The Ferrari Consulting and Research Group thru its affiliate, the Supply Chain Matters blog continues with a series of market education blogs focusing on what has occurred in 2021, and what industry supply chain management teams should expect in 2022 and beyond.
In the initial blog published in this series, we highlighted global economic forecasts and how they portend added uncertainties over the coming two years. We now reassess the themes of 2021 and what readers should anticipate in their planning, investment and actions in 2022.
Looking Back-Summary Themes of 2020 and 2021
In summarizing the performance of industry supply chains in the year 2020, when the COVID-19 pandemic initially impacted global economies and businesses, we noted in our research advisories that the Covid-19 pandemic tested the resiliency, ingenuity and resourcefulness of supply chains when it counted most. One of the most valuable learnings of 2020 was the value and dedication of people in supporting supply chain customer fulfillment needs.
As the year 2021 draws to a close, industry supply chains have experienced a constant struggle in attempting to respond to overwhelming product demands, component shortfalls, explosive inbound materials cost increases and continuous global transportation disruptions. They have been brought about not only by the persistent and recurring spread of Covid-19 infections globally, but also significant storms and natural disasters, a one-week blockage of one of world’s most transited shipping canals, followed by complete disarray among global shipping schedules.
As we post these perspectives in the first week of December, over 100 container ships remain queued across the Pacific Ocean seeking to be processed by the major U.S. West Coast ports of Los Angeles and Long Beach. According to Wabtec Port Optimizer, the average wait time for ships had reached 20.8 days, reinforcing beliefs that overall U.S. port congestion will likely take several additional months to clear.
While 2020 was depicted as supply chain’s finest hour, 2021 will likely be depicted as supply chain’s succumbing to multiple outside in and inside-out challenges all occurring simultaneously. Rather than the year 2020 being the extraordinary outlier that tested the limits of business, the year 2021 provided the catalyst for exposing pre-pandemic risk exposures related to global based outsourcing, global transportation stakeholder conflicts and the need for added skills-based training and retention needs among multiple businesses.
This year provided added meaning to how critical supply chain performance can be to global and domestic economies, and to direct impacts to overall business performance. Not a week passed without some supply chain related headline garnering general media headlines.
Global populations and consumers now have a deeper understanding of the strategic importance and reliance of supply chain capabilities, not only as a basis for providing needed goods and services on a timely basis but also on impacts to sustainability and social responsibility needs across the globe.
Our 2021 predictions published last January called for an overall theme of Renewal, manifested by New Thinking, Definition and Directions for what is required in a “new normal” of business.
What 2021 has turned out to be was an extreme test of the added risk exposures that globalization and existing supply chain complexity have brought to the fore. The vulnerabilities and lack of synchronization among global and domestic inter-modal transportation and logistics movements has been a painful learning that will garner private industry and governmental regulation attention. The notions of “new normal” became brutally clear, and likely extreme.
While some industry supply chain management leaders may seek to, once again, categorize 2021 as an extreme outlier, that, from our lens, would not be wise.
It is rather a call to action from a number of dimensions.
Our Predictions Themes for 2022
The basis of our Ferrari Consulting and Research Group 2022 Predictions for Industry and Global Supply Chains are that the theme of renewal will instead shift toward to one of Reexamination.
The supply chain challenges that occurred in 2021 are not going away and will linger well into 2022 and in some areas, such as global and domestic transportation disruptions, semiconductor component shortages, and explosive cost increases will likely spill over to 2023.
Elements of high uncertainty remain, especially in the potential emergence of new Covid-19 variants such as the Omicron variant. As we highlighted in our review of economic forecasts for 2022 and 2023, global GDP growth is expected to peak in 2021, and gradually decline in 2022 and 2023.
There are growing concerns relative to building inflation or higher interest rates among economies which will weigh in on investment decisions. Thus, C-Suite discussions will center on whether to take a conservative, aggressive or risk balanced stance in needed investments and transformational needs. Supply chain leaders will and should be part of such discussions. Management and broader business education remains essential.
Global economists and policy groups reinforce that economic expansion remains dependent on far broader availability of effective vaccines that can buffer severe illness and reduce the overall levels of added new variant Covid infections among the broadest global populations. A lot more effort among nations are dependent on concerted actions among advanced and developing nations.
The mission for businesses and their supply chain teams is 2022 and beyond will be in seeking ways to restore enhanced agility, resiliency and reduced risk factors across supply chain mission critical processes. More actively addressing enhanced digital and physical multi-tier information visibility, workforce shortages, and supply chain transformational needs are the agenda, and as such, should draw more active sponsorship and visibility of C-Suite executives.
True to form, crisis provides opportunities for accelerating transformational needs, specifically abilities to leverage a digital backbone of capabilities supported by appropriate technologies. Digitally native companies continue to disrupt the competitive stakes among specific industries. They were better prepared to quickly adapt to needs for teams having to work from home and access operational systems for essential data gathering and decision-making. There is now building evidence that companies that began investing in elements of supply chain digital transformation prior to the pandemic, fared better in abilities to pivot business models than organizations that did not.
An added concern to note are added challenges for small and medium businesses who do not have the clout, resources, influence or leverage of larger online retailers and global manufacturers in mitigating various risk factors including inflationary inbound materials and services cost increases. Not many companies have the where with all to be able to own their own shipping containers and charter container ships to move inventory. For these companies and businesses, added nurturing of domestic or nearshored supply networks is the agenda, as is affordable and flexible technology deployment.
