May 08, 2023 | Supply Chain Strategy
All businesses, big and small, have dealt with prolonged supply chain disruptions in recent years. Many have resolved to make strategic changes, as is clear from the findings of a March 2023 Economist Impact survey commissioned by GEP.
Nearly 60% of survey respondents believe that their company must make significant changes to effectively manage supply chain challenges in the next 12 months.
Many businesses plan to invest in supply chain technology that can help them ward off potential dangers.
These investments make a lot of sense, considering that disruptions are by no means over. In fact, there is growing uneasiness in supply chains as disruptions are still taking place, says Gary La Point, professor of supply chain practice at Syracuse University’s Whitman School of Management in a new paper by Harvard Business Review (HBR).
So, what can businesses expect going forward? And how can they prepare to deal with imminent dangers?
Here are five threats that could throw your supply chains off track:
Due to the ongoing economic volatility, many businesses have exited the market in the last two years. The situation is not likely to improve considerably in 2023. Fears of a recession aren’t going away. As many as 58% economists think there is more than a 50% chance of a downturn in the next 12 months, according to a survey conducted in February by the National Association of Business Economics (NABE). Input costs, interest rates and energy costs haven’t gone down either. And geopolitical conflicts such as the Russia-Ukraine war continue to pose a tough challenge. Amid the bleak economic and political scenario, supply chain leaders will continuously look for ways to monitor costs.
Lack of visibility is perhaps the biggest threat to supply chains. When there was disruption, this lack of visibility aggravated problems as businesses could neither determine the cause nor take corrective action. Today, businesses must strive to achieve end-to-end supply chain visibility. Additionally, they must look beyond tier 1 suppliers and build direct business relationships with tier 2 and tier 3 suppliers, says Tom Derry, CEO of the Institute for Supply Management in the HBR white paper. They should also set up secondary suppliers as part of a larger strategy to diversify their supplier base.
Economic uncertainty has not merely impacted businesses. It has left a huge impact on customers and their buying behavior. Not surprisingly, businesses have often witnessed — and failed to meet — sudden surges in demand. Accurately forecasting demand is therefore a key challenge for supply chain leaders. If they fail to get it right, they are likely to lose their customers to competition. Additionally, while supply pressures may have eased a bit lately, they can build up any time again. Businesses must stay prepared for possible shortages. To eliminate the possibility of a stockout, they must maintain optimum levels of inventory, especially for critical parts. Up to 25% of respondents in the Economist Impact survey replied that their business is likely to increase inventory and adopt a just-in-case supply chain strategy.
Sustainability reporting has become increasingly stringent across all regions. In the European Union, for example, the Corporate Sustainability Reporting Directive (CSRD) is likely to take effect in January 2024 and impact more than 50,000 companies. In addition to sustainability disclosures around several environmental and social issues, the CSRD has now also mandated independent auditing of sustainability data.
In Germany, the new Supply Chain Due Diligence Act (Lieferkettengesetz) means companies face stiff penalties if they fail to prevent human rights violations in their supply chains. All these regulations have sent a clear signal that businesses can no longer afford to delay action. Given that supply chains account for a major share of business emissions, they have a key role to play in this initiative.
Cyberattacks on the Colonial Pipeline, meat producer JBS and more recently on food giant Dole have shown the vulnerability of supply chains. Multiple entry points in the supply chain have allowed cyber criminals to gain easy entry and access business networks and sensitive data. Companies also find it difficult to determine the responsibility of protecting internal systems within different business functions. Often, different functions engage in a blame game when a supply chain attack occurs.
A constant state of disruption is likely to be the new normal for businesses. To get past these uncertain times and deal effectively with ongoing challenges, they should build supply chains that are agile, resilient as well as sustainable. And to succeed in this endeavor, they need to invest in advanced supply chain technology.
The key for supply chain leaders is to ‘see’ the entire supply chain, detect any deviation in real-time and act proactively to mitigate potential threats.