What are the key challenges for supply chains in 2021?

What are the key macroeconomic factors?

We are seeing five macro trends that are impacting supply chains in Ireland:

COVID-19 and its impact on the local and global economy

Recent vaccine announcements have boosted optimism for a recovery in 2021. However, even if parts of the economy do recover to previous levels over the coming months, other segments and sectors may see their business models changed permanently. Navigating supply and demand planning in this uncertain environment will be a key challenge for businesses in 2021.

The rise of economic nationalism and the future relationship with China

Perceptions have shifted on globalism and international trade. Over the next few years we may see a fall in the reliance on China for general components and finished products, and a rise in its importance as an export market. In addition, we are likely to see China make considerable progress in reducing its own dependence on imported technologies for high-value industries.

Brexit

Regardless of whether the year concludes with or without a Brexit deal, from 2021 goods moving between Europe and the UK or via the GB landbridge will be subject to customs control – this will likely lead to delays at UK ports. If they haven’t done so already, Irish importers and exporters will need to prepare for customs formalities and reconfigure their supply chains to meet these challenges.

A focus on sustainability

Businesses are being challenged on all fronts to tackle practices that have a negative impact on our environment. Consumers, activists and governments are influencing changes in sourcing strategies, carbon emitting operations and the use of plastic materials in packaging. As a result, sustainability is becoming a competitive domain for all businesses.

The increasing significance of inequality

Increasing levels of inequality will come under more scrutiny, which will be amplified by perceptions of the economic recovery from COVID-19. Supply chains that are built on cheap temporary labour, offshoring, and exploitative contracts will become targets for public and legislative scrutiny.

How are supply chains being impacted by these factors?

These macro factors are impacting all facets of business, with supply chains not being exempt. We recently conducted a global digital operations survey of over 1,600 C-suite and operations executives to understand how they’re managing their supply chains. We found that the most effective companies - "digital champions" - have invested in technology and are using it to drive performance across a connected supply chain.

Based on our analysis of the survey findings and the wider context we are seeing, our view is that organisations need to prioritise the following:

Map the flow of goods flows and identify fragility in your supply chains

It is difficult to predict the challenges that existing supply chain flows will face in 2021 as COVID-19 continues to unfold and governments evolve their global trade strategies around national interests. If companies want to minimise risk and ensure that they are in a position to take advantage of new opportunities, they need to have a very clear understanding of the flow of materials in their supply chains, and be able to respond quickly by switching sources of supply and by targeting new markets as those risks and opportunities arise.

Increasingly we are seeing companies broaden and enhance their third-party risk assessment processes and procedures to more proactively assess and mitigate risks across their supply chains. Continental, the global automotive parts producer, for example, has set out its ‘Fast Forward 2030’ vision of an autonomous supply network. Key technologies being developed by Continental include physical sensors and geofencing to drive touchless material flow and asset tracking, and the concept of a ‘digital twin’ to enable the company to quickly and proactively identify whether material supply failures could cause bottlenecks.

Work to improve visibility across the supply chain

Given the increasing levels of uncertainty in the supply chain, visibility will become the number one requirement for effective management. Having a clear understanding of the location and status of inventory, the movement of stock, and an accurate view of customer demand will become a basic requirement. 

A raft of new digital tools are emerging that can be deployed to drive increased transparency across the end to end supply chain - including not only your own company’s operations, but also your key suppliers, customers, distribution partners etc. Key to this, however, is the development of a ‘digital mindset’. Bayer AG’s Crop Science division has focussed on promoting exactly this. Crop Science promotes openness, a curiosity about new ways of working and collaborating, and trust in the accuracy of the data and appropriateness of the algorithms. This mindset is key to the development of advanced data analytics and AI tools that help employees in many different roles make more informed, objective and fast decisions. Machine learning and AI, for example, help the company proactively sense demand - a must in a very volatile business with long lead times in production.

Implement contingency plans for Brexit

After more than four years of political wrangling, Brexit is happening. The time for companies to implement their plans is now, not when a potential crisis is already upon them.

Interestingly, since the vote, we have seen an increasing number of companies using Brexit as an opportunity to reassess their supply chain models. Key to any such an assessment, however, is supply chain transparency. As the post-Brexit reality emerges in 2021, businesses trading with or via the United Kingdom will be able to adapt to the challenge if they have grasped and acted on the foregoing priorities of mapping the flow of goods, identifying fragility and ensuring visibility across their supply chains.

The world is becoming increasingly changeable. There are significant headwinds impacting businesses across all sectors. The opportunity for supply chains in general and supply chain functions in particular is to become drivers of positive change in organisations, rather than be seen as an underinvested service function. No company will be able to respond to the economic challenges in the world without a supply chain that is responsive and flexible.