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It’s that time again—an opportunity to look back on the past 12 months and ahead to what the new year will bring. You don’t need to be a supply chain expert to know that we still have challenges ahead.
To use a Navy SEAL saying, if we “control the controllables” we can better navigate the lingering supply chain challenges and disruptions that’ll hit our supply chains in 2023.
We’ve been listening to customers, speaking with other industry experts, and absorbing news reports. As a result, we’d like to share our musings on supply chain 2023.
Continued Inflation/Geopolitical Instability Drives Supply Chain Design
Inflation influences modeling questions
Inflation isn’t going away anytime soon, so optimizing the supply chain to manage spiraling freight and operating costs will be at the top of the agenda for many companies in the upcoming year.
More businesses will start using supply chain design solutions to answer tough questions like: What is the revenue impact of charging for shipping and returns and/or taking longer to ship products? How much revenue is lost by moving from 2-day shipping to something more economical like zone-skipping and 1-week shipping? Retailers will test these cost-saving options and how they will influence customer purchases.
Geopolitical strife drives increased emphasis on risk management
We believe 2023 will see a shift towards near-shoring inventory to manage risks and to be more resilient to future disruptions. This will require a better understanding of demand, more agility, and lower lead times for replenishment. We will likely see supply chains move away from single-sourcing, long lead time strategies.
According to Bill Seward, UPS president of supply chain solutions, “A lot of senior execs feel very kind of battered by the last two years with regard to reliability and there’s a heavy emphasis on the ability to de-risk and to be able to flex in different ways.”
With this shift in the global labor and production footprint, we expect to see more companies assessing the longer-term viability of Chinese manufacturing. We may even see companies beginning to shift manufacturing to the African continent to reduce risk in the face of shifts in Chinese lockdown policies and social instability.
Traditionally, supply chain design has not considered risk management, but that is rapidly changing as the design process is the most proactive time to identify and manage risks.
Supply chain design will be used to answer risk-related questions like:
- How do geopolitical decisions affect our supply chain?
- Should we work with China and Russia? How does it impact our supply chain?
- Can we near-shore products for a reasonable cost?
- If there is a general desire to move the production of goods closer to home to reduce risk, can this be done at a fair price?
- Should we diversify shipping routes?
What results is a change in supply chain designs—fewer echelons, shorter supply chains by distance/time, and near-shoring. These changes heavily impact financials and service metrics—both likely higher.
Supply Chain Flexes Sustainability Muscles
Zero net emission by 2050 is a sizeable challenge to say the least. And we see sustainability gaining a greater foothold among supply chain priorities. Particularly because corporations we speak with are facing increased pressure to accelerate sustainability initiatives in 2023, and because improving supply chain efficiency and resilience benefits both the planet and the bottom line.
According to a 2022 E&Y study:
- More than 90% of an organization’s greenhouse gas emissions and 50-70% of operating costs are attributable to supply chains
- Eight of 10 supply chain executives are increasing their efforts toward sustainable supply chain operations
We see a greater push to circular supply chains as manufacturers and brands move toward reusable, recyclable innovations and the refurbishing of discarded products. Returns are still a major challenge for most companies–the entire returns logistics process will need to be reworked to reach net zero targets.
According to a Gartner survey:
- 74% of supply chain leaders expect profits to increase between now and 2025 as a result of applying circular economy principles
- Supply chain organizations have been applying circular economy principles to 16% of their product portfolio for an average of three years
Shockingly, the equivalent of one garbage truck full of clothes is burned or dumped in a landfill every second (UNEP). To help combat this waste, we also anticipate more companies building their own eco-systems to sell used clothing and gear, following the likes of Patagonia and REI.
Supply Chain Technology
Cloud-based scenario management
After seeing the devastating effect of the pandemic closing previously thriving companies, transportation and chip shortages in the auto industry, grocery shortages, rail industry strikes, and port closures, in 2023 companies must be prepared and have a plan for shifting flow, and backup suppliers and transportation modes. Contingency planning must evaluate not only costs and services but risk as well.
To enable companies to run hundreds, if not thousands of what-if scenarios to consider all the possible events that may occur, cloud-based scenario management will come to the forefront.
As AI and ML are adopted more frequently, we are seeing companies getting a better handle on their data through data warehouses or master data cleansing initiatives. Decisions are being made with data whether the data is good or bad. Smart companies will invest in making sure their data is accurate so they can make good decisions. The best way to do that is with SaaS-based technology that can power what-if scenarios, simulate, optimize, and highlight risks for mitigation.
Supply chain simulation is increasingly mainstream
As accessibility and usability of supply chain simulation improves, we’re seeing increasing interest in and adoption of this historically prohibitive technology, specifically as it relates to right-sizing inventory levels.
In the past, companies have been able to use historical data to predict sales ranges. Now they are being pressed to come up with ranges for items like inventory and service rates as well (e.g. if sales are $3M then our inventory value will be $300K and our service rate will be 98%). Now is the time to round out the forecasting process with expected costs, not just expected revenue—and simulation is a crucial technique to do it.
Supply Chain Talent
Continued supply chain labor shortages in 2023
The pandemic kicked off a ripple effect of labor shortages within supply chain and other industries. According to a CNBC article, the labor crunch can be attributed to a number of things, including:
- Slowing population growth
- Protracted effect of the “Great Resignation” – employees shifting to different jobs at much higher rates and demanding more benefits including pay raises
- Worker imbalance: there are 5.5 million more job openings than workers available to fill them
- Escalating competition for workers
Companies focused on the supply chain as a competitive advantage will have to account for a continued competitive talent pool in 2023–from the corner offices to the factory floor.
Fifty-eight percent of companies have seen higher-than-normal turnover with supply chain employees, and only 23% are confident their teams possess the digital skills they need to meet future goals.
According to Supply Chain Quarterly, “When economic activity rebounded from the covid-induced shutdown, workforce availability, and skill challenges rose to peak importance and are now inhibiting company expansion and success.”
New generation of supply chain workers demand new technologies, accelerate digital transformation
As the younger generation continues to make up a larger portion of the supply chain and logistics workforce, they bring new technology and workstyle preferences. Analysts and industry insiders are predicting Gen Z will drive digital transformation forward faster than their contemporaries—after all, they spend more time on digital devices than any previous generation, and according to Fast Company:
- Fifty-six percent of Gen Z consider themselves creative compared to 44% of millennials
- Innovation is nearly five times higher within supply chain compared to B2C industries
We observe more and more supply chain practitioners working remotely, specifically those groups focused on data and analytics. It can be difficult to coalesce talent in one physical place, but with the advent of remote work and improvements in master data, companies will be able to build analytics teams that work remotely.
While companies will move toward off-shoring more technology roles, we don’t believe we will see a strong push to move supply chain data and analytics teams offshore in 2023.