Supply chains: a bumpy ride for business in 2022
Supply chains must be more resilient, sustainable, predictive and reactive
If you’re in any kind of business, then after New Year resolutions at the start of 2022 you will probably have returned to work with a sense of apprehension over a major task that lies ahead: to transform your supply chain in order to be more resilient, more sustainable, and fit for purpose for the uncertain years to come.
This transformation of the supply chain will be no mean feat. In many cases, it will require you to rethink the way in which your supply chain operates, giving it more visibility through the deeper layers of suppliers, and the ability to predict - and react to - problems in advance. It will require smart adoption of new technologies, and the integration of these with other new and evolving digital elements across your business.
2022 will be a bumpy ride in a perfect storm for supply chains
The issue is so important that the World Economic Forum (WEF) put it on its Davos Agenda for 2022. Calling for a rethink of global supply chains, the WEF has warned that “supply chains are set for a bumpy ride in 2022.”
Digital transformation, then Brexit, thenCovid, and now Net Zero: it seems like business supply chains over the last two years have been sailing into a perfect storm.
Digital transformation alone, a critical strategic mission over the last few years, has been daunting enough. While offering real advantages and new opportunities if done well, most companies have lacked the tech skills to be able to deal confidently with the task by themselves.
Supply chains were already vulnerable to sudden shocks, changes in supply and demand, and geopolitical upheavals, but it took the global pandemic to reveal their true fragility. Since early 2020, Covid has continued to wreak havoc and highlight the inherent weaknesses in supply chains across most sectors around the world.
How microchip supply chain woes impacted the global economy and inflation
On a local basis everywhere in the last two years, businesses have been struggling with shortages of parts, materials and facing sudden factory shutdowns, while consumers have endured long queues, late deliveries and sometimes empty shelves.
However, the ongoing crisis in the worldwide microchip industry is a stark example of just how badly things can go wrong. The Covid outbreak piled new pressures on the industry, forcing factory shutdowns and simultaneously driving a surge in demand from IT manufacturers, while automotive customers hit by falling car sales were cancelling orders. The microchip industry was then also hit by a multitude of other unforeseen issues, including the China-US trade war and closures of various fabrication plants due to drought, fire and extreme weather in different countries. It might be argued that here was the climate change crisis already starting to impact directly on supply chains.
The story, as presented on Wikipedia, is remarkable and makes for a thrilling read. Now, even with the US andEuropean governments starting to step in to help regionalise chip supply, the microchip crisis is still set to continue until at least the end of 2022.
One contributory factor was that people working from home during lockdowns around the world went on an online shopping spree and piled into buying computers and related equipment, not only increasing the demand for microchips but also contributing to a crisis in worldwide shipping. This has driven up freight costs and contributed a 1.5% increase in global inflation, according to a recent United Nations report in November 2021.
The microchip crisis is still causing disruption in manufactured goods and IT industries, and costing the global automotive industry alone an expected US$210 billion loss of revenue for 2021
Net Zero and the challenge for companies to ‘green’ their supply chains
If you are working for a UK-based company, the complexities and delays arising from Brexit just add to your woes, with miles of lorries queuing at ports bearing witness to this.
But if these problems weren’t enough, businesses worldwide also now have the task of meeting Net Zero emissions targets by 2050 and achieving significant reductions by 2030, as agreed among Governments at COP26 in Glasgow last November. This means not only addressing sustainability targets in the core business, but also the challenge of ‘greening’ supply chains. This is a huge task, demanding a strategic rethink of how a supply chain operates.
As PwC said in an article Reinventing the Future: “Building on a Net Zero ambition, companies have to ensure accountability at the top, realign their corporate growth strategy with Net Zero, adapt their operating model and supply chain to support the transformation, invest in innovation, provide the necessary financing, and prioritise transparency and engagement.”
To address Net Zero, collaborative innovation with sustainability-focused partners will help companies contribute to mitigating climate change, and ultimately enjoy long-term business growth.
