Why Global Supply Chains are Shifting
Global supply chains are being whipsawed.
Complexity, globalization, and technology were already a staple of supply chains. Supply chains were adapting, becoming more effective and efficient. Optimization was their mantra.
You’ve survived trade wars, security threats/theft, oil shocks, strangulating regulations, etc.
Now add a pandemic to the mix and wholesale changes are afoot.
Change is not new. But the pace and spread of change is. As your business recovers from quarantine, it’s time to reassess the impacts to your supply chain.
Will you be able to deal with the disruptions to your business? To survive Covid-19’s aftermath, your business must adapt or die.
Here are ten shifts that will impact your business.
1 – The Shift to Regionalization. Supply chains are transitioning from global sourcing to regional sourcing. This shift began before the Corona crisis but is now accelerating. In fact, technology, pharmaceuticals, and the auto industry are moving out of China. Due to the concentration of manufacturing and sourcing in China, this shift will occur gradually but steadily. Vietnam and Mexico will gain some of China’s former business as will India, South Korea, and Japan. Supply chains will have to adapt. The shift to regionalization will likely continue in the foreseeable future.
2 – The Shift to Multi-Sourcing. Supply chains stressed supply chains ability to provide basic needs like consumer products. The Coronacrisis stressed supply chains to meet basic needs like certain food items, cleaning supplies, and toilet paper. Global supply chains weren’t built to respond to the unexpected surge in demand. In large part, this breakdown occurred, due to over reliance on sole sources. Now, companies must source materials and products from many reliable sources. Then, if one source fails, your company can fill the gap with local as well as regional sources.
3 – The Shift to Planning for Demand Variability. The change in demand for consumer goods was swift and volatile. It continued to be extremely variable, and optimized supply chains weren’t built for that. They were built to be lean. Low cost and steady demand helped shape optimized supply chains. Now is the time to reassess leaned-out supply chains since no one can rule out a recurrence of Covid-19. This shift to demand uncertainty will likely heighten. Therefore, businesses must shift from exact planning based on demand stability. They must now account for increased variability of demand.
4 – The Shift to Government Regulation Focused on Continuity of Operations. After the 2008 financial crisis, we saw greater government involvement. Regulation became more focused on ensuring the stability of banking operations. As a result, the government required banks to undergo mandatory stress tests. Likewise, we may see a more deep-rooted governmental role in logistics. For example, supply chains may also undergo stress tests. Stress tests could address resilience and flexibility in dealing with supply chain shocks. Companies should prepare for a shift to a governmental role based on national security focused on continuity of operations.
5 – The Shift to System Integration. Another shift comes from disruptions compounded by the lack of system integration. System integration comes in two forms. First, businesses must integrate their internal systems. Second, they must integrate with their partners’ external systems. They must integrate upstream and downstream to gain end-to-end visibility. Lack of system integration led to dislocations. We saw late deliveries, missed deliveries, etc. Lack of visibility sub-optimizes smooth-running supply chain operations. Again, this shift is not new and was already underway. But the need for greater visibility during supply chain shocks gives system integration greater urgency.
6 – The Shift to Increased Independent Stress Testing. Cyber security issues have plagued business of all stripes and sizes. No business is immune. With the focus on technology to improve supply chain performance, cyber security looms large. Prevention and rapid recovery from potential major network disruptions will be key. Without a secure network, you’re ineffective. It’s that simple. Just as government regulation may demand stress testing of supply chains, companies may now find it in their self-interest to stress test their networks. The shift to independent stress testing of supply chain networks will increase.
7 – The Shift to Hiring Highly Skilled Workers. You could say Covid-19 has hastened the change in the nature of work and the workforce. Google’s and Facebook’s employees, for example, will continue working remotely until 2021. That works well for technology companies. But manufacturing and logistics companies can’t replicate that. That said, the demand for highly skilled workers will increase. That’s due to the increased reliance on data and technology in logistics. Companies will need to adapt to this shift to attract new kinds of workers for the future.
8 – The Shift to Balancing Technology with the Human-in-the-Loop (HITL). As referenced above, businesses must shift to hiring workers in new fields. Companies will seek employees to fill positions in data science and data management. As businesses rely more on AI and Big Data to inform decision making, we will see a shift in the type of workers required. AI in and of itself is not a silver bullet, but it is important in aiding decision making. That said, decision making will still need human intervention. As decision making relies more and more on data, we will see a shift to AI decision making assisted by the HITL.
9 – The Shift to Supply Chain Risk Management (SCRM) as a Co-equal Strategic Planning Factor. SCRM has, in general, always taken a back seat to operations. Relegated to the back office, SCRM only gained attention during a crisis. Due to the depth and breadth of the disruption Covid-19 caused, SCRM will become a co-equal strategic factor. Strategic planning must now treat worst case scenarios as probable rather than possible. That will mean building in redundancies as well as larger inventories. That will increase costs. Yet customers will demand service continuity, while still keeping costs low.
10 – The Shift to Customer Service vs. Cost. The balance between customer service has long affected businesses. A 2016 Twitter Poll about the value of customer service vs. cost, indicated customer service as the faraway winner: 78% vs. 22%. That’s true four years later given today’s supply chain shortages of basic items. Customers, after all, lie at the heart of all businesses. Notably, customers’ expectations will pressure businesses to provide the high levels of service – supply chain shocks or not. That shift was well under way, but Covid-19 has reinforced that trend.
Which Side of These Supply Chain Shifts Will You Be On?
Complexity and uncertainty will likely rise. Therefore, strategic planning must account for catastrophic supply chain disruptions more prominently.
Tomorrow’s supply chain will become more customer-centric. They will focus on adaptability and responsiveness to create value for the customer.
To survive, your business must adapt or die.
Dealing with complexity and uncertainty is not going away. Neither will unforeseen events to include pandemics. Facing these challenges might seem intimidating. And they can be when you take them on by yourself.
Working with a partner, however, can mitigate or eliminate the pressures you’re facing.
With help, you can prepare for these emerging shifts and sidestep the pitfalls and thrive. Taking a customer-centric approach will help you manage the effects of these shifts.
Working with a trusted partner will help you manage change easier.
Contact American Global Logistics if you’re looking for help with preparing for these emerging shifts.