Edition 115, September 2021

The Post Pandemic Agile Supply Chain

By Ujwala Patil & Alex “AJ” Cheesman, NTT Data

Agile supply chains in the post-pandemic world are going to be dramatically different, and changing more quickly, than the ones we knew before COVID-19. Government driven investments, public and private focus onESG related matters and a volatile global political environment will be some of the significant factors that influence this evolution.

The pandemic highlighted various risks that factor into making and breaking supply chain agility. We’ll look at some of the major risks which, if considered beforehand, will limit disruption, and pave the way to a seamless supply chain. With proper measures in place, impact to the supply chain and subsequently customers can be lowered if not avoided. In the paragraphs below, we will discuss the factors that will be the most impactful over the next 6 to 12 months.

REVERSE LOGISTICS AND THE CIRCULAR SUPPLY CHAIN
With the rise of sustainability, new aspects of the supply chain continue to grow in importance. The terms “Reverse Logistics” and “Circular Supply Chain” are now commonplace. The unique aspects of the current economic and political environments are facilitating change on a macro scale. They are the perfect storm for companies to update and improve their supply chains. Reverse logistics functionality, and working towards a circular supply chain model, mark a shift in the supply chain world - from saving money, boosting the economy, and growing business value to reducing pressure on the environment in a financially responsible way.

Businesses can capitalize on the moral arguments, consumer demand, and governmental focus in the push towards sustainability. Therefore, companies that can lead the way in sustainable practices (and properly market these practices) will be able to grow their market share via an early-mover advantage. While Reverse Logistics capabilities are not easy or economical to implement, new software offerings are continuously being developed as these functionalities grow in popularity thus making them easier to get started. Now is the best time to begin the implementation of a reverse logistics division, as laggards are likely to struggle to survive.

Circular supply chains are a different consideration. These will take longer to develop as a true circular supply chain will require substantial development and planning from a wider array of stakeholders.  Product development, engineering, and others will need to work together to develop products and the supporting competencies required to enable a true circular supply chain.

CHIP SHORTAGES
As established companies continue to struggle to meet the pandemic-induced spike in demand, competition the pandemic-induced spike in demand, competition from places like the US, EU, and Japan, is reappearing. Government-led microchip manufacturing investments across the world will include focuses on green manufacturing, clean sourcing, and material reuse. Nearshoring manufacturing capabilities will enable many ESG factors in more developed regions. Less transportation, a clearer understanding of the inputs, and a chance to develop new networks will be key to the implementation of ESG factors and making the industry all the better for it.

A focus of the microchip industry will be developing next-generation circular supply chains. The rate of change of these chips continues to increase, shortening the useful life of the individual chip. As the customer demands better and faster chips, manufacturers have more incentive than ever to design processes to reclaim, recycle, and reuse the chips of a previous generation. The chance to reduce input costs, gain favor in the public eye, and help the planet with one action is too good of an opportunity for forward thinking to pass up.

POLITICAL RISK
From the breaking of old norms to the re-forging of partnerships, the trade environment has never been more volatile than is it today. Businesses and the public are becoming more involved with these discussions to a degree that the world has not yet experienced. Political rhetoric has led to many changes in global trade dynamics, and also provided opportunities to invest and improve upon the infrastructure that has allowed shortages and inflation to be the defining term of the beginning of the end of the pandemic.

The US-China trade war is a prime example of many of the points raised above. The willingness by the US Federal government to confront such a power partner and competitor provides a perfect launching point for public and private firms to reconsider their supply chains, particularly related to social and environmental concerns. The resulting investments can be designed around a new set of thinking, enabling such functionality as proper circular supply chains and reverse logistics.

In the other direction from the US, there have been equally impactful changes in Europe as well. Thanks to Brexit, companies on both sides of the ordeal can use these changes as an opportunity to continue developing their next-generation supply chains.

TECHNOLOGICAL ADVANCES
The pandemic has brought with it a spike in supply chain IT spend. The entire world was caught flat-footed by the pandemic, causing many companies to realize just how inflexible and disconnected their supply chains are. This realization has spurred a new focus on updating, improving, or even implementing for the first time, systems that have the potential to bring about cost savings, realize new efficiencies, and increase a company’s cybersecurity.  

This spend is leading to new functionalities and capabilities across supply chains that increase customer service levels, as information can be used to make better decisions and connectivity carries messages to different actors faster than ever before. Enabling functionalities such as reverse logistics, circular supply chains, and environmentally sustainable supply chains will show customers how focused on building a better future that the seller is and thus drive demand for their products – a self-fulfilling cycle.  

