Short-term noise

Change happens continuously through our lives, but most is not important and we absorb the changes into what we do. Sometimes a change is heralded as a ‘new’ way, but there is insufficient momentum for change, so enthusiasm dies and things return to the old way. For example, during the Covid pandemic, many retailers and manufacturers changed from a ‘just-in-time’ requirement of receiving finished products and supply items as needed, to a ‘just-in-case’ strategy of building inventories to avoid a loss in sales. As inventories have mostly returned to pre-pandemic levels, there are indications of a return to the cost based ‘just in time’ process, even as supply risks continue to increase.

But there are underlying events that when combined can become trends, which evolve over a number of years into themes, influencing the lives of people and the supply chains that support them. The three themes likely to have the most influence towards 2030 are climate change, geopolitics and technology. But how nations, companies and communities respond to these trends will differ, so the cumulative outcome is unknown, but will emerge.

Your organisation’s Supply Chains Network Design must therefore have Uncertainty built in, through using ranges and probabilities and identifying Complexity (internal & external), Constraints and Variability associated with supply chains, suppliers and items. Design also requires realism concerning the speed of change. Think about the time it takes to build the case for an investment, receive approvals, order and receive whatever is required, employ and train staff, plan, implement and ‘go live’. It also requires supply chain professionals to be aware of events that can influence trends and themes and have plans built from scenarios, to enable a response.

Three themes

Climate Change will require a global and economy wide transformation in the system of production and consumption and the supply of goods and services (especially in the areas of food and energy). The actions required are much more than just reducing carbon emissions or even committing to net zero emissions, then continuing life as we currently know it.

For supply chain professionals, Climate Change requires an understanding of how your organisation impacts the whole system and what is required to make each supply chain Sustainable. It also requires countries and businesses to identify the value of natural and social systems that support the needs of economies.

Climate Change is already creating challenges for supply chains. In 2023, major rivers used for commerce have been restricted, due to either flooding or shallowing. The Panama Canal is restricting use due to severe drought and will require U$2b for a temporary improvement! And the northern artic shipping route is becoming more viable, due to ice melt. Expect more of the same in the coming years, as heatwaves, droughts, floods and fires provide an increasing volatile situation for transport schedules.

For an organisation, Mitigation and Adaptation actions for addressing Climate Change were discussed in the previous blogpost. For supply chains and products, it is likely that a company’s Supply Chains group (Procurement, Operations Planning and Logistics) will be that part of the business which provides Environment, Social and Governance (ESG) information to regulators. Commencing in the EU and with companies that supply into the EU market, the information provided will disclose an organisation’s environmental situation surrounding each product, its packaging and supply chain.

Geopolitics is having an increasing influence on global supply chains. An increase in Authoritarian governments, Populism among politicians and Protectionism in economies could have a detrimental influence on global supply chains. Using terms such as national security, competitiveness and resilience, governments can (and have) indicated that they wish to influence a reconfiguration of what they see as critical supply chains.

An example is incentives for electric vehicle (EV) battery manufacture and vehicle assembly Asian countries. Also, the expansion of Chinese EV production, with new factories in Thailand, South Korea, Mexico and Hungary viewed by some as a threat to the future of established brands (but the same concerns were voiced when Japanese cars first entered international markets).

At the recent COP28 meeting, 56 governments agreed to make EVs the “most affordable, accessible, and attractive option for emerging markets in all regions by 2030”. They will provide international assistance covering finance, technical expertise and development of supply chains. Who will produce these vehicles, where will they be made and from which suppliers?

Conflicts between countries are currently affecting some supply chains, especially in bulk commodities. This may highlight dependencies on particular countries or suppliers, which can provide reasons for developing alternative suppliers. However, no country is without supply chain risks, so strategies designed to reduce current supply risks can create new challenges.

Technology is currently focussed on Digitalisation, which includes the Industrial Internet of Things (IIoT), edge computing, robotics, and artificial intelligence (AI). But currently the spotlight is on AI, a technology that carries an enormous amount of hype. In a Gartner survey, nearly 70 percent of senior executives believed the benefits of GenAI outweigh the risks “despite limited understanding of precise generative AI applicability and risks”. Is this a worry?

In circumstances like this, the personal cost of doing nothing is too high, so do something. For the Supply Chains group, identify potential improvements that may have been implemented through the traditional process. Examples where the data is defined and less prone to error are: supplier and buyer contracts and contractual compliance; customer fulfillment decisions; route planning and truck fill.

The time taken will allow consideration of your organisation’s supply chains IT that incorporate AI tools. What improvements could be achieved and how will they impact the supply chains? The selection process, governance and organisation requirements. Define ‘clean data’ and how it is achieved.

Importantly, recognise that machine learning (ML) within AI is probabilistic – it does not behave consistently and learns as additional information and data is provided to identify a projected probability of accuracy. AI is therefore not ‘reliable’. However, in English common law, computers are assumed to be ‘reliable’, unless proven otherwise. But because ML algorithms are modified as the system learns, how can AI be shown to be not reliable? The court cases will be interesting.

Cybersecurity has become a big risks for supply chains. Responsibility for cybersecurity within their own operations and that of their suppliers will be required of Supply Chain managers. To achieve this, it is likely that ‘trust architecture’ (as used by banks) will require verification from anyone trying to connect to the system.

Design your organisation’s Supply Chains strategy using the three themes that are likely to influence supply chains through to 2030 and beyond. This provides a focus that short-term trends do not.