Supply chain managers face growing challenges
The COVID-19 crisis and the measures taken to limit its spread since the start of 2020 have sent shockwaves across the global economy.
Besides causing an unprecedented drop (or, in the best of scenarios, shift) in global demand, lockdowns have severely disrupted supply chains of virtually every service and product. During those first months of the pandemic, the world experienced the impact on our economies, goods and services when a cog (or, in this case, the whole wheel) fails in an evermore interconnected world.
Faced by this growing turbulence, how can supply chain managers adapt to a world rife with disruptions?
Disruption was always the name of the game
It is not only great global, unexpected crises — think of pandemics, giant ships blocking one of the world’s busiest trade routes, historic storms and other climate-related events. Such events are commonplace in the everyday operations of any manufacturing firm, with research showing that up to 85% of companies experience at least one crisis in their supply chain which interferes with their activities per year.
What’s more, according to PWC’s Global Supply Chain and Risk Management Survey, a study of the supply chain operations and risk management approaches of 209 companies with a global footprint, up to 60% of these claimed that their performance indicators had dropped by 3% or more as a result of supply chain disruptions.
It is thus no surprise that “supply chain risk mitigation” has turned into a top priority in the post-pandemic economy for top managers in the industry.
In such nerve-racking scenarios, the role of the supply chain manager becomes crucial to maintain the operations of the whole firm. As we recently wrote about, the job of the supply chain management team is to adjust and maintain the balance between fluctuating demand and supply in order to ensure that every step included in the production process — which, we should not forget, also includes tasks such as logistics, inventory management, and warehousing — goes according to plan.
But in such high-volatility scenarios as those seen in manufacturing, preventing ‘firefighting mode’ can be challenging even for the most skilled planners, and recent trends in the industry show that this job will not get any easier for those who are not willing to adapt.
Main challenges faced by supply chain managers
Gone are the days when production took place in one place and both suppliers and consumers just had one or two options to choose from. Nowadays, firms are not only pressured by single, easily identifiable events. Consumers are getting ever more informed and their preferences are shifting. Any geopolitical event can easily and quickly alter routes and produce resource shortages. Even regulation is becoming more unpredictable with the need to adapt to a more sustainable economy.
Times have changed for manufacturers and managers should be ready to respond aptly. But how can you know where the next crisis will come from?
Here are the top four issues that supply chain management teams will have to be on the lookout for in order to, as the saying goes, “never let a good crisis go to waste”.
- Complex international logistics: be it a global emergency such as the COVID crisis, a geopolitical reshuffling affecting trade agreements and regulations such as Brexit, or a sudden spike in the price of oil or electricity such as the one most of Europe is experiencing right now, logistics are turning evermore complicated as supply chains are extended (while expected delivery times get shorter) and hyperspecialization is spread across the whole production process. Being able to respond to these uncertainties by building trust and durable relationships with contractors and designing flexible systems to adapt to their consequences is essential to minimize the impact on the price and quality of the end product.
- Consumer expectations: from super-customized products to increased competition from all parts of the globe, companies now have to adapt to higher expectations from their consumers. An informed customer means that price is not the only variable to optimize. The quality of the product, its adaptability or the speed of delivery are now a given for many services and managers should adapt the supply chain to couple with their preferences and requests for updates on the process.
- Environmental, Social and Governance (ESG) imperatives for supply chains: consumers are not only becoming more demanding out of self-interest. Issues like the sustainability of operations, the respect of workers’ rights or the source of the product, with an increasing demand for local consumption, should also be taken into the equation. Regulation is responding to this demand, creating avenues that, if managed wisely, can also present a competitive opportunity.
- A variety of channels: just as assembly lines receive their parts from different sources, there is no single point-of-sale for a product to reach the customer. E-commerce has boomed during the pandemic and many customers have gotten used to the wide range of choice available online. Speed, however, is ingrained in this model and warehouses need to be appropriately distributed and stocked to meet this demand.
On the other hand, traditional retailers and wholesalers now have to compete (or cooperate) not only with online stores, but also with third-party marketplaces or drop-shipping as well as with the demand for local products.
Cultivating relationships with all these actors and adapting the supply chain to their needs should be a priority for managing teams in companies that are to aptly navigate through the volatility of complex markets.
Looking ahead: the need to adapt
Zooming out to the bigger picture, the need to adapt to an increasingly volatile world means only agile and flexible supply chains can be effective. As supply chain managers face growing challenges, the need for flexibility has never been higher. If you want to learn more about how data-driven approaches can help foster this flexibility, read our article on TOPIC.