New China Covid outbreaks wreak havoc on supply chains
Now China’s Covid restrictions have been relaxed, worker shortages and factory closures, due to outbreaks ...
Congestion has eased as demand slowed in recent months, but supply chain professionals will not be cruising through placid waters in 2023, warned Abe Eshkenazi, CEO of the Association for Supply Chain Management.
He pointed to a recent report by German software firm SAP showing that more than half of the surveyed firms see no end to the turbulence, with nearly 50% expecting the problems to last at least through the first six months of 2023, if not the whole year.
To cope with this, 52% find they need a major supply chain transformation, and another 39% reckon they need at least some improvement.
“We have a market of ongoing volatility and there is a need not only to improve service and cost but also to stabilise it, and I think that’s where the majority of effort is going to be,” he said.
Quite a few problems that have beset supply chains over the past couple of years remain unresolved. Some have merely been pushed down the line, Mr Eshkenazi said, pointing to efforts to reduce port congestion that did not address availability of drivers and trucks and warehouse space to put all those imports.
Many companies have responded to the volatility with a just-in-case (JIC) strategy, which involves using increased inventory levels as a buffer, but this is driving up costs – an expensive approach in an environment marked by high inflation, he noted.
“We have not seen the end of just-in-time. The consumer still expects high variety, rapid delivery, reasonable cost. We haven’t totally walked away from just-in-time, but we still haven’t addressed the just-in-case and what happens with the demand surges and the disruptions. Are we able to rebalance the supply network as we see the disruptions occur?” he asked.
“I think this is where we’re starting to see much more discussion about updating the risk management playbooks for not only the disruptions but also climate change as well as sustainability. We’re seeing those pop up as priorities, but we’re not seeing them yet in terms of action.”
Supply chain visibility and transparency have made considerable strides over the past couple of years, enabling companies to access relevant information on a timely basis. The next step is to align this with predictive and prescriptive analytics. Along with big data and robotics, this will be the hallmark for a lot of organisations, which should lead to less volatility, or at least better predictability, Mr Eshkenazi explained.
The increased use of big data is raising the need for more efforts to bolster cybersecurity.
“Cybersecurity and data security are going to be a huge issue as we move forward to protect the digital supply chain,” he stressed. “But I think we also have to take a look at integrating the risk management with planning. I think this has become part of the supply chain professional’s role and responsibility: to integrate risk management with synchronised planning.”
The view of the supply network has shifted from a linear, to an integrated, network and companies are investing in connectivity, enabled by big data and analytics, as a more collaborative approach takes root. While there has been good progress on the technology side, Mr Eshkenazi noted that trust between supply chain partners was also necessary and that the industry had some ground to cover there.
“I don’t think the trust factor is at that level yet,” he added.
For all the benefits of embracing technology, companies are in danger of neglecting another vital aspect – their talent pool – as they plan their investment, he cautioned, pointing to a recent study arguing that many organisations are overweighted on technology in their planning while underestimating the challenges on the talent side. Firms may have powerful technology but may lack individuals who can understand what data is being aggregated and what the system is telling them.
“There are very few companies that are not investing in their technology platform. The question that we have for them is, are they investing in their talent pool at the same level as their technology?” he said.
Clearly there is no room for complacency over the advances companies have made in their supply chains over the past couple of years, as the disruptions are unlikely to vanish.