The COVID-19 pandemic forces supply chains to change rapidly. Digitalization enables this transformation.
This article was originally published on Gartner.
The transformation and digitalization of supply chains has been an ongoing evolution for years. COVID-19 acted as a catalyst, accelerating the transformation, but also reshaping how chief supply chain officers (CSCOs) reimagine the future of supply chain.
Supply chain leaders also must use new technologies to adapt to the ever-changing environment in which they’re operating
The pandemic put global supply chain networks in the spotlight. It highlighted their weaknesses and flaws. And although the supply chain profession received more recognition and gratitude from CEOs and the C-suite than ever before, supply chain leaders are now challenged to use that attention to advance their digitalization plans and prepare their supply chains for the disruptions of tomorrow.
“There’s a couple of challenges ahead for supply chain leaders,” says Mike Uskert, Managing Vice President and Chief of Research, Gartner Supply Chain Research practice. “Their CEOs ask them to improve customer service while at the same time reducing costs. This goal can only be achieved by continuous investments in supply chain digitalization.”
Digitalization for its own sake is not enough. Supply chain leaders also must use new technologies to adapt to the ever-changing environment in which they’re operating. A more disruptive geopolitical landscape and the supply chain’s role in the organization’s sustainability efforts call for new strategies and mindsets.
The future of supply chain is to balance resilience vs. cost containment
One of the top priorities for companies now is to improve supply chains’ resilience and agility in meeting customer needs. At the same time, the pressure to contain costs isn’t going away as customers demand competitive pricing and CEOs watch their margins.
Most supply chain executives agree that their supply chains were primarily designed for cost efficiency. The challenge for supply chain leaders and their organizations now is to find new trade-offs between cost, speed and service in a changing landscape where uncertainty and higher customer expectations go hand in hand.
Being purpose-driven is not just about doing no harm to stakeholders, but also positively amplifying benefits
The findings of the Gartner 2020 Future of Supply Chain Survey show that the majority of respondents recognizes that national interests in domestic sourcing will have an increased impact on decision making. However, only 27% of respondents think that their customers are specifically interested in locally sourced and made products, and 45% say that their customers care more about the price than where the product originated.
“The high level of integration in global supply chains, the regulatory burden of moving already established supply chains to a different location and the concentration of key suppliers in certain geographies make it difficult to completely regionalize a supply chain network,” Uskert says. “Further, high labor costs and a shortage of skilled manufacturing workers have long been an argument against domestic production in developed Western economies.”
However, automation technologies such as artificial intelligence (AI) and robotic process automation (RPA) provide opportunities to overcome this constraint. Fifty-six percent of survey respondents think that automation will enable them to make onshore manufacturing economically viable. Those technologies can be used on the operational level — for example, to perform picking and packing tasks — but they can also enhance strategic planning and forecasting, improving the overall efficiency of the supply chain.
The future of supply chain is purpose-driven
Being profitable is no longer enough when faced with the existential environmental impacts on stakeholder groups across the value chain. Organizations led through supply chains need to demonstrate purpose by showing that stakeholder benefit is a priority.
Being purpose-driven is not just about doing no harm to stakeholders, but also positively amplifying benefits. For many organizations, the most significant end-to-end environmental impacts come from supply chains.
That’s why environmental performance efficiency has become a goal for many supply chain leaders. Gartner research has found that supply chains plan to focus on environmental operational efficiency through waste reduction, responsible sourcing, water efficiency and operational greenhouse gas emissions reduction within the next 18 months.
Supply chain leaders require data from their digital ecosystem, including customer experience, carbon footprint
Again, digitalization helps. A digital partner ecosystem powered by technologies such as blockchain and the Internet of Things (IoT) will foster collaboration, increase visibility and support better risk management. A solid network of relationships along the end-to-end supply chain is based on which supply chain leaders can engage suppliers with a common purpose, develop equitable relationships across communities and measure purpose achievement.
To measure environmental efficiency, supply chain leaders require data from their digital ecosystem, including customer experience, carbon footprint, and the health and wealth of local supply communities. Based on the status quo, they can then create targets and requirements for themselves and their suppliers, and continuously monitor progress.
Over the next couple of years, more than 80% of organizations plan to develop the capabilities for a digital ecosystem. Although this seems very ambitious to achieve in such a short time, it indicates the importance of digitally connecting with the ecosystem to support the most critical future supply chain strategies — resilience, agility and purpose-driven organizations — and ultimately to improve the customer experience.
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