I spent last week in Orlando at the Gartner Supply Chain Symposium. If you’ve never attended, think of it as Lollapalooza for senior level supply chain executives: It’s an event where what we do every day out of the limelight is celebrated in the limelight. This year, digital transformation was a big part of the conversation. That’s a topic I had the opportunity to explore with supply chain leaders from Maersk and Colgate that I’ll be writing about in the coming weeks.
But first, Gartner is also a place to understand the trends that are impacting supply chain leaders today. That’s what I talked about with Sumit Dutta. He’s is a principal in EY’s Chicago office, where he co-leads the EY Americas Supply Chain & Operations team. His practice brings him in contact with chief operating and chief supply chain officers. Given that high level view, I wondered, what is keeping the supply chain C-Suite up at night? Dutta identified four trends driving what he calls “supply chain reimigination.”
The next level of supply chain resilience: If nothing else, the pandemic made us all realize just how fragile and dependent global supply chains had become. Building resilience across all of the supply chain functions has become a major focus of chief supply chain officers “and is keeping us busy,” Dutta said. He noted that inventory planning is not as critical today as it was during more than a year of disruptions. Instead, at a high level, firms are focusing on planning functions like S&OP and Integrated Business Planning that span processes; and they’re looking at where and how to “weed out wastes.” In manufacturing, warehousing and transportation, the emphasis is on consistent and reliabler operations. And, while a lot of attention is being paid to technology, Dutta said the starting point is to identify the basic KPIs drive the supply chain, “and then look for technology that can strengthen those processes.”
Cost transformation: Do you remember how less than two years ago, the cost of a container from Asia to the U.S. shot up by multiples of 6 to 8? Or when procurement was willing to pay any price just to make sure factories had the materials needed to produce goods and retailers had product on the shelves to sell? Moreover, when contracted prices were tossed out the window and procurement was willing to pay any price just to keep the lights on, “there was a loss of muscle memory in procurement,” Dutta said. That was then, and this is now. “Some container prices have fallen 80% from their peak,” he noted. Negotiating is back in vogue. Falling prices and inventory gluts are leading Dutta’s clients to fight cost inflation like the Fed and realign contracts. The aim is to return to something resembling pre-COVID price levels.
End-to-end digitalization: Digitalization, digital transformation, supply chain reimagination. Whatever term you prefer, Dutta pointed out that digitizing business across all of the fucntional areas is a top 3 priority for 60% of business executives in a recent survey. Among the most common projects are the digitalization of logistics, quality management and autonomous planning. Organizations are especially interested in applying predictive analytics to run more what if scenarios before executing a plan.
Supply chain architecture: In many respects this ties back to resilience, cost transformation and reliable operations. The question is how to restructure the supply chain to achieve those three objectives. It’s being addressed in at least four ways.
First, many organizations are realizing they can’t be all things to all customers. Instead, they are rationalizing their product portfolios. For instance, Dutta pointed out, Nestle is eliminating more than 20% of its product portfolio. Portfolio rationalization allows organizations to focus on the products and SKUs that are most profitable.
Second, organizations are taking a hard look at linear, cost-efficient supply chains that span the globe in favor of regional supply chains that serve a geography, or what some call a “make where you sell, buy where you make strategy.” Rather than making everything in China and then shipping product around the globe, a manufacturer may set up operations in Eastern Europe to serve Western Europe or Mexico and the southern United States to serve North America. When possible, those organizations will develop supply bases that are near their manufacturing operations. A related strategy is to engage in “people planning” to prepare for the next shutdown.
Third, is to achieve agility to better react to whatever comes next. “Supply chain executives want to ensure product availability,” Dutta said. “That may mean locating high value products near the markets where they sell while products with low variability can be stored and shipped globally.”
Last, is to view all of the above through the lens of sustainability, however that is defined by an organization. “Many of our clients have set 2030 sustainability goals,” Dutta said. Reaching them, he added, calls for action beyond energy savings, which is a major focus, but also embedding sustainability in areas like product design.
Based on my conversations with supply chain executives at Gartner, Dutta’s trends ring true. What was also apparent is that while the pandemic was a wake-up call, we all have our work cut out for us as we reimagine, and transform, our supply chains.