Uncertainty in 2025
Much has been written and spoken about possible scenarios for business and supply chains in 2025. But the impression of outcomes gained from commentators’ articles is ‘don’t know’. This is an unsettling view to rely on when considering improvements to the operations of your organisation’s supply chains.
An outcome of ‘don’t know’ implies heightened uncertainty, with difficulty to predict where change may come from, its severity on supply chains and duration, and therefore an increased level of risk. Deciding which projects to pursue and implement to improve your organisation’s supply chains becomes more difficult, which does not imply to ‘do nothing’, but it does require serious consideration of options.
An option to improve your organisation’s supply chains
An option that appears to be favoured by technology companies selling ‘solutions’, is for your business to invest in a ‘blue sky’ project that may provide potentially high returns and with a project name that includes words like ‘digitalisation’, ‘integration’ and ‘transformation’. But these projects have unknown ‘gotchas’ and limited confidence in the timeline to completion, which does not induce confidence under uncertainty.
An example is AI systems to aid in recognising and adapting a business to changes in customer and consumer markets. However, as each organisation within a supply chain responds to change in its own way, without any central directive, the time for an organisation’s supply chains to adapt is typically more than 12 months. Therefore, will the time for your business to adapt to a change in markets actually be reduced through implementing a technology ‘solution’? The answer is ‘don’t know’!
Another myth that IT application providers promote is that ‘accurate’ forecasts calculated from lots of data provide ‘better’ decisions. However, in an uncertain business environment, a single number forecast is likely to be wrong. But they are useful even when wrong. The value at the tactical level is not in accuracy but in encouraging interest groups (marketing, operations and finance) to co-operate. They can identify a range of optimistic and pessimistic forecasts, with their probabilities; then use these forecasts to consider scenarios and potential actions in response to what might occur. This is part of Sales and Operations Planning (S&OP).
The term ‘data driven decisions’ drives these types of ideas that are promoted by the technology sector and some consultancies. Their argument is that these decisions eliminate the human input factor, so only the data needs to justify the action.
However, a truth that we learn through experience is that a business and the organisation of its supply chains are not governed by economics or reason, but by sociology and psychology, in which the characteristics of human behaviour do not change. While humans are social beings that interact within groups, it is rare to find (especially as a business becomes larger) a cohesive business with internal harmony that makes rational decisions based on data. Instead, as individuals work to build their status and relationships, group decisions are influenced by aspects of culture, power, opinions, biases and imagination or conformity.
In the promotion of ‘data driven decisions’, it is assumed that it addresses decisions at all levels. While this is an incorrect assumption, where can decisions be data driven? It is for short-term operational decisions, where a business should respond quickly to changes in market demands, such as fast fashion and cargo booking. At this level, a business can use digital models and analytics for evaluating interests and orders placed on-line; ‘cloud’ based communications with suppliers and customers and sensors to gather data for reporting and analysing performance.
But ‘data driven’ is not the approach for strategic and tactical decisions, as it does not identify the knowledge about connections, nor the ‘noise’ (or data with no value) between the data points. Using AI at these decision levels could be detrimental to your business and is best left to others to be the pioneers! However, ensure that as supply chain professionals you remain current with developments in the technology space, and so be ready to argue a case and to plan possible future implementations.
Importantly in this age of instant ‘news’, is to separate ‘noise’ from data and always check for the source of speculations, because accuracy usually becomes worse the further away from the source. For example, although there have been many articles and commentary concerning changes in international trade, there is no conclusive evidence that globalisation is decreasing nor that global supply chains are increasingly fragile.
Global trade is changing – to and from different places, while onshoring, reshoring, nearshoring of operations and supply are happening. But not in all companies or countries, nor at the same speed. Global trade did not reduce when import tariffs were levied in 2018 by America and China – it was reallocated, but not reduced. Although some commentators state that global trade is under threat, published figures can question this assumption. For example, Clarkson’s Research notes that shipbuilding in 2024 was the highest since 2007. with the container ship sector the biggest spender; so shipowners have a different view of risk.
Position Organisations for Uncertainty
Positioning a business requires building knowledge about your organisation’s supply chains. This is to enable an assessment of the geopolitical trends and patterns that may affect your organisation’s suppliers and supply markets, and the cost-effectiveness of supply chain operations.
Start building knowledge by Mapping your organisation’s supply chains. This exercise identifies where the materials, components and products purchased by your organisation originate, and which of them could be affected by changes in geopolitical relationships between countries. Collecting the data to build knowledge (which initially will be incomplete) enables you to identify the potential geopolitical changes that could have the largest effect on your organisation’s supply chains. Potential scenarios can then be modelled, and used as a basis for decisions concerning actions, all of which contain risks.
A ‘blue sky’ investment is but one option. At the other end of the scale is to achieve incremental gains in productivity through ‘working smarter’. As discussed in the previous blogpost, “it is within the Core supply chains (between the Tier 1 customers and Tier 1 suppliers) where a visible reduction in Complexity can be realised”… “instead of attempting to manage Complexity with more software ‘solutions’, it is preferable (and possibly easier) to remove Complexity… put the effort into simplifying the planning and scheduling of your organisation’s Core supply chains. Focus on workflow, process and people…”. This will be the focus for Learn About Logistics blogposts in 2025.