LOGISTICAL RISK
One highlight of the pandemic-induced turmoil was the reliance of companies on their key suppliers and the lack of connectivity between their operations. Due to these interruptions, Tier 1, 2, and 3 suppliers were unable to keep up with demand which led to disruptions, product shortages/stockouts, and commodity price increases. It is worth noting how no commodities were unaffected by this price increase.

Companies may be able to manage this risk by diversifying their supplier base. Effective supplier management entails maintaining segmented supplier data, supplier pricing analysis, and open lines of communication. Strong strategic freight and logistical partnerships are key to maintain shorter transit times, thus ensuring continuity in a supply chain and customer experiences.  

During the pandemic, inventory-to-sales ratios have fallen due to increased consumer demand as buying habits shifted from experiences to goods. Implementing strategies for inventory performance and excellence will be helpful to minimize these inventory disruptions. Technological advancement enables companies to improve their transportation technology capabilities. An interconnected supply chain with Freight claims management, TMS, proper documentation along with technology safety procedures like tamper-proof seals, satellite tracking will be effective in the long run.  

PRICING RISK
As volatility continues to integrate itself into the post-pandemic market, companies should apply a renewed focus on pricing management. A proper price management infrastructure enables new insight to better track and manage these fluctuations. Models should be built for all spend categories, from supplier costs to commodities - between May 2020 and May 2021, commodity prices rose by 19%. Companies should consider SO&P or IBP systems, focusing on more developed systems to realize the most benefit. These systems, along with internal process optimization measures, alternate sourcing, and good supplier relationships create flexibility and avoid discrepancies. In short, proper cost analysis and pricing models should be applied to a company’s entire supply chain.

Price increases in the US due to the ongoing labor shortages, as well as global price pressures due to raw material shortages, will have an inflationary effect for the near future. The expanded federal unemployment benefits are scheduled to wrap up in September, and there are already several states that have pulled out of this program. Removing this “competition” from the lower end of the labor market will see many lower-skilled resources return to the workforce. Additionally, the continued rollout of vaccines in the US will enable societal normalization, reducing other concerns such as childcare needs.  

3RD PARTY RISK
Recent trends have seen companies engaging and relying on a network of third-party vendors, suppliers, software developers, etc. While outsourcing different portions of your business can make sense, it exponentially increases the amount of risk that you and your company are taking on. During this pandemic, companies in every part of the world dealt with elevated levels of third-party risk as vendors claimed force majeure, were victims of cybersecurity attacks, struggled with counterfeit goods and pirated components, and had an obvious strain on customer relationships, just to name a few.

Having a Lifecycle management framework/tool and strong governance will be useful to mitigate these risks. Regardless of the business domain, a strong working knowledge of effective third-party risk management is an asset. Embedding third-party risk management practices across the organization will reduce overall risk for companies.

ESG  
ESG continues developing as a strong focus of the C-suite and the supply chain because of its constant impact on companies. These programs are not cheap or quick to implement and take careful planning and consideration. However, the benefits of all aspects of ESG programs are starting to be realized by forward-thinking organizations.  

The benefits are felt in the workplace and the marketplace. More diverse workforces are providing improved results and investors rewarding ESG-focused companies on the open market. Firms that responded to the pandemic by focusing on long-term goals, rather than prioritizing short-term profit at all costs are also seeing financial benefits.

FINAL WORD
The pandemic has forced companies to reevaluate their supply chain risk, steering them towards supply chain digitalization. Firms were shown their supply chain vulnerabilities and will look to make their supply chain more resilient and agile. As the world emerges from this pandemic, supply chain leaders must be willing and able to revisit preconceived notions and allow their leadership and organization to evolve with the times. Stagnation or the “old normal” simply will not suffice again.
 
Sources:
https://fred.stlouisfed.org/graph/?g=EKIy

 


Ujwala Patil & Alex “AJ” Cheesman
Ujwala Patil As a Consulting Manager in the Supply Chain Transformation Office at NTT Data Services, Ujwala has always been passionate within the area of Supply Chain and has predominantly worked for Retailers in their Supply Chain or PMO office. She holds an MBA in Supply Chain Management from the Daniels College of Business, University of Denver. Alex “AJ” Cheesman As a Consulting Manager in the Supply Chain Transformation Practice, Alex has experience in supply chain and logistics with a core background in designing and implementing complex warehouse management systems. Separately, he has in depth PMO and implementation management experience, with a detailed understanding of Change Management. Process design and improvement are similarly areas of strength for AJ, this includes processes related to and outside of the warehouse and order management spaces. He also has experience in order management strategy, labor management systems, systems integration, logistics, and SQL work for companies as they work to modernize their supply chains and update systems and processes.