It is fair to say that the impact of the pandemic on the supply chain has affected everyone in the past two years. The world has felt COVID-19’s presence, and as this volatility event became more broad and deep as the months went on, it was omnipresent in the areas of supply and demand. It unearthed vulnerabilities in organizations across the globe, straining resources and making it clear that resilience is more complicated than it looks to achieve.
Supply chain organizations face increasingly insufficient recovery times between disruptive events, and there is a growing need to shift business models fundamentally and operational strategies to stay competitive and satisfy new customer demands. At the same time, stakeholder and customer pressure to progress sustainability initiatives mean concrete actions must be demonstrated in the supply chain space.
That is why in this article, supply chain management expert Kelly Thomas, CEO of supply chain management consultancy firm Worldlocity, and Shippeo’s Chief Product Officer, Anand Medepalli, have an in-depth exploration of the latest trends and predictions for supply chains for organizations who struggle to make headway in all of these areas without the critical capabilities unlocked by improved visibility and collaboration.
Technological and trend acceleration
The pandemic has accelerated the trend of specific technologies being adopted, which is likely to continue, including the further use of technology we are familiar with.
Concerning supply chain trends, it is not that these trends were not present before the pandemic; rather that the pandemic has made them more pronounced and has accelerated their adoption, particularly by market leaders, who have used this as an opportunity to differentiate themselves from their competitors.
Supply chain disruptions have strongly impacted companies’ top and bottom lines. Unsurprisingly, many industry analysts’ surveys show that supply chain management has risen to the top of CEOs’ agendas. But dig deeper within these surveys, organizations will invariably find that the top three focus areas are supply chain visibility, planning tools to enable agility, and risk management.
Evolving supply chain management objectives
Historically, supply chain management has been about managing the trade-off between customer service and cost. The cost comes in many forms, including materials, labor, and machine. Even in operations, companies silo the supply chain, and in the past 20 years, organizations have tried to tackle more diverse customer needs while also focusing on various operational variables, including inventory, people, and machinery.
Supply chain management is no longer simply about operations
Today, objectives have progressed beyond the level of operations to include critical financial measures to shareholders, including how to drive growth. Leaders have been focusing their attention downstream on customers and how their supply chains can assist in driving revenue growth. However, it is also other things, such as operating profit, cash flow, and return on investment measures.
Long term goals and focus
Merging operational and financial objectives into one process and one system should be a long-term goal for organizations. In the past, this has been a messy situation – it was a back-and-forth integration with latencies, manual manipulation, reliability issues, spreadsheets. But now, we are finally seeing the convergence between finance and supply chain with integrated business planning.
The focus needs to be on merging supply chain and finance with environmental, social, and governance (ESG) criteria. It makes it possible to have a single, synchronized view of operational performance, financial functions, performing environmentally. From a supply chain systems and software perspective, building ESG criteria into our systems should not simply aim to become another silo we have to integrate with.
So widening the focus allows organizations to balance many more variables in decision-making. This is a longer-term trend in supply chain management in general. Stakeholders, even outside the supply chain, have been evolving from what’s known as shareholder capitalism towards what’s called stakeholder capitalism, where the focus is not just on how much profit is generated, but significantly on how that profit is created, including what impact it has on the planet and the environment. So that is the backdrop – objectives are evolving and becoming much broader.
Key trends
When it comes to trends to look out for this year, it is important to think about what will the customer want, what will the customer look like, what will be their desires five years from now, and what will be the technologies necessary to deliver on these wants and desires?
Technology
Over the last 10-15 years, technology has driven the change in supply chains. It has been in the hands of customers - in the form of smartphones. This has given the customer tremendous power and access to our supply chains, 24/7 and 365 days per year. That has had ripple effects all the way upstream.
Customer Satisfaction
The customer has come to expect lots of choice in products, contents, size, delivery techniques – all the things that we are used to on the consumer side, and all for free. This is precision – the customer wants precise products tailored to their needs delivered to them in increasingly accurate delivery windows. The pandemic upended this trend, but it continues, and leaders are investing in it. It’s a long-term trend that will continue to drive supply chain segmentation efforts almost to segments of one – at least, that’s the mantra used by many in their supply chain strategies.
Market & competition
Variability and volatility will continue to be critical factors in managing supply chains. Volatility and supply-demand were increasing in the years before the pandemic. The next question for this area is: what are the trends when it comes to markets and competition?
Environmental, Social, and Governance
Following the pandemic, it is likely government regulation and oversight will change in certain areas, particularly in sustainability and geopolitical sensitive supply chains such as pharmaceuticals, semiconductors, medical equipment. These regulations will become essential considerations in the strategies of those industries and how organizations will be affected by them.
