Ashray Lavsi, Senior Manager at Efficio Consulting
Supply chains across all sectors have faced rapid and accelerated change over the past year. If the UK’s recent withdrawal from the European Union wasn’t enough of a challenge, the pandemic has certainly tested even the strongest, most established of businesses. This has been exacerbated by the global chip shortage and the Suez Canal blockage. All of these moments reinforce the fact that disruptions are the only constant and supply chains need to be resilient enough to manage the immediate challenge, whilst agile enough to be able to rapidly restructure and emerge on the other side.
Businesses have already begun a process of assessing exactly what a post-COVID/post-Brexit supply chain will look like. And, whilst there remains a level of uncertainty, a more proactive approach will be essential to supply chain management moving forward. Managers will need to ensure they have the right people to implement the processes, systems, and KPIs to give them visibility across the end-to-end supply chain and then actively review and react to the signals being provided. Getting this right will mean being able to continue profitably serving customers through any future turbulence. Getting it wrong will mean operating in continuous fire-fighting mode, as the ramifications of Brexit, COVID-19 and whatever the next crisis play out.
The time to act is now. As we emerge from the pandemic, we enter a riskier and more complex world, but also a world rich with opportunity. So, what exactly lies ahead? Here, we discuss what we can expect from business supply chains both in the near and long-term future:
- Efficiency vs Resilience
The era of relentlessly focussing on making the supply chain leaner is over. The future is a world of multiple, complex supply chains, operating within single organisations that have varying levels of redundancy and resilience built into them.
On-shoring and near-shoring will also be big topics in supply chain in the decade to come. If your manufacturing takes place in East Asia, you are susceptible to having margins wiped out anytime there is a disruption (and with COVID-19, tsunamis, trade wars and other issues, disruptions are starting to feel like the norm, not the exception).
Inventory and stock levels will need to be managed much more dynamically in the future, with an eye both on working capital and on managing supply risk. Managing this trade-off will be a key focus for inventory managers. The trend of modelling and designing supply chains to identify optimal locations for distribution centres and manufacturing locations will accelerate. The one-size-fits-all logistics and distribution set-up is likely to be a thing of the past. Leading firms will also begin using network modelling to simulate and feed into monthly/quarterly planning.
People will drive these supply chain transformations, and businesses will increase their investment in upskilling their personnel. COVID-19 has shown that supply chain is not the forgotten relative in business but fundamental to its ability to operate. Expect supply chain leaders to have the pick of future talent but also to have less tolerance from leadership when things go wrong.
- Revenue vs Risk
In a low-risk world, it is rational to pursue revenue for its own sake and then relentlessly squeeze costs (including supply chain costs) to increase margins. But in a world of heightened supply chain risk, this leads to an unsustainable product portfolio as the costs of dealing with unexpected events wipe out product margins. In future, the focus will be on quality revenues and margins.
Assessing supply chain risk will become a standard element of all new product introductions. This is not simply the cost of supply chain operation but also the potential for disruption and the cost required to mitigate these disruptions, as well as the impact on the expected lifetime revenues of the product.
Businesses will also need to build more redundancy into their systems and will move away from single sources as much as possible, with the emphasis on spreading risk across the portfolio.
- Long-term Changes
As the business world adopts Industry 4.0, more emphasis will be put on having visibility of the end-to-end supply chain and companies will invest in digital capability (AI, predictive analytics, data visualisation and augmented reality, blockchain, etc.) to provide them with this insight.
Additionally, manufacturers will continue to adopt additive manufacturing (3D printing) wherever possible, especially for critical components and where reliance on outsourced manufacturing (particularly in distant countries) has exposed them to risk during the lockdown.
More businesses will start thinking about incorporating supply chain innovations, especially for last-mile deliveries in already congested town centres. For example, we expect autonomous electric vehicles to be one of the big supply chain stories in the 2020s.
Finally, ‘sustainability’ is now progressing beyond being just a buzz word and more and more businesses are taking action to embed sustainability into their supply chains: from circular supply chains to moving to EV fleets to adding sustainability and social value as a key evaluation criterion for suppliers. The possibilities are endless but, more to the point, they are increasingly non-negotiable as consumers become more conscious of the environmental and social costs of the products they use.
Businesses need to act now to review their existing supply chain operations and determine whether they are effectively set-up to manage the next era of supply chain management, whilst also staying aligned with their customers preferences Those that accomplish this will earn an invaluable competitive advantage for 2021 and beyond.