The coronavirus pandemic has highlighted a great deal of vulnerabilities across supply chains and this enhanced knowledge and understanding of the challenges is going to have a significant impact on the way organisations operate going forward.
Whether this leads to the implementation of new technologies or the end of global supply chains, the supply chain model that existed before the crisis is going to look considerably different even six months down the line.
While the future of the supply chain remains shrouded in a degree of uncertainty, in this article, we consider how supply chains may look over the next six months and explore some of the new models likely to develop. In doing so, we explore key areas of change such as increased digital connectivity and technology investment, de-globalisation and regionalisation, together with examples of priority shifts, such as low-cost to improved resilience, deeper collaboration with suppliers and the impact on the wider workforce.
Over the past six months, businesses have faced a raft of challenges in terms of managing their supply chain. Many of these relate to a loss of control and visibility. Many organisations report a lack of visibility beyond tier two in their end-to-end supply chain hierarchy and consequently a loss of control along the extended supply chain.
Some manufacturers have had to ramp up production due to demand surges, while others have had to scale it back because of lack of demand. But across the board, the keynote has been unpredictability. In the new normal, historical measures of forecasting have ‘gone out the window’ and it has been difficult for businesses to stay on top of customers’ real-time needs.
Another challenge for many organisations in the age of globalisation was an extended supply chain and a significant dependency on overseas companies for the supply of critical components. The pandemic brought all this into sharper focus and organisations came to realise that they needed to change and adapt.
The drive to localisation
The constraints brought on many businesses by the pandemic, coupled with the impact of the current non-stable geopolitical environment are leading many organisations to bring their supply chains closer to home. It is part of a trend among global firms in particular to look for ways to build up their resilience following the supply shock that the pandemic has induced.
The ongoing localisation and regionalisation of manufacturing is shortening the supply chain, bringing it closer to the customer; reducing the investment in working capital and improving production flexibility and agility. Specific examples of geopolitical disruption include Brexit, which is likely to lead manufacturing organisations to start adopting nearshoring and evolving new distribution models with new hubs and new partnerships being formed.
The current trade war between the US and China will also be a driver to relocate manufacturing and trigger the unravelling of globalisation.
Taken together, these developments are likely to lead to supply chains becoming shorter, closer to the customer and more agile.
We are likely to see manufacturers working more closely with suppliers in order to better plan, forecast and understand the end-to-end supply chain through all the tiers of supply. Depending on circumstance, they may also need to enable alternative suppliers and /or increase the overall number to reduce the risk of supply.
Advanced technology coming to the fore
Delivering on this agility will, however, be dependent on the quality of technology implemented. New technologies such as 3D printing could be put in place to meet local customer specific needs and requirements.
We also expect the supply chain to become more customer-centric over the course of the next six months, with the introduction of new innovations driving the supply chain evolution and with significant development and advancement in robotics replacing the use of humans. We will also see organisations developing their digitally connected core, making better use of data for improved decision-making and AI, and improving the connection to their suppliers and customer.
We expect businesses to start to consider new digital initiatives and projects using technologies such as internet of things (IoT), robotics and data analytics to increase resiliency, such as robots to support human labour, and IoT and sensors to better track materials.
We are also likely to witness a range of new technology investments. Blockchain may be used to support connectivity across the end-to-end supply chain and enable better supply chain visibility and traceability. Predictive and preventative maintenance solutions may be deployed to keep machinery up and running and to protect business continuity, while advanced scenario planning tools can be used to improve the supply chain planning and forecasting process.
Looking ahead positively
These are challenging times for organisations and their global supply chains. The pandemic, coupled with the macro-economic volatility we are seeing across many parts of the world today, is reshaping the entire industry.
Businesses are not just seeking ways to cut costs and drive efficiencies, but also to simplify supply chains and make them easier to manage. And they are striving to get closer to suppliers and customers across the end-to-end supply chain.
In helping them to meet these goals, new digital initiatives and technologies are likely to have a key role to play.
☛ Richard Seel is managing director at Delaware UK