Supply Chain Shakeups
4 Imminent Supply Chain Shakeups
With the gathering storms of trade wars, extreme and unpredictable weather conditions, a record-breaking driver shortage, and upended retail practices and customer expectations, there are clearly some momentous shifts coming our way. Supply chain professionals will need to be rethinking their networks, strategies and processes, with four areas in particular deserving our attention:
- Supply chains will experience a global rebalancing. Irrespective of where trade agreements finally land, they will inevitably come with cost and service implications for most international corporations. We are already witnessing corporations facing resistance in their sales and manufacturing footprints in emerging markets — the poster child for this being technology products. Energy and chemicals giants are increasingly outsourcing to low-cost countries other than China. Automotive companies are being hit by higher raw material costs. This trend will require the optimization of supply chains around cost and service.
- As an inevitable outcome of companies reevaluating their plan-make-source-deliver systems, we expect to see some possible relief in freight capacity. Most U.S.-based shippers had a tough year in 2018. As a result, they took a hit at maintaining customer service levels at budgeted costs. This year is likely to bring some relief and potentially stable or slightly lower contracted freight rates, driven by the trade war and the global economic slowdown. However, this is only part of the picture: Severe weather events and global warming have led to a whole new level of need to be ready for emergency conditions.
- Disaster management will need substantial upgrades in competency. These have been unprecedented natural disasters of late: hurricanes, wildfires, earthquakes, tsunamis, an arctic vortex — the list goes on. While formal disaster recovery programs were typically seen only at a few multi-billion-dollar global corporations, soon more large and mid-cap companies will develop robust capabilities to better cope with supply chain disruptions.
- With growing investments in technology, inventory management will move toward more accuracy, relevance and efficiency. Playing a key role in this, the digital supply chain will become more tangible and its benefits realized. The last five years have seen the phrase “digital supply chain” used with increasing frequency by experts in most supply chain circles. While there has been guarded skepticism around its practical applicability to supply chains, 2019 will see an increased degree of application of these digital concepts to supply chains. These will include demand planning and sensing with short cycle times to reduce inventory costs and improve service. We are also likely to experience more agile omnichannel distribution capabilities enabled by real-time asset tracking, as well as a rise in automated distribution centers and factories driven by robotics and 3D printing.
In all, expect the coming months to bring yet a new set of disruptions to global supply chains. With technology nipping at its heels, global warming rocking weather patterns, and geopolitical uncertainties unseating historical and strong alliances, supply chain will need a fundamental rethink.
Arun Kochar is a partner in the Operations & Performance Transformation Practice of A.T. Kearney, a global strategy and management consulting firm. He can be reached at arun.kochar@atkearney.com