As I was enjoying the holidays, I had an opportunity to reflect on the year past and what the future holds for supply chains. Wanted to share these thoughts here.
- Organizations will increasingly look to optionality to risk proof their supply chains: As the recent events exposed single points of failure within the supply chains, organizations will increasingly look for building options in terms of nodes of the supply chain (suppliers, production facilities, and distribution centers), modes of transportation, and the flow paths into the market. Having such options allow them to get to the market faster, turning adversities into advantages. However, organizations will need to be deliberate in designing supply chains with optionality so it does not become cost prohibitive.
- Pursuit of Shorter, Smarter supply chains will intensify: Organizations will continue to shorten their supply chains through regionalization and near-shoring. However, such pivots will take several years and will be extremely capital intensive in some industries such as semiconductors or pharmaceuticals. As organizations look for reducing dependencies on concentrated sources of supply, Eastern Europe, Mexico, and South Asian countries will start providing viable alternatives to the current manufacturing powerhouse countries. Understanding and assessing the tradeoffs between the costs of labor, inventory, transportation, and carbon footprint while going through these pivots will be crucial. Supply Chain Design is essential in tackling these.
- ESG’s move from Passive Reporting to Active Impact: As stakeholder capitalism takes hold and companies continue to comprehend the risks associated with ESG violations, it becomes imperative for organizations to move ESG from after the fact reporting to active impact with preplanning and point of decision impact. Technology will provide significant assistance in this arena by helping design sustainable networks and having risk indicators for ecological, financial, or judicial factors for the multi-tier supplier network.
- Automation efforts will accelerate: As labor shortages persist, automation efforts in the manufacturing and distribution will accelerate. As demand for last mile logistics intensifies, warehouses become the prime candidates for automation. Connected robots with sufficient dexterity will become increasingly dominant in warehouse automation and providing human assistance in Direct-to-Consumer shipments.
- Organizations will exploit the government incentives and avoid penalties: Governments around the globe are looking to secure the supply chains for their citizens. American Supply Chain Resilience Act and the German Supply Chain Act are just two examples of this. To aid the process of securing supply chains, governments will use a carrot and stick approach by providing incentives towards nearshoring while penalizing companies for ESG violations. Companies will be increasingly held liable for the actions of their Tier 1 suppliers and beyond.
- Interest in Supply chain finance will intensify: While the demand remains robust, the inflationary pressures intensify the cost focus in companies. Supply chain finance helps suppliers stay liquid and ensure business continuity. Companies will need to build relationships with financial institutions to provide the cash cushion needed to tackle the mounting cost pressures and reduce risk in supply chains by ensuring timely payments to their suppliers. In a highly constrained environment, being a preferred supplier is key. Well designed supply chain finance programs can set companies apart.
Given the aforementioned factors, companies will need to be increasingly nimble with decision making and execution. Following technologies will play a major role.
- Supply Chain Design will become a Continuous discipline: Supply Chain Design was deemed to be ‘episodic’ and was tackled through once a year or so refreshes. However, the rapid shifts that companies are going through given the aforementioned trends, progressive companies are laying a robust data foundation and enabling a digital twin of the physical supply chain so they can conduct Design exercises on demand with increasing frequency. Carrying out such design exercises on a frequent basis allows for organizations to pivot quickly to either tackle disruptions or to take advantage of opportunities. Design Centers of Excellence will aid such frequent assessments and executing on design decisions.
- Technology will bridge the digital divide between Procurement and Supply Chain: The need to build optionality and the increased regulatory and ESG mandates will result in a more dynamic supplier mix. This is creating the need to shrink the time between identification of a sourcing need and executing on a sourcing event. The new generation Design-to-Source technologies allow for gaps identified during the supply chain design phase to be turned into sourcing events that can be created and executed. In the current capacity constrained environment, such technologies will become a significant competitive advantage.
- N-tier risk visibility and designing out risk will be critical: Technologies that allow multi-tier mapping, visibility into risk based on analyzing internal and external, structured and unstructured sources of data will be critical. However, risk identification alone is not sufficient, using Supply Chain Design technology to enable risk mitigation ensures business continuity.
- Cloud based platforms accelerate Supply Chain Finance: With increased risks and uncertainties, organizations that make timely payments to suppliers not only gain loyalty but also ensure supplier liquidity so that business continuity is assured and to get prioritized allocation of resources in case of short supply. Cloud based platforms that allow suppliers, customers, and financial institutions to connect together so suppliers get timely payments and customers ensure good cash on hand position result in win-win outcomes.
- Pragmatic and human assist AI adoption will continue to gain ground: As the action shifts significantly to beyond the four walls of companies, AI based techniques will accelerate. Also, as risk becomes top of mind, organizations need to be prepared for a range of scenarios rather than locking themselves into any one possibility. Probabilistic models will become increasingly common in place of deterministic models used by the prevailing planning systems of today. Also, increasingly data consumption will be from external sources as opposed to residing in structured data bases and internal sources. AI plays a significant role in harnessing the power of this. Besides, the days of planners trying to figure out what scenarios to run will be replaced by AI making prescriptive recommendations for scenarios to consider.
All in all, several of the trends that have been at play will be accelerated during 2022 and beyond. We are indeed living in interesting times!
Dr. Madhav Durbha is the Vice President of Supply Chain Strategy Coupa Software, where his team helps customers and prospects solve various supply chain challenges. Prior to Coupa, Dr. Durbha held positions at LLamasoft, Kinaxis, JDA Software and i2 Technologies, Inc. With more than 20 years in the supply chain industry, Dr. Durbha has broad experience in strategy & process consulting, supply chain software, program management, software application development & deployment, machine learning and data science. He received his Ph.D. in chemical engineering from the University of Florida and his bachelor’s degree in chemical engineering from the Indian Institute of Technology at Madras.
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