What is the Future of Supply Chain Management?
What do worldwide disruptions mean for the future of supply chain? Throughout history, there are moments that force change. We witnessed it when the 2011 tsunami struck Japan, pushing supply chain visibility to the forefront of industry conversations. We saw it again in 2017, when component shortages derailed supply chain plans, highlighting the importance of using relevant technology in product roadmaps. The most recent and global (extended) moment has been the COVID-19 crisis.
In a recent Jabil-sponsored survey of 715 supply chain decision-makers across multiple industries, participants listed several supply chain disruption events that have impacted them in the last decade, where COVID-19 came out on top. Other events pale in comparison to the challenges posed by the pandemic.
Which of the following have had an impact on your company's supply chain in the past 10 years? Choose all that apply.
The Future of Supply Chain Management: 3 Predictions
As the novel coronavirus spread internationally, supply chain managers had to think on their feet to intercept the toppling dominoes of problems. When factories shut down indefinitely, workers were locked in quarantine and some geographies closed off, supply chain leaders had to re-evaluate every aspect of the supply chain to keep production from stalling. Some of these adjustments will forever change the future of supply chain management.
1. Businesses Are Not Leaving China
After the novel coronavirus spread, people began wondering if companies would start moving away from China.
"The pandemic has been and will continue to be a major shock to global supply chains and sourcing strategies. It is as if we suddenly lowered the level of the ocean and exposed all kinds of risks and obstructions that were previously hidden from view," economist Willy Shih wrote in a Harvard Business Review article.
COVID-19 created fear that companies may be too reliant on China for everything from the key ingredients used to make cleaning agents to pharmaceuticals and surgical masks to personal protection equipment (PPE). It was alarming when the country shut down; it was terrifying to witness the boundaryless pandemic spread as all countries realized how dependent the globe is on supplies and workers located in China. Several major news outlets have issued articles arguing that businesses will start pulling out of China post-pandemic. But in reality, the issue is more complicated.
Because of the complexity of the modern supply chain, it is unlikely that many companies will make the decision—or even have the capability—to move their supply chains out of China. There's a reason it's called the "world's factory." It plays a crucial part in the global economy.
More than 200 of Fortune 500 companies have a presence in Wuhan—the location of the initial outbreak. Many Western companies have invested decades and billions of dollars in creating supply chains in China. One very telling fact is that as much as 50% of the world's raw printed circuit boards come out of China. There are very few technologies in the world today that do not have a significant portion of each product dependent on supply from China. When you also consider Asia as a whole, the response becomes even more emotive.
Furthermore, as MIT professor Yossi Sheffi points out, "Even companies that base their manufacturing outside China are still dependent on Chinese parts and raw materials. Thus, manufacturers worldwide still rely on Chinese intermediate goods, such as electrical wiring for cars made in Europe and electronic components for mobile phones made in Brazil."
The supply base is too embedded, and there's no infrastructure in place that could support the monumental shift. Even as companies look to lower their dependence, it is unlikely to change fast and may only move significantly from the pressure from government.
2. Assembly Will Become More Regionalized
One of the unique challenges of the pandemic was logistics-related. Between lockdowns, border closures and travel restrictions, some supply chains were at a complete standstill. In fact, 97% of participants in Jabil's survey said they had to make changes to their logistics because of COVID-19.
What changes did your organization make to your logistics as a result of COVID-19? Choose all that apply.
While companies will not be moving out of China, they will likely move their assembly operation closer to the areas the final product is needed. This can be done with much less investment and with greater speed.
The automotive industry initiated this model years ago. They don't assemble cars in one place and ship them; they bring everything together in the region that they're going to deploy the sale. As supply chain managers grapple with COVID-19-induced transportation and delivery problems, they're going to start imitating this approach.
The intricacy of the orchestration, complexity of supply chain and overall costs collide at assembly. Assembling products in a specific region allows companies to take the final product and distribute it into the intended customer base and the population. However, in that case, government control becomes extremely important.
There have been times in history that geographies and governments have been reluctant to support manufacturers' efforts to meet an escalation in worldwide demand without special access to their products. But that's easier to avoid if the full process, from procurement to assembly, doesn't occur within the borders of one country.
3. Supply Chain Isn't a Chain Anymore
I hesitate to use the term "supply chain" anymore. Although it adequately described the process 40 years ago when Keith Oliver first coined the phrase "supply chain management," it now fails to encapsulate the complexity of modern supply chains.
