As vital engines of the world economy, supply chains profoundly impact our daily lives as consumers. They are also an area of business operations full of intriguing contrasts and innovation.
On the one hand, the fundamental problems that supply chain professionals are battling have changed little over time. The profession is still about managing and optimizing the plan-source-make-deliver equation to keep the business running with healthy margins. On the other hand, the details around how these foundational tasks are performed and what the future looks like have gone through a massive shift in the past few years.
Supply chain digitization is a key focus area for OpenText. We recently had the privilege to sponsor the Reuters Supply Chain Europe 2023 event and connect with some of Europe’s sharpest supply chain leaders across different industries. The insights from various presentations, panel discussions and individual conversations paint an interesting picture of how supply chains have changed and what challenges lie on the horizon.
Here are five key insights to consider for your digital supply chain in 2024.
1. The pervasiveness of digital supply chains
Digital sales channels are nothing new, but their increasing pervasiveness forces even more traditional companies to shift their focus and invest in new capabilities. For example, consumer goods (CPG) companies with long-established B2B routes to market are seeing significant growth opportunities in direct-to-consumer sales and, as a result, need to deal with new kinds of challenges and competition.
Technology naturally plays a key role. A representative of one digital-only clothing company summarized their supply chain technology well by encouraging organizations to “think stack, not solution.” The point is that optimal capabilities will likely consist of several components, and agility and adaptability in weaving them together will be essential for success.
While many established companies need to manage a transition away from legacy supply chain technologies, new market entrants do not have this baggage and can move quickly in deploying best of breed technology stacks to enable and digitize their supply chains. We’re seeing the impacts of this flexibility in technology adoption, for example, in how many Asian companies have rapidly grown their global footprint and market share over the past few years.
2. The great rethink of supply chain network planning – Cost vs. resilience
The structuring of global supply chains has been under significant scrutiny lately for various reasons. Increasing supply chain resilience, reducing carbon emissions, and protecting against geopolitical risks have been driving the conversation around shortening shipping distances through near-shoring and diversifying the supplier base through multi-sourcing.
However, one significant barrier has stymied these developments for many organizations—money. At the beginning of the pandemic, we saw efforts to increase supply resilience at almost any cost. Now that shipping prices and lead times have again become more predictable and inflation and interest rates have surged, many companies have returned to treating cost optimization as the primary driver for their sourcing strategy.
There isn’t a clear trend for balancing resilience with costs, as this will ultimately depend on each organization’s individual circumstances and risk appetite. Some companies are actively looking to shorten and diversify their supply chains. Others have adjusted over the past years and are now reconsolidating sourcing to get the best deals from their suppliers.
In a panel discussion, one supply chain leader aptly compared supply chain resilience with buying insurance—greater protection comes at a greater price.
3. The need for actionable supply chain visibility
Supply chain visibility is one of the most important discussion topics amongst supply chain leaders. Still, there is some ambiguity as to what exactly is meant by visibility and what companies should include in the scope of the discussion.
Should visibility be discussed in the context of a specific function within the supply chain, such as logistics? Or, should it be cross-functional and expand from planning and sourcing to customer fulfilment and returns management? Should it cover the operations of an individual business unit or organization? Or instead, should it expand into the broader ecosystem to include suppliers, customers, logistics providers and other parties? What is feasible to achieve, and how far should the ambitions reach?
One presentation focused on how to gain better insights into logistics disruption, such as extreme weather phenomena and port congestion. An audience member summarized the fundamental problem well by politely asking, “So what? That’s very neat, but how am I supposed to use that information?”
This highlights a significant trend around supply chain visibility. Leaders increasingly focus on understanding how organizations can turn visibility into action.
4. The compelling role of government regulations impacting supply chains
Another hot topic for business leaders right now is supply chain risk management. Yet, preparing for risks takes work, and as discussed above, comes at a cost.
For example, we’ve seen some organizations heavily dependent on Chinese manufacturing diversify their sourcing strategy by looking up new suppliers elsewhere—mostly in other Asian countries to try to keep the costs down. Lowering order volumes per supplier usually increases unit costs. However, the bigger problem is that the lower tier suppliers may largely remain the same. There may not be a significant reduction in reliance on Chinese-made components and raw materials despite diversifying the tier 1 supplier base.
Overall, the current market dynamics seem to favor long and concentrated supply chains. Unfortunately, individual organizations have limited ability to impact things without significant cost implications. However, government policies and regulations may tip the scales. In addition, trade policy changes and, sustainability regulations—such as Scope 3 emissions and supply chain due diligence—are likely to force organizations to more holistically reassess costs associated with their CO2 emissions and ethical business practices.
Another panel discussed opportunities around reducing logistics emissions through sharing capacity between shippers. One panelist commented on collaboration barriers by stating that, when left to their own devices, companies will prioritize quarterly profits over less tangible long-term benefits ten out of ten times. This being the case, the most powerful change agent in supply chains will likely be government regulations that significantly impact the supply chain cost structure.
5. Addressing the multifaceted supply chain talent crisis
While disruptions, uncertainty, changing business models and the evolution of technology are certainly top of mind, many supply chain leaders would probably argue that their biggest challenge is talent management.
There are several angles from which to look at this “talent crisis” as it one panelist dubbed it. Attracting and retaining talent is a crucial part of talent management. This is closely tied to the availability of the right skills in the market, evolving expectations for different roles, and enabling people with the right technologies.
Many leaders raised the importance of purpose and engaging people throughout the organization, as the pandemic wreaked havoc on how committed people are to their jobs. Another critical trend is diversification of the skills profiles that organizations are after. Many large enterprises have deployed different kinds of job rotation and hiring schemes that prioritize mindset over skills to enable innovation and the ability to adapt to changing requirements.
In addition to building flexibility, technology is also increasingly a key consideration—both good and bad. On the one hand, most people are overwhelmed with the data they must process daily and the different technologies they now have to master to perform their jobs. On the other hand, advanced technologies such as AI hold great potential in helping people navigate information overload to enhance job satisfaction and improve productivity.
Digital supply chains: Where we’re going, we don’t need roads
After the global pandemic, there was a lot of discussion around returning to normal. While some signals, such as the return of cost optimization as a key priority for many organizations, may look like a return to normal, don’t be fooled. With changing business models, pervasiveness of technology, evolving regulations, and transformation in the way we work, tomorrow’s supply chains will operate under very different parameters than before.
The writer L.P. Hartley opens one of his books with a statement, “The past is a foreign country: they do things differently there.” This sentiment rings true for supply chains, and returning to the past seems like a closed door.