Supply chain disruptions appear set for a long haul with not much changing in 2023. Those expecting drastic improvements over the mega challenges in the post-pandemic era could be disappointed. On ground, the new threats have replaced old ones as economic and geopolitical considerations continue to spread fear among businesses who witnessed a virus virtually shutting the world down in 2020. Access to goods and its seamless flow would continue to be a cause for concern over the next twelve months as port operations slow down over containers and freighter availability.
Of course, the proverbial silver lining could lie in how enterprises turn some of these challenges into opportunities and perhaps turn them into a competitive advantage. A lists five key challenges that global business would face from a supply chain point of view. These include:
- Continued skepticism over cross-border trade cooperation
- A sudden and sustained spike in cybercrime
- Major shifts in the global manufacturing footprint
- A morphing of retail and distribution supply chains
- Access to critical raw materials would remained limited
Given these specific challenges, businesses that create and manage a mature supply chain plan could stay ahead of the curve in terms of being future ready. Taking a clear view of the road ahead while staying agile and responsive could be of more value than constantly peering into the rear-view mirror. In other words, real-time indicators and a control tower dashboard would be critical in managing supply chain challenges through the collaborative route where all partners in the supply chain are digitally enabled.
Building resilience into supply chains
Ever since the onset of Covid-19, supply chain disruptions have made headlines, be it of the kind that led Apple to shift 25% of its iPhone production out of China or those of continued chipset shortages faced by electric vehicle makers globally. A McKinsey survey conducted in mid-2022 suggests that companies have made progress on several measures on their agenda since the crisis began and several of these have helped them weather supply chain challenges around the geopolitical crises.
A key to this shift has been the focus on structural changes to supply networks that these enterprises have created using dual or multiple sourcing strategies for critical raw material with a simultaneous shift from global to regional networks. While 81% of the 113 respondents to this survey had implemented dual sourcing strategies and most held the view that the trend would stay relevant for some more years. In fact, 97% of the respondents said a combination of inventory increases, dual sourcing and regionalization helped boost resilience of their supply chains.
Digital dashboards and accurate master data
For these measures to sustain and deliver results over a long-term, two critical elements – implementation of digital dashboards to manage end-to-end supply chain visibility and the creation and maintenance of accurate master data. We believe that the presence of high-quality data would be inversely proportional to the risk of supply chain disruption, given that it gives a real time insight into most of the five points mentioned above, if not to all of them in a direct or indirect way. In the past, companies that invested heavily in digital supply chains with a clear focus on oversight tools, were the ones that could anticipate challenges and take corrective action as a competitive advantage.
Let’s look at each of the challenges and how an efficient dashboard could present a credible advantage to companies in 2023:
- The continued geopolitical challenges akin to the one over the Russia-Ukraine war has the potential businesses seeking a regionalized supply chain. The most recent example was the shortage of semiconductor chips where Taiwanese companies such as TSMC have held on to “safety stocks” since March 2022. The trick was to ascertain the impact, identify nearshoring or friendshoring options, create a Plan-B and implement it at the opportune time.
- The threat from cybercrime has grown year-on-year as hackers target digital supply chains, taking over vendor networks, warehouse tools such as barcode readers and even IoT devices from manufacturing sites. A World Economic Forum report highlights that 95% of cyber threats are linked to humans. The option therefore is reassess data storage, inventory management and tracking that could potentially open it up to cyber threats. Use of AI and ML should become standard onboarding processes for new suppliers to identify phishing and third-party contracts should have a mandatory risk administration.
- When it comes to access to critical raw materials such as fuel, construction material and packaging, companies would be required to focus on reducing time spent in managing low-demand items, and build in ‘just-in-time’ and ‘just-in-case’ options to tackle high redundancies through multiple suppliers. Real-time data analytics to enhance forecasts and building supplier backups would be the norm in the near term as would enhancing supply chain resilience around the nodes and various modes of transport.
- As the manufacturing footprint gets reassessed keeping in mind energy costs across the world, there could be a shift towards manufacture and assembly shifting onshore. The example of Apple’s growing presence in India is a case in point where the tech giant nudged its suppliers to expand their local operations as a means to overcome supply chain challenges. To make this effective, companies would require to identify key locations and the number of shifts they can have to keep production competitive. Also, multiple suppliers and OEMs would form part of their strategies to counter market uncertainties.
- And finally, technology investments would move beyond back office functions for customer experiences into the challenging area of strengthening operational and supply chain capabilities. More funds would be allocated to enhance supply chain maturity, automate warehouse processes and gather 360-degree analytics for deeper visibility and insights. The era of unified tech platforms that link to other businesses could become the way forward
Manufacturers need to tighten their belts too
From the point of view of the manufacturing sector, the focus has already shifted towards fast tracking data management capabilities and retraining resources to use real-time analytics for better insights and smarter decision-making. Manual activities such as global trade documentation, free trade agreement compliance, trade tax calculations and most importantly the sustainability norms could witness a paradigm shift due to the supply chain challenges referred to above. This includes deploying ESG strategies and tracking mechanisms and ensuring end-to-end supply chain visibility.
In conclusion, we would suggest that supply chain disruptions would become the norm rather than an exception going ahead and the onus of preparing for sudden challenges would rest squarely with businesses. The McKinsey study points out that supply chains have been at the top of the corporate agenda for three years running and we see no reason for a shift in 2023. If anything, leaders would focus more on planning, a further adaptation of supply networks and better inventory management strategies becoming the norm as the year progresses.