A "New Normal" for the Supply Chain?
Many supply chain experts predict a potential end to current supply chain disruptions sometime in 2022. Although it’s too soon to tell what the exact timing will be, a growing belief among industry insiders is that in light of all that’s happened since the emergence of COVID-19, there’s no turning back to the supply chain of the past. Instead, a “new normal” is likely ahead.
In the current environment, companies pivoting to adapt are demonstrating more resilience than those stuck in a mindset of doing things the way they’ve always been done. That’s because major change will be needed to survive—and thrive—within an ever-evolving climate of increasing consumer expectations; skyrocketing prices in various sectors; and an unpredictable supply chain that’s creating a major chasm between supply and demand.
Difficult dynamics such as these are captured in this April 2021 video from the Wall Street Journal.
In light of these dynamics, we decided to dig in and learn more about what factors may help to define the new normal of the supply chain ahead.
A recent Gartner survey of CEOs and senior business executives in supply-chain-intensive industries revealed key insights that may reflect changes to the new supply chain. When asked about priorities that chief supply chain officers (CSCOs) should focus on in the near future, cost optimization topped the list and supply chain resilience followed close behind.
Quoted in a press release announcing the results, Thomas O’Connor, senior director analyst with the Gartner Supply Chain practice said, “CEOs are tasking their CSCOs to focus on navigating through the ongoing disruption and ensure business continuity. This includes dealing with pandemic-related lockdowns in key markets, supply chain shortages – as seen in the semiconductor industry – and challenges with the global flow of goods and increasing distribution costs.”
In addition to dealing with current challenges, Gartner also notes that CSCOs will have to be prepared for the “economic boom” that 60% of the CEO participants expect to start by the end of 2022.
Another tricky dynamic is the uneven pace of recovery in global markets, as O’Connor noted: “Different regions of the world are recovering at different paces. CSCOs need to prepare for a dual speed recovery for both supply and demand where markets with high vaccination rates bounce back far more quickly than those without.”
When it comes to strategy, a whopping 80% of respondents said they plan on increasing year-on-year investments in digital capabilities—which Gartner says may reflect a shifting trend away from an “undefined ambition for digital business transformation toward more targeted initiatives.”
On a broader scale, the CEOs surveyed anticipate that business impacts related to the pandemic will have a lasting effect—which may be why over two-thirds indicated they plan to focus on business redesign. Since nearly 80% of the CEOs “expect to see significant and enduring behavioral changes in society, the organization, and individuals” as a result the pandemic, Gartner says supply chain leaders should prepare for organizational behavioral shifts in their partners and competitors, too.
O’Connor summed it up like this: “Already, a range of companies have committed to social responsibility and sustainability goals – a huge integration challenge for supply chain leaders that manage global networks. This means supply chain leaders need to establish metrics and goals for themselves and their partners, and ensure their targets are met across the whole value chain.”
Another report that reflects a new normal for the future supply chain is the 2021 Council of Supply Chain Management Professionals’ (CSCMP) Annual State of Logistics Report® that was released on June 24th. Entitled “Change of Plans,” the report underscores how “resilient logisticians” are “adapting, planning and shifting to meet current and future demands.”
Key findings from the report include three that will likely influence how the supply chain of the future evolves:
“The control tower concept is taking on an added importance. Resilience is most effective when paired with visibility. Companies need knowledge to make quick decisions, and the control tower serves as an information hub to enable better planning and reacting.
Sustainability efforts by the transportation sector are increasing. Consumers are considering environmental impacts in their purchasing decisions while governments across the globe are instituting more stringent regulations.
Moving forward, supply chains must continue to provide goods and services to the American public while dealing with tight capacity and volatile rising rates; H1 2021 has the highest rates the market has ever seen.”
As CSCMP notes, “As a result of a still ongoing pandemic and other disruptions, supply chains will be forced to continuously adapt. Change is inevitable in supply chains and adjustments are ongoing as manufacturers shift their sources and consumers shift their spending habits. Change will also come from the trend of multi-shoring and emphasis on optionality at the expense of lean and optimal. Safety stock is back, so more inventory will need to be carried.”
Though many want to blame the pandemic for the supply chain mess, one expert views it as a catalyst for changes that had already begun.
In a post for the MIT Sloan School of Management, writer Beth Stackpole highlights a recently released book, The New (AB)normal: Reshaping Business and Supply Chain Strategy Beyond COVID-19, authored by Yossi Sheffi, director of the MIT Center for Transportation and Logistics.
Stackpole’s overview of the book includes several key points that will likely play a role in how the future supply chain evolves:
Prior to the pandemic, manufacturers were already struggling with the need for more end-to-end visibility across supplier networks and a diversification of sources, “including a shift away from China to more localized and distributed production.”
Industries and companies that had already invested in an agile business model and possessed “a willingness to adapt processes and revenue models to capitalize on the new normal” demonstrated the most resilience.
A push to deploy digital technologies played a key role in helping companies with supply chain automation, cost control, reduction of human contact during transactions, and to support social distancing in work environments.
The pre-pandemic priority of better end-to-end visibility, the decreasing costs of critical technologies to enable it, and the urgency of the pandemic helped “forward-looking” companies move forward with the critical changes required.
In an October 2020 interview with SupplyChainBrain, Sheffi discussed his book and the need for supply chains to embrace unprecedented agility, flexibility, and speed to survive in the current environment. He also predicted that for those companies looking for a more diversified supplier network, a “China plus one” framework may be the most common approach.
Although adjusting to the new normal of the supply ahead may be challenging, there are specific strategies companies can adopt to do it—which is a topic we’ll cover in next week’s article, so be sure to join us.
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