Restrictions, Interruptions and Disruptions

It is a waste of effort to think of trends in supply chains that your organisation could apply in 2025. Headlines about restrictions, interruptions and disruptions to supply chains, caused by humans and nature, are likely to gain more attention from senior management. Instead, think about actions that better positions your organisation’s response to possible events.

Geopolitical issues are likely to increase. It has been identified that to date in 2024, there have been more than 3000 regulations enacted by governments that are likely to affect trade flows. Increased tensions will centre around tariffs, with most comments focussed on possible action by America. Equally unknown is the possible retaliatory positions that may be taken by affected countries.

Also, more powerful countries could attempt to influence the flow of trade between countries that are politically or economically aligned with their position. But this pressure may cause some countries to review their trade flows and act to reduce import dependence on particular suppliers and supplying locations. The effects on supply chains of all potential actions are an unknown, but it is likely to be disruptive, which requires increased flexibility in businesses operations.

Climate Change will not go away. Targets set to achieve net-zero carbon emissions and limit temperature increase will not be met, so the associated risks can only increase. The outcomes from the recent global COP and plastic waste reduction meetings showed a continual lack of will for change by governments and industries, that could affect their short-term GDP or profits. This attitude is unlikely to change in the near future, but it may after 2030, as the effects of Climate Change become more severe.

However, today’s business profits can be affected by Climate Change. For example, the transport industry contributes more than 20 percent of global emissions and road transport accounts for more than 70 percent of those emissions (from the Intergovernmental Panel on Climate Change). So, action has been taken by some governments to promote the use of electric vehicles (EVs) – modern battery electric vehicles came to notice around 2010. Fifteen years later, the automotive industry is receiving media attention about its future structure.

Although EVs are expected to have a global market share of 16 percent in 2024, in major markets the share will be approximately 29 percent in China, 22 percent in Europe and 13 percent in the US. Future EV purchases will be more likely driven by the total cost of ownership (TCO), rather than regulations and subsidies. The TCO decision is assisted by competitive vehicles from Chinese manufacturers, with an estimated cost advantage of 25-30 percent against their global competitors, which need to change their business model and cost structure.

As the market share of EVs increases, the value added assigned to digital connectivity and driver assistance technology in EVs will continue to grow. This reduces the value added of non-battery components, even those required in internal combustion engine (ICE) vehicles, such as exhausts, fuel pumps and transmissions. This is a known risk for non-battery suppliers which, to be awarded future supply contracts, will be required to reduce margins and therefore profits, unless they improve operations through their supply chains.

So, the automotive industry and its supply chains will change, as will supply chains for CPG and FMCG discussed in the previous blogpost. Changes could also happen in the supply chains of your industry, for reasons that may not have been evident in 2024. However, in the past, change has tended to occur over an extended period – major changes have taken about 15 years to become the ‘new way’. However, changes may happen at a quicker rate, as pressure increases towards 2030 for adapting to the realities posed by Climate Change.

Simplify your Core supply chains

Uncertainty is the term used to denote many of the possible disruptions to an organisation’s Supply Chains, caused by:

• Complexity: built into processes
• Variability: in the patterns of demand and supply
• Constraints: limitations in the Flows of items, money, transactions and information moving through an organisation’s supply chains

A major role of the Supply Chains group (Procurement, Operations Planning and Logistics) is to reduce Uncertainty and influence of the three elements, of which Complexity can be the most challenging.

An organisation’s Supply Chains Network is a complex, non-linear system that adapts and organizes itself, without a single entity managing or controlling. While improvements to the Network can emerge over time, for a business, 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, However, instead of attempting to manage Complexity with more software ‘solutions’, it is preferable (and possibly easier) to remove Complexity.

Complexity in supply chains is generated by external requirements (e.g. customs procedures) and internal systems and procedures – “the way we do things around here”, so complexity can creep over time into your organisation’s Core supply chains. Some businesses recognise the challenges of internal complexity:

“…there is a propensity to believe that ‘more is more’: more analysis, more information, more documentation, more iteration of papers, more sign-offs, more meetings, more policies, more frameworks, more ’stuff’…Many employees resign themselves to complexity as the natural state of affairs and their response to that complexity is often to wrap more complexity around it – potentially adding risk in the process”. Australian CEO annual report 2019: 

Reducing Complexity in a business can be a big project, which implies all the challenges of project management. Instead, do not blow the trumpet, but quietly commence the process by training all staff within the Supply Chains group in the simplification approach. This states: ‘if it were not for what, could this (process step/event/action) be eliminated’? Not a difficult question to remember and one that can also be asked by managers and supervisors as part of ‘management by walking around’ (MBWA). The initial ‘wins’ will provide encouragement for a more structured approach to simplification of the Core supply chains.

When it comes to IT, work to improve the use of what you have. Look for inter-operability between applications rather than integration. Be careful of large digital projects, in particular Artificial Intelligence (AI), as the technology is at the height of its hype cycle. As Lora Cecere has written “Instead of assuming that AI will ‘solve’ the complexities in your supply chains, put the effort into simplifying the planning and scheduling of your organisation’s Core supply chains. Focus on workflow, process and people…”.

To our readers: It is summer holiday time in Australia, so Learn About Logistics is taking a break. The next blogpost will be published on Monday January 27, 2025. Thank you for reading LAL and our best wishes to you for the future.