Supply chains are the backbone of the global economy, ensuring the seamless flow of goods and services across the world. However, recent disruptions caused by COVID-19 and geopolitical tensions have triggered a significant transformation.
Companies are diversifying their supplier bases and increasingly moving production closer to home to reduce dependence on distant suppliers and mitigate risks associated with global disruptions. There are five main trends shaping this transformation:
1. Regionalisation
A key component of this transformation is the shift from a global model to a network of interconnected local value chains. For supply chain leaders, this results in increased flexibility and resilience by relying on multiple local sources instead of fewer global suppliers to enhance supply chain visibility and control. Kearney’s 10th Annual Reshoring Index Report found that regionalisation is increasingly gaining momentum, with up to 96% of US CEOs committed to reshoring as a strategy to enhance supply chain resilience.
2. Artificial intelligence
The rapid emergence and adoption of AI is forcing supply chain leaders to rethink how they use technology, and how they incorporate it into the fabric of their businesses. These digital tools have a myriad of applications, such as predictive analytics and machine learning algorithms, the ability to improve efficiency, transparency, forecasting and much more. Moving forward, companies must integrate data and AI technologies to optimise their supply chains from end-to-end if they are to remain competitive.
3. Re-skilling
With new technology and new priorities, comes the need for new skills. With 60% of the global workforce in need of significant training to bridge the skills gap, supply chain leaders need to act now to make sure they have a workforce that enables growth and innovation. This could involve investing in new training programs, e-learning platforms, or outsourcing further work overseas.
4. Sustainability
Driven by the push of regulatory pressures, and the pull of growing consumer demand for greener practices, businesses are recognising the need to move beyond compliance and embracing more innovative sustainable practices. For example, Unilever has invested in sustainable sourcing, working closely with farmers and supply chains to ensure that raw materials are produced in an environmentally/socially responsible manner. Innovating around sustainability throughout a company’s operations will not only help with compliance, but also help create an ecological friendly value chain that is fit for the future.
5. Customer value
There is a growing recognition amongst leaders of firms that operations should be driven by customer value, rather than cost alone. 80% of organisations plan to compete mainly based on customer experience, underscoring the increasing importance of a customer-centric approach. enhancing customer satisfaction and loyalty through value-centric supply chains has become a priority. This shift reflects a broader realisation that providing excellent customer service can be a crucial differentiator in today’s competitive market in terms of minimising the risk of losing market share.
The gap between ambition and operational delivery
The case for transforming business operations is well understood, and many organisations have made good progress towards global value chain rewiring. However, we are still seeing a significant gap between strategic intent and operational delivery.
This is evident in the figures. For instance, while 92% of manufacturers say they are looking to regionalise their manufacturing footprint, only 28% aim to have nearly all in-region-for-region operations by 2030.
In terms of technology, 64% of supply chain leaders perceive AI as the key to driving supply chain improvements but only 1% have been able to eliminate Excel-like manual spreadsheets from their operations. A similar story plays out across all five trends, with only 14% of manufacturers redesigning their network to reduce Scope 3 emissions — but why is this?
Delivering on this ambition is easier said than done. The scale and complexity of value chains means that carrying out end-to-end transformation is no small task, and one that requires significant investment. Additionally, the very same factors that are driving transformation in the long-term are hindering it in the short-term, including macroeconomic, political and ecological disruptions.
Rewiring global supply chains
To tackle these issues, companies should focus on phased implementation, prioritise high-impact areas, and look to develop partnerships to share costs and risks. In particular, partnerships and engagement between the public and private sector organisations are critical and enable a globally coordinated development of next-generational strategies.
Resistance to change can hinder transformation efforts, especially on this scale. As a result, clear communication of benefits, stakeholder involvement in decision-making, and comprehensive training can enable a smoother, and more efficient, transition.
On a nuanced level, supply chains can use the complexity of supply chains to their advantage. For example, by promoting stakeholder collaboration across the value chain, they can enable flexible nodes and real-time re-routings to avoid delays and increase efficiency.
To maximise the value they generate from AI, and new technology, organisations should integrate AI decision-making capabilities with digital twins of supply chain in order to model scenarios, and combine this with the real-time enterprise resource planning so they can act proactively in line with evolving priorities.
Real-time decisions made using scenario based data can also help organisations to upskill their workforce. Unlike implementing top-down directives, this approach can increase the agility of organisations to respond to their changing skill requirements, reflecting the dynamic nature of the skills gap.
In short, transforming supply chains to be more resilient, sustainable, and technologically advanced is no simple task, but the opportunities for those who do it successfully are vast. To guarantee the global economy’s resilience and sustainability in the future, industry leaders must focus on these issues.
- Digital Supply Chain
- Risk & Resilience