"Chain" evokes the picture of a series of objects linked together in a sequential order. When companies first started building supply chains, they picked the supplier that seemed the most convenient, meaning that the modern supply chain was created mostly by independent singular events, not a series of connected, planned-out thoughts.
As the supply chain has multiplied in complexity, these supply chains have all become tangled together. It's archaic thinking to say that they run singularly; they're more like a web with numerous touchpoints. What I would say is that we're are all trying to architect a supply network.
How to Strategize for the Future of Supply Chain?
Taking this network mindset into account, here are some best practices to approach supply chain strategy for the future:
1. Place More Emphasis on Predictive Analytics
Right now, a lot of people tout the virtues of a fully visible and flexible supply chain. And visibility is very important. It can help you maintain up-to-date knowledge about your inventory and supply chain operations, improve performance and reduce errors. But since it can only show you what has already happened, it simply allows companies to react; visibility alone doesn't enable them to be proactive.
For those who believe visibility is the answer, I will concede with a caveat. After all, predictive intelligence is essentially visibility into the future. It allows us to build answers to problems that are highly probable to occur. Although it diminishes the importance of agility and quick problem-solving, it is a better solution. And it requires a mindset change.
It's incredible to think that the global economy hinged on a product as inexpensive and easy to make as a mask. When COVID-19 spread, the lack of masks endangered millions of lives, slowed global economies and eventually became one of the most attractive short-term markets in the world. Despite the agility of modern supply chains, it was months before we could fully cover the need. And I believe it's easy to predict we will not have such a shortage of masks again.
I get excited about predicting the failure of the supply chain, which forces a behavior where I can change the eventual outcome. When you know what is likely to happen and how it will affect your supply chain network, you can start taking steps to address problems earlier. After all, the most valuable currency in supply chain is time. Or—for that matter—time is the most valuable commodity, period.
Having visibility of today's problems is too late. The goal is to create visibility into the future with predictive modeling of supply networks and be able to get the most effective results and responses based on this modeling and the architecture of the supply network. At all times, we need to be able to evaluate the current situation, and once we're past the crisis, be able to determine how fast we responded and how long it took to recover and thrive. An intelligent digital supply chain (IDSC) solution has to address that problem. Geography and capacity play a factor, but there more considerations.
It is critical to stop looking at the global supply chain as a whole and instead examine the individual nodes of a supply chain. When someone says, "On average, my supply chain is low-risk," they're probably overlooking a node that performs with high volatility and is likely to shut down the low-risk supply chain. A strong IDSC system can identify the nodes that have the biggest risks because of the multiple types of exposure, such as government, other customers, other industries and accompanying risks.
The Internet of Things (IoT) creates a much riskier situation regarding technology. As Jabil scaled production of personal protective equipment (PPE), ventilators, diagnostic tests and more, technology became one of our biggest challenges.
There is a massive gap in the lifecycle of technology and the lifecycle of many other parts and components, especially in healthcare. Think about your phone; you've likely had it less than five years. In fact, on average, people buy a new phone every two years.
On the other hand, historically, the product development cycle for a conservatively managed healthcare company ranged between three to eight years, maybe longer for Class II and III medical devices. That is changing; participants in our 2020 healthcare survey agreed that consumer expectations are pushing for consistent innovation. But still, new versions of healthcare devices aren't popping up with the annual anticipation of a new smartphone.
Supply chain professionals understood product lifecycle is a massive problem, but we did not predict COVID-19. This lack of preparation left companies vulnerable. Now we are sharing the predictive modeling with all our newly IoT-impacted customers.
Supply chain risk management is incredibly important in healthcare. It is no longer true that all change increases risk. In technology, it is more accurate to say risk can only be managed if you integrate technology and the corresponding supply networks into your product lifecycle plan. By using predictability, you can keep your technology roadmaps up-to-date and mitigate risk in the product development process.
Five years ago, if you wanted to pick out problems in advance, you wouldn't have any data set to work from. Supply chain professionals are now working from actuarial science. The curves that they're using for predicting the failure of a supply chain are just like death curves—and in fact, they're called death curves.
There are also some metrics that supply chain managers can measure and learn from during the pandemic. If it wasn't for the global impact of COVID-19, we also wouldn't