Transforming supply chains: turning a crisis into an opportunity
Just don’t despair. Help is out there, and some of the best minds are now focusing on solutions. The challenge of making supply chains more resilient is one of the most ubiquitous business subjects on the internet right now. Consultancies, research firms, and technology companies are discussing the issue, giving advice and advertising their wares – especially relating to digital technology.
Optimistically, the WEF says: “Many companies are looking to turn crisis into opportunity by making supply chains more reliable and resilient. Digital mastery of supply chain technologies has been an important discussion point over the years but is now a requirement for success.”
Innovation and collaboration needed to make transformation work
One thing is clear. While digital technology is a key factor in improving and greening supply chains, the only way to make this work is to adopt an innovation mindset. This means rethinking everything, including your processes and business model. It also means learning to collaborate more closely with partners – including competitors, potentially - and suppliers.
It also means collaborating with the firms in your supply chain, the smaller companies and startups that are critical to the value you create and that can also provide new technology, expertise in developing new solutions developing solutions.
Venturebright helps businesses collaborate and create ‘innovation ecosystems’. Much of our work here has been focused on helping companies generate new revenues and maintain a competitive edge. But the lessons learned over many years are equally appropriate for dealing with the more existential challenges, as described above.
In this optimistic vein, it’s interesting to see how many manufacturers are intending to tackle their supply chain challenges. Equally, the majority of firms see the value of collaborative innovation – but many are holding back for fear of failure or distraction from their day-to-day business. This is born out in recent surveys, as follows:
Bullet-proofing supply chains is a priority for manufacturers in 2022
Strengthening supply chains is a priority for nearly two thirds (64%) of manufacturing companies, according to new research from Digital Catapult, the UK Government’s agency for advanced digital technology.
In the survey published in January, manufacturers also set out their aims for the year, as digital tech emerges as an answer to supply chain issues. Manufacturing leaders said that multiple supply chain crises were the chief reason why they need to innovate their business models in 2022, while over half (51%) said that building more data-driven supply chains was the greatest opportunity to make their organisation more resilient and sustainable.
The results were collated as 2021 came to a close – a year which exposed shortcomings in global supply chains and the wide-reaching impact of continuous supply disruption rose to the fore.
Survey respondents also said their primary motives for implementing digital innovation initiatives across their companies included reducing operational costs (57%), growing their business (54%), and becoming more competitive (51%).
DigitalCatapult: technology investment priorities for manufacturers in 2022
Another Digital Catapult survey carried out among board level directors in 100 UK manufacturing companies last November found the cloud, predictive analytics and Internet of Things were priority technologies for investment in 2022, while emerging industrial technology applications such as immersive (augmented/virtual reality) and Digital Twins sit in the top 10:
Cloud – 67%
IoT – 61%
Predictive Analytics – 61%
Robotics – 56%
AI – 54%
5G – 54%
Blockchain – 51%
Digital Twins – 48 %
Additive Manufacturing – 46%
VR/AR – 44%
Firms value collaborative innovation yet are fearful to commit
Meanwhile, collaborative innovation with start-ups and scale-ups is also on the agenda for manufacturers, according to another recent Digital Catapult survey.
This research revealed that manufacturers want to make collaboration part of their business strategies. Of the 100 executives surveyed, 82% said they believed this will accelerate their digital transformation plans and allow them to experiment with new technologies.
Respondents admitted that startups could give them access to creativity and skills they currently lack in-house. Almost three quarters of respondents (73%) said that collaborating with startups is part of their long-term business strategy.
Commenting on the survey, Digital Catapult CEO Jeremy Silver said: “As the impact of the pandemic continues to disrupt supply chains around the world…manufacturing leaders are looking to find new ways to weather the storm and at the same time keep pace with the speed of digital technology development, which is increasing competition globally.”
Fear of failure, no time and lack of tech skills hold companies back
Yet despite this large number of companies looking favourably on working with startups, only a quarter of them claimed it was a priority during the next 12 months. Many said this was due to a fear of failure, and a lack of time.
