that relational intelligence is a big win for prosperous supply chains, in particular innovation amongst businesses within the same supply chain for sustainable competitive advantage.
4. Shortening supply lines
On-shoring, near-shoring and localised operations are becoming increasingly common as low-cost country sourcing is growing in complexity and leading to greater supply risk. A leading issue has been freight disruptions due to increasing fuel costs, container scarcity and strained capacity. Further to this, countries such as China are seeing rising costs and low-cost rates as we know them are expected to diminish within the next 5-10 years. Additionally, environmental considerations related to freight are a growing concern for businesses and can directly impact brand image, and subsequently, businesses are having to re-think and simplify supply lines.
5. Redesigning supply chains for agility
Before the pandemic businesses were using predominantly lean practices, however, an agile approach is now preferred. Just-in-time techniques are being replaced by a “just-the-customer” mindset, which applies agility while taking into consideration business growth as well as internal supply chain optimisation. Agile methods companies apply include redesigning products to avoid components that are no longer available, removing non-value-added links, producing and distributing closer to the market, and procuring for resilience rather than cost. Although agile approaches are prevalent this may change as the market stabilises, consequently managing lean and agile environments simultaneously will be fundamental to building sustainable resilience.
6. Vertical integration
Leading companies are investing in vertical integration to reduce supply risk. Apple, for example, has started manufacturing its own microchips after the hugely disruptive global chip shortage. Amazon is developing its own distribution company by investing in railroads, an airline and delivery vans. Vertical integration is a long-term strategy to build resilience, however, it is also a costly strategy that many firms will not be in the position to pursue.
7. Supply chain visibility
Supply chain visibility is significant for gathering intelligence to identify risks and build robust resilience. Traditional techniques primarily focus on network mapping, however emerging technologies are providing additional lenses for supply chain visibility. For instance, the digital twin is being implemented by forward-thinking companies to simulate their networks for a complete view of supply chain operations, and AI can provide extensive visibility of product movement which can even resolve issues autonomously. As supply networks progressively move to decentralised structures, having holistic visibility through multiple lenses will provide the foundation for effective decision-making.
8. Labour as a critical resource
The global pandemic has shifted work preferences to remote/ hybrid models and given that many supply chain positions require physical presence, it is likely that increased labour challenges will be experienced. Further to this, there is a lack of emerging talent making labour one of the most venerable parts of the supply chain. Consequently, companies need to re-think and carefully plan their ways of working, offering remote/hybrid opportunities where possible and investing in labour development and retention.
9. Customer-centric supply chain
The journey from lockdown to pre-normal and subsequently to new realities has required radical and flexible re-thinking of today’s supply chain to meet customers’ changing needs. Fundamental considerations for ensuring customer centricity include supply availability, customisation and omnichannel customer experience, which require full integration with supply chain processes. Businesses should place strategic priority on customer needs by ensuring cross-functional collaboration with the supply chain and integrating interdisciplinary decision-enabling processes to facilitate rapid choices.
10. Circular economy
The circular economy has gained rapid traction with thought leaders and is positioned as one of the most significant opportunities for organising production and consumption in today’s global economy. The circular economy is pioneering a move to industry 5.0 which incorporates whole system solutions by focusing on both smart machinery and smart people, eliminating the challenges of isolating people from AI progression and the threat of job loss. A whole system solution requires complete integration with supply chain design.
Our team at 4C Associates combines extensive knowledge and experience with the latest process and technology innovations to provide our clients with transformative solutions and sustainable commercial outcomes. Please contact Gopal Iyer, Head of Supply Chain Practice at 4C Associates at gopal.iyer@4cassociates.com if you would like to understand more about how we can help you to manage costs and to improve your supply chain’s resilience.