Specific Business Process Areas
Strategic and Tactical Materials and Production Sourcing
Our belief is that businesses and supply chain teams will reexamine existing sourcing strategies toward restoring more direct control of component and production sourcing better aligned to servicing key regions of product demand. This will likely require a re-look at multi-tiered supply network strategies and practices.
Efforts will likely include defensive moves in assuring reliable supply of key components such as semiconductor devices, electronics components, raw materials and packaging needs. Similar to practices that occur in high tech supply networks, primary manufacturers can elect to take on more direct control of longer-term supply contracting of deemed strategic components, even though these components may be consumed by contracted suppliers or manufacturing services providers. This was the principal vulnerability of global automotive manufacturers in 2021 when available semiconductor capacity was contracted away to other industries in mid and late 2020 prompting production cutbacks of finished autos and trucks.
There are already actions by some companies in acquiring key supplier capabilities or in assessing options in moving outsourced production or services to more direct in-house control. These are signs of revisiting forms of vertical integration, but more weighted toward supply network risk mitigation or avoidance. Such moves may be interim term tactical or longer-term. Reliable supply of key commodities which is often planned in a tactical lens will thus likely take on more strategic dimensions.
A further consideration is in weighting the probabilities that in all likelihood, government actions for what are described as hybrid forms of industrial or supply network sourcing policies, aligned to national security needs, now becoming part of policy and legislation. These efforts are already percolating within the European Union, the United States and Canada. China already practices forms of governmental industrial policy. They have surfaced with the realization that supplies of need critical drugs, medicines and personal protective medical supplies had a heavy reliance on Asia based producers, and not readily available during recent global-wide medical emergencies. They have since been expanded to domestic sourcing considerations for semiconductor devices, critical electronic components, lithium-ion batteries, solar collection or other forms of alternative energy supply components. The Biden Administration and European Union are each making moves in this direction.
Businesses have come to understand that past business strategies that drove “asset light” notions of logistics and transportation services needs have been exposed in the context of risk and needs for added flexibilities and responsiveness. Industry leaders are already embarking in reexamining these areas with either broader use of digital exchanges, Cloud based logistics, transportation visibility and tracking platforms. Some firms will elect to invest or expand their own trucking fleets or chartered transportation contracting. With carriers handsomely profiting from the transportation disruptions of 2021, businesses will seek options that will reduce costs and better control on-time reliability needs.
Six Critical Process Transformational Areas
- We predict that six critical processes areas, will collectively take on increased focus in 2022:
- More connected, concurrent and context aware planning processes augmented by enhanced analytics and machine-learning technologies.
- Enhanced multi-tier supply network visibility and trust in physical on the ground and digital simulation dimensions.
- Augmented speed, agility and predictiveness of overall decision-making
- Better synchronization of supply chain execution, logistics and customer fulfillment processes especially for online customer fulfillment needs.
- To address ongoing worker shortage and enhanced skill needs, we anticipate enhanced automation deployments in targeted areas, especially business process knowledge automation, manufacturing, logistics and supply operational enhancement areas.
- Supply chain sustainability along with corporate social responsibility will be presented with more accelerated timetable needs in the light of the pandemic and the cumulative effects of the global-wide pandemic. These areas will take on elevated dimensions related to customer, investor and brand perspectives.
An added dimension for 2022 is addressing needs for recruiting and retaining supply chain talent and for overcoming the existing “great resignation” wave.
Talent gaps already existed prior to the pandemic in supply chain planning and operational dimensions and talent shortages are far more obvious. This is about recognizing people for the contributions they provide and will require addressing specific areas of compensation, added benefits and the training needs required to sustain new, more digitally driven business process capabilities. Rather than a warehouse, truck driver or planner shortage, it is characterized as a talent appreciation and career fulfilment gap.
We anticipate that supply chain leaders will lobby for accelerated investment in automation for select, routine business processes involving planning or operational execution processes. However, no technology is in itself a panacea, and there must be a tolerance for the ability people to adapt and embrace for transformational change to occur. The context is the coexistence of people and technology working together in enhanced processes, added speed and decision-making.
Sustainability and CSR Initiatives
The recently concluded United Nations COP 26 climate Change Summit involving more than 190 nations added a new urgency in accelerating the movement toward elimination of the burning of all fossil fuels and accelerating efforts to reduce direct and indirect global greenhouse gas emissions levels 50 percent by the year 2030. We have long advocated that supply chain sustainability efforts are components of business continuity and sustainability itself.
With global supply chains accounting for upwards of 80 percent of global GHG emissions, there are added imperatives for industry supply chains and companies big and small to now reexamine existing practices in the light of expected tougher pollution policies globally, especially in areas of transportation, logistics and overall energy consumption. There is also a reality that technologies required to facilitate a net-zero economy are as yet not commercially viable. Hence, added investments and resource attention will have to be funneled in this area.
In this same area, corporate social responsibility (CSR) practices as applied to existing global sourcing strategies are increasingly being examined by corporate boards, investors and consumers in the favoring of brands and their commitments toward such goals. Governments have become more attuned to corporate social responsibility and labor exploitation needs and the emergence of added legislation and oversight is a real possibility.
Thus are the themes that business, industry and global supply chain teams will tackle in the coming year (s). They will obviously not be a slam dunk and require coordinated efforts across businesses, services and trading partners.
In the same vein, crisis is indeed the recipe for opportunity in driving more lasting business change for transformation and in mastering new markets and services opportunities.
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