This is one of the most considerable trends of ESG that is starting to emerge and take hold at leading companies. Right now, we have to start with measurement and move these measurements into supply chain management processes just as much as customer services, inventory levels, or return on investment measures.
Of course, organizations have goals to lower emissions or reduce risk in the supply chain, and these can be set ourselves, or they will be set for us by regulatory agencies. It’s possible that in the future, governments or regulatory agencies, such as the Sustainability Accounting Standards Board, will become as important as the Financial Accounting Standards Board.
Agility
Not so much a trend but a category of trends necessary for companies to survive in the future. Agility as a term of business was first used about 30 years ago when researchers contrasted it with, for example, lean manufacturing. At the time agility was defined as the ability to thrive in a continuously changing, unpredictable environment. What it means today is to what extent you can react to volatility events, such as drops or surges in demand or supply outages, and at the same time hit your commitments, execute your plans, hit your operational, financial, and ESG goals. Today, agility is the critical ingredient for achieving resilience.
Agility includes many capabilities and trends for managing supply chain management processes, e.g., continuous Sales & Operations Planning (S&OP), control tower, segmentation, vertical integration, synchronization and collaboration, scenario management, and probabilistic planning. For example, S&OP used to be a monthly process in the past. It is now essentially a continuous process, and it’s integrated with execution to the point where it’s indistinguishable from performance.
Risk management and risk analysis can be a natural extension of the S&OP process, as the same tools and scenarios can be used for both.
Adaptability
While agility is the organizational ability to react to changing demand and supply conditions within your existing supply chain structure and policies. There is this whole other area of adaptability: how to adapt your supply chain structure and policies to permanent changes in demand and supply. This is a huge topic of discussion today. Companies are trying to figure out if they should carry more inventory, where they should carry more inventory, should they regionalize supply chains, and what are the financial consequences? Just as we have evolved to continuous S&OP, it is also evolving towards continuous supply chain design.
Supply chain design used to be part of the annual strategic planning process at many companies. If it was done at all or if it was done as part of a new product development program, it then evolved to quarterly, then monthly, then weekly, and to a basically continuous basis at leading companies.
Visibility
Last but not least is visibility. The other five areas – customer, market & competition, ESG, adaptability, and agility - are only as good as the visibility that is fed into them. We need visibility; of what customers want, over markets and competitors, how we are affecting our environment, and the risks inherent in our supply chain, of demand and supply, into how supply chain structure and policies affect performance. Running businesses and supply chains is about making and achieving commitments, whether that’s a commitment to your customers regarding how much product you’re going to deliver, where you’re going to deliver it, at what time, and at what price. Now, of course, we are adding commitments regarding how the products are made and provided in terms of their ESG impacts.
Organizations can reliably make commitments if you know how you are performing against those commitments. As the need grows to add more precision to customers, organizations need to do it in a resilient and sustainable way. Over the past five years, we have seen a move towards the instrumentation of assets, products, and materials and connecting these assets, products, and materials up to visibility platforms, such as Shippeo’s. Shippeo adds value to those connections; making decisions against those connections, but even more importantly, act as a router to provide that data to other enterprise areas that can add value and make decisions against that visibility information.
There are a lot of enabling technologies that go into it, but this is a key summary for the digitalization of the supply chain:
- Digital twin / metaverse
- Analytics and optimization
- AI (artificial intelligence / ML (machine learning)
- API economy
- IoT (Internet of Things)
- Streaming / event-centric architecture
- Sharing economy
- 3D printing
Variables in supply chain management
The more significant trend is that supply chain management continues to evolve towards managing more and more variables that will often be at odds with each other, so the key is finding a balance between all these variables and achieving profitability at the same time.
The bottom line is there is no single technology trend that is a silver bullet. Technologies are considered enablers where it makes sense. It’s really about how you align these six areas into a cohesive strategy, how companies execute that strategy and deliver on operational, financial, and ESG objectives.
Conclusion
To summarize, what companies are trying to do with these trends is balance the precision needs of customers in terms of what they want in products and delivery with providing agility and adaptability to create resilience, while also hitting sustainability targets and doing all this profitably and with a background of constant volatility and variability (both on the supply side and the demand side).
Visibility can mean different things to different people, depending on what area of the business you work in, e.g. if you are making operational decisions on where a truck is, or tactical decisions on trying to balance demand and supply, or strategic decisions on where to place plants and assets in order to achieve your objectives.
To learn about how a real-time supply chain visibility platform can help your organization improve supply chain performance, environmental footprint, and customer satisfaction, get in touch with one of our experts today.
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