From supply-chains to supply networks has been saved
From supply-chains to supply networks
COVID-19 accelerated the need to reevaluate global supply networks
The pandemic has revealed how vulnerable global supply-chains are and the economic and political paradigms have changed. On top of that, the fundamental change in customer expectations has caused the role of supply-chains to change from business enablers into differentiators and revenue drivers. These shifts have upset many company priority lists, resulting in supply-chains to become out of date: What’s needed is a rebalancing exercise, to adjust the configuration of supply-chains to better fit current reality
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- Global shifts
- Supply-chains as differentiators
- From a supply-chain to a supply network
Crisis management occupied much of the day-to-day focus of supply-chain professionals over the past year. COVID-19 quickly transitioned daily business into a search for alternative supply, as borders closed and shipments from the Far East were cut off. Workarounds were adopted because forecast algorithms were not able to deal with this exceptional situation and massive shift in demand and sales channel. Companies had to find ways to sell massive excess inventory. They struggled to meet steep online sales growth and delivery expectations and to manage working capital where sales channels had closed.
The pandemic has revealed how vulnerable global supply chains are, and how much they depend on stability and predictability. Now that we have moved beyond crisis response, we see the focus has shifted to the longer-term horizon. Topics at the top of the supply-chain agenda have persisted, but their relative priority has changed, compared to the pre-COVID situation.
Supply-chain resilience has evolved from an undervalued capability to a key capability given the new set of risks that has to be considered. To that end, shortening supply chains has now become a logical option – as has diversifying your multi-tier supplier base, in terms of quantity and geographic location. Other reprioritised efforts include omnichannel fulfilment, supply-chain control tower and supplier risk evaluation.
Traditionally, supply-chains were considered cost centres that existed only to deliver goods to customers. They were designed based on minimising the key cost factors: manufacturing, logistics, tax and inventory cost. However, the balance among these factors has not been consistent during the past two decades, as a consequence of two global shifts taking place: one political and one economic.
The changing political landscape and trade wars have made operating global supply-chains difficult. The movement to a more internal, national political focus of the world’s great powers has slowed down global trade. Imposed tariffs have increased the cost of running global businesses and complicated international trade in general. On top of this, negotiations of UK-EU trade agreements are taking a long time, and it is clear that the outcomes will add complexity and cost to global trade. Even without changing anything in an organisation’s supply network, these changing regulations, sanctions and Brexit are forcing business leaders to reconsider their network configurations.
From an economic perspective, increasing labour costs in Asia are changing the value of offshore production. The role of emerging countries – such as China and surrounding Asian countries, India and Brazil – continues to shift. For decades, the paradigm for any globally operating company has been to direct production offshore, and tap these low-cost economies for other labour-intensive activities. But as these countries’ standards of living continue to rise, so do local wages, affecting the value of offshore production. This will likely open the discussion on when global network configurations run out of date, as shifting production back closer to home could become a viable option.
Supply-chains as differentiators
But actually, another key shift has taken place that has been impacting the role of supply-chains within companies even more. During the past ten years, customer expectations have undergone a crucial transformation. Personalised products; a one-click, couch-based buying experience; and next-day or same-day delivery have become the norm. These expectations have caused the role of supply-chains to change from a mere business enabler into a differentiator and revenue driver.
As a result, we now see a new set of considerations driving the design of supply-chains globally:
- Sustainability of products and services, both societal and environmental, must now be proven; companies must actively consider the societal cost of CO2 production, as well as excessive use of plastics in packaging. Brands that do not comply face the risk of a bad reputation in the public eye
- Quality, which used to be a technical product specification, is now of paramount importance; companies can no longer afford mistakes, under the pressure of social media
- Flexibility in supply chains has become key, as new delivery propositions, shifting demand and e-commerce cause consumers to expect immediate, accurate and flexible product delivery in unstable circumstances
- Resilience has been reprioritised as COVID-19 has clearly exposed the risks of operating a global supply network.
These developments have fundamentally changed the position of the supply-chain, designating it a key differentiator in customer propositions.
From a supply-chain to a supply network
The upsets to many companies’ priority lists have rendered at least parts of their supply-chains out of date. What’s needed is a rebalancing exercise, to adjust the configuration of supply-chains accordingly.
In contrast to the supply-chain configurations of previous decades, a one-size-fits-all model will not do the trick anymore. Various customer segments will now have varying needs, which the supply-chains need to fulfil. What this means is a future supply network that consists of different supply-chains with diverging configurations.
Industry leaders have started to investigate what their future global supply networks should look like. The best starting point is to evaluate what differentiating role your organisation’s supply-chain should play as part of the customer propositions.
Key questions they are addressing:
- Which supply-chain priorities will be the most important drivers in my business?
- Which propositions are in need of different supply-chain configurations?
- Which discrete supply-chains should be part of my global supply network?
- How does my organisation make the shift from operating a supply-chain to operating a supply network?
- Which supply-chain analytics and data capabilities must be in place to support this shift?
Asking these questions will drive you to take a holistic view on your supply-chain, both when considering the tradeoff between customer propositions and the differentiating role the supply-chain should play, as well as in resetting the priorities within your supply-chain. This should be the starting point to reconfigure your (global) supply-chain network to be able to deal with the increased complexity and contradicting set of supply-chain priorities.