Five ways that our supply chain conversations are shifting
Our supply chains have evolved over time, and with all the disruptions that we hear about, nobody seems to be driving them explicitly.
Many of us read about how the pandemic created an imbalance in the demand side, the supply side, finance, and, most notably, in the health aspects of the supply chain actors.
Over the last months, we get a sense that supply chain-related conversations have not only become more critical, but a shift is happening. Here are some thoughts.
#1
With the continued impact of present supply chain issues, the private sector and governments have started to talk about supply chains. Supply chain conversations have stretched out from operations rooms to board rooms to government offices.
Considering the learning from ongoing supply chain issues, supply chain managers have begun to focus on efficiency as a balance between lean and resilience. Stockpiling is not bad. It is essential for business continuity. Japanese auto majors like Toyota learned from the 2011 Fukushima disaster after the tsunami and have better managed the components shortage after the Covid-19 pandemic. Other auto manufacturers are learning their lessons.
#2
Design and components are imported into global supply chains, then re-exported. So for the same item, some double counting of movement happens in international trade, which businesses incorporate in the price of the final item.
Global supply chains are moving towards distributed decision making. They are also moving from just in time to just in case, as more disruptions happen.
Global supply chains have become more regional. Service has become an essential component, often requiring the movement of employees, and global supply chains have also become more knowledge-intensive.
#3
So, where could businesses relocate their supply chains?
Participating in a global supply chain helps one access international capital. The trade-in value-added or TIVA report published by WTO gives an account of backward and forward integration in global trade.
Governments can provide incentives to move the supply chain in a particular direction, and many governments do. However, governments cannot set up or ask businesses to set up the supply chain at a specific place or specific way. Based on consumption estimates, manufacturing assessment, and logistics requirements, companies must decide where the components of their supply chain need to be. And businesses are making the decisions to shift their sub-contracting.
#4
What is one of the first steps towards supply chain resilience?
While businesses plan and transition to alternate sources of supply, we know that it is quicker to build inventories than factories to improve supply chain resilience. A survey of senior supply chain executives by McKinsey shows that post-pandemic businesses have mainly increased inventory levels instead of increasing alternate sources of supplies. Being a low hanging fruit, building inventories as the first step towards supply chain resilience makes sense.
The non-availability of s USD 2 microchip can impact the production and delivery schedule of a USD 20,000 car. Most businesses do not have visibility of their supply base beyond their second-tier suppliers and have started investing in analytics on their supply chain visibility.
#5
How are businesses approaching the modernisation of supply chains?
To efficiently modernise supply chains, forward-looking businesses are looking at:
- working with a unified view of demand instead of consensus-driven forecasts.
-moving away from a one-size-fits-all supply chain strategy to a segmented planning and execution strategy.
· creating a single plan to continually balance supply and demand, identify and respond to deviations or disruptions using intelligent algorithms.
Managing the talent supply chain will also be the next challenge.
Supply chains remain vulnerable to disruptions, have reached their inflexion point, creating more opportunities for start-ups.
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