When it comes to digital transformation more generally, a third listed risk of business disruption as a barrier. Digital Catapult’s analysis was that, while external problems such as the pandemic show little sign of easing, the research exposes how risk-averse manufacturers could miss out on key opportunities to innovate and absorb lessons from the more agile startup community.
Digital Catapult concluded: “Many manufacturing heavyweights are not making collaboration with innovative early-stage companies a priority in the next year, despite recognising the potential benefits. Our survey suggests that there is a danger that UK companies will miss out on the opportunity to be early adopters of new technologies, and learn from startups’ creativity, innovation and agility.”
Companies already struggle with the digital transformation challenge
Perhaps it’s not surprising that companies are so averse to the risk of disruption, as so many are already struggling with digital transformation.
For example, consultancy Cap Gemini’s latest Digital Transformation Review published in 2019 found only 39% of organisations globally have the digital skills required. Cap Gemini found that other hurdles to digital transformation include a lack of clear leadership vision, internal disagreements, cyber security issues, and a lack of a corporate digital culture.
Put simply, many companies feel they are too busy floundering around with existing digital challenges for them to focus on much else. Hence the demand for them to transform their supply chains is an extra burden.
McKinsey survey: 93% of companies aim to boost supply chain resilience
Meanwhile, global consultancy Mckinsey has also reported a strong appetite among companies to tackle supply chain issues that were highlighted by the pandemic.
In mid 2020, the firm surveyed 60 supply chain executives in different industries and geographies, asking them about the impact of the pandemic on their operations and their future plans to make supply chains far more flexible and agile. In an insight article in July 2020, wrote: “The coronavirus pandemic’s unprecedented tests are inspiring companies to consider bold moves in rebuilding their supply chains for the future.”
Around 93% of survey respondents said they intended to increase the level of resilience across their supply chain, according toMcKinsey. The means for doing so included using a variety of mechanisms including dual sourcing of raw materials, increasing their inventories of critical products and, to a lesser extent, by near-shoring, dual-sourcing, or regionalising their supply chains.
Most respondents said the pandemic had revealed weaknesses in their supply chains that they’re now working to address.For example, 73% had problems in their supplier base, and 75% had problems with production and distribution. In the food and consumer-goods industries, 100% of respondents had experienced production and distribution problems, and 91% had problems with suppliers.
However, possibly echoing the earlier CapGemini observations on the lack of in-house tech skills, McKinsey found that the majority – 85% - of respondents had struggled with inefficient digital technologies in their supply chains.
How can we improve business supply chains in the longer term?
Digital technology and collaborative innovation are the essential tools to help overcome the complex challenges involved. When it comes to supply chain innovation, we generally mean improvements in the way that supply chains operate, and more specifically, in the way that products, data, and funds flow throughout supply chains.
Data Insights Companies have to look to new technology to help them leverage data and make sense of economic indicators. Analytics will be a key element, which must be applied strategically – projecting likely outcomes, as well as understanding historical trends and events.
Extend supply chain visibility This is essential, and must extend beyond tier one suppliers, all the way down through the tiers of the entire supply network. Acquiring this degree of detail is the only way to gain a true picture of possible future bottlenecks and risks.
Maintain supply chain flexibility to mitigate risk Companies must also be able to take action, reassigning orders or re-mapping shipping routes, as needed, to keep inventory moving, routed to the most optimal location. Platforms that link trading partners via common processes and shared data can provide enhanced ability to predict and reduce risk.
Collaborative innovation Working alongside industry and customer partners and suppliers to create information flow and data sharing will go a long way to providing greater visibility in supply chains, while collaborating with agile and innovative technology firms and start-ups can lead to breakthroughs in the development and application of new technology solutions.
At Venturebright, we can assist your company evolve an innovation-led approach to building solutions to the supply chain crisis. For an informal discussion as to how we can help, please feel free to contact us.