KPMG recently released an article regarding key trends impacting global supply chains in 2022.
As the effects of COVID-19 continue to impact the global supply chain, how should businesses seek to build resilience into their supply chains moving forward? Below are some of the major disruptions affecting supply chains and strategies that are being rapidly deployed by leading organizations to help build resilience and agility.
1. Logistics disruption
The ongoing global logistics disruptions stemming from the COVID-19 pandemic continue to impact businesses and consumers as the flow of consumer goods into key markets such as North America and Europe, South East Asia and India is restricted by the continued shutdowns of major global ports and airports, largely in China, South Korea, and the US.
Assuming that these disruptions recede and access to sea and airfreight reverts back to pre-pandemic levels, it will likely take some time before things return to normal. In the interim, we expect to see higher prices (as excessive freight costs are passed onto the consumer), and longer waits for retail shelves to be replenished (especially imported products). Consumers should reset expectations, as items requiring repairs and maintenance could also be delayed in lengthy service queues.
Government and industry leaders are seeking to define strategies that build resilience and boost our domestic capabilities, thereby becoming less reliant on regional and global supply chains. Companies should look to re-design alternative supply chain flows, inventory storage capabilities closer to their customers, and determine how to best enhance last mile deliveries and returned goods.
2. Production delays
Production delays during COVID-19 have become headline news. Manufacturers are competing for limited supply of key commodities and logistical capacity, leading to consumers experiencing empty shelves and long purchase lead times. However, it’s not all doom and gloom. The pandemic has intensified the focus on supply chain evaluation and evolution. Industry is evaluating and investing in their long-term supply chain strategies, paving the way for a new post-pandemic normal.
The days of buffering inconsistent supply with excessive inventory at the lowest purchase cost are quickly becoming a relic of the past. Manufacturers are evaluating risk first as a key decision point in their supply chain development.
3. Over reliance on a limited number of third parties.
Despite the inherent risk associated with focusing on “one major trading partner,” many businesses have strong relationships with one major supplier, one large customer (or export market) and/or one major supply chain partner. As we emerge from the COVID-19 slowdown, many businesses recognize the need to better equip their supply chains by identifying alternative trading partnerships.
Businesses can build greater agility and resilience into their supply chains by working with providers who provide new capabilities as a service. New technologies (trading systems, planning and analytics capabilities, etc.) and additional logistics requirements, provided as variable cost solutions rather than long-term fixed overheads, thereby providing more flexibility and better cost control. The outcomes can create a more diversified and strengthened supply chain with greater potential for risk and cost mitigation in the future.
4. Doubling down on the technology investment
The initial investments made in the previous 18 months by many companies were aimed at automating key nodes within the supply chain (such as intelligent automation used to enable efficient, effective and safe operations) including stores, warehouses, manufacturing facilities and even corporate office buildings. In 2022, we expect to see an accelerated level of investment as businesses seek to enhance critical supply chain planning capabilities by adopting more advanced digital enablers, such as cognitive planning and AI-driven predictive analytics as well as adding greater integrity and visibility into secure supply chains by using advanced track and trace and blockchain technologies.
One can observe that many supply chain managers are currently troubled by a lack of visibility throughout their extended supply chains, as there are so many nodes and participants within the extended chain. Leading organizations are using advanced technologies to significantly improve visibility and thereby become far more responsive to major disruption and variability within their domestic, regional and global supply chains.
5. Commodity pricing
Today, supply chain and procurement professionals are expected to have much more knowledge of categories rather than just being negotiators. A deeper understanding of commodities helps in leveraging the necessary levers and understanding the right price of purchase.
Spend transparency remains poor. While the category price is available, the detailed break up of price in terms of the material component, wastage, conversion, labor, premium added are not defined.
To overcome this, teams are focusing on digital transformation and technology — seamless flow of information across value chain and insights delivers faster decision making. Organizations are leveraging spend analytics tools and software packages to increase visibility of where, how and when they spend. Consolidation of spend enables improved buying leverage and negotiating power to help drive value or push for improvements. Often spend consolidation acts as a precursor to vendor consolidation and ESG segmentation and helps in reducing the variation in quality and pricing for the same type of product/service across geographies.
6. Workforce and labor
The COVID-19 period has been riddled with uncertainties and labor market shortages have further complicated post-COVID-19 recovery scenario for many industries. The shortages are for both white and blue collared workers alike in terms of both skills and numbers. Apart from the labor constraints due to the improvement in post-COVID-19 demand, there are several other non-COVID-19 related factors in play that organizations should look into to mitigate the staffing related issues.
The onset of new technology has fundamentally changed the way supply chains operate globally. The consumers are becoming more demanding, and this is leading the supply chains to change and evolve at a faster rate. Modern operations are focused on technology and innovations, and as a result, supply chains are becoming more complex. With this, the boundary between blue collared and white collared workers are diminishing. Technology cannot operate in silos and it needs workers that are equipped with the right skills and capabilities. Hence, supply chain and manufacturing operations need a blend of both physical and technological skills to sustain and grow at present and in the future.
With these aforementioned supply chain issues dominating board-level discussions for some time now, many organizations have experienced a resulting loss of focus on their existing transformation mandates.
There are several considerations to assist companies as they face these challenges:
• Operations should be flexible and resilient enough to adapt and adjust in real-time to changes in trade flows, new regulations, the impact of COVID-19, climate change, trade tensions and other geopolitical movements.
• Technology should be effectively utilized to help reduce operating costs, provide visibility, and diversify the way customer needs are met.
• Capability to adapt to digital operations and drive actionable improvements from data is important.
• Fleet management and supply chain networks should be responsive to increasing customer requirements.
• Collaboration and supplier partnerships, and ongoing risk monitoring are all needed to de-risk the supply chain.
To address the rigidity, companies should focus on building a network of trusted vendors (customers, supply chain partners, and suppliers) to help manage disruptions and support business continuity. Cultivating a resilient supply chain means that the organization can be better at anticipating, reacting and planning against the unexpected by enabling cross-functional integration and collaboration with its ecosystem of vendors.
The opinion expressed herein does not necessarily reflect the views of these institutions and BusinessWorld.
Michael Arcatomy H. Guarin is the 2022 president of the Financial Executives Institute of the Philippines (FINEX), vice-chairman of FINEX Research & Development Foundation, and the head of the Deal Advisory Group of R.G. Manabat & Co. (KPMG in the Philippines)