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The future of supply chains

December 10, 2020
Change, change – that’s all I ever hear about. Soon, everything will be back to normal.

Do supply chains have a future? The long, extended supply chains of today are a relatively recent phenomenon, a product of relentless outsourcing in pursuit of ever-lower costs. The pandemic exposed a number of challenges associated with this model and is driving a re-appraisal.

When COVID-19 started to disrupt production and supply, many businesses found themselves exposed. They didn’t know the precise source of key components or sub-assemblies. For many, the first they knew about shortages was when they hit. For others, the worst thing was their inability to anticipate or plan. The early months of the pandemic were characterized by urgent efforts to dig deeper into their supply chains, to identify alternative sources and to develop plans for increased near-shoring or repatriation. Behind the scenes, governments were also acting to encourage increased local production and sourcing, taking steps that are threatening the more open borders and boundaries of the last 20 years.

When it all quietens down ….

Once COVID is behind us, won’t we just return to the way things were? The signs are that there will be meaningful and lasting change. For one thing, supply chain resilience has become a board-level topic. CEOs are talking about a turning-point in the trading environment, about a need to change the balance between ‘just-in-time’ cost efficiency and ‘just-in-case’ risk effectiveness. This means a push for greater transparency, increased stress-testing and more holistic understanding and management of risk. Achieving this will depend in part on re-evaluating supply relationships and associated governance systems, but perhaps the most immediate need is to consider a new integration between people and technology.

Many of today’s business systems are internally-oriented – not just within the corporation, but often within the function. Supply-related data sits in inaccessible and unconnected pools and puddles. Data exchange between customers and suppliers often relies on emails and spreadsheets. All this is far removed from the operations excellence and performance resiliency that top management now sees as necessary. They are talking about a blending of people and technology that builds capabilities through agility, learning, a focus on value and customer experience. This has extensive implications to the nature of supply relationships – the extent of visibility, transparency, reporting; the nature of selection criteria and the extent of cooperation.

There are also major implications for contracts as the nature of risk is re-evaluated, as performance incentives are given increased focus, as terms are designed to provide increased adaptability in handling uncertainty, as governance models are strengthened. The introduction of new, AI-powered systems is starting to shift thinking beyond the one-to-one transactional nature of today’s contracts and to thinking much more about the creation of integrated supply networks and ecosystems. It is this approach that can deliver resilience, operational excellence and rapid innovation. So do supply chains have a future? The answer, clearly, is yes, but as part of a much richer mix of relational models, each of which is marked by far better information flows and predictive capability. Machines will be gathering the data, spotting trends and issuing alerts; we humans must become far better at interpreting and using it, especially in our approach to the way we form and manage customer and supply relationships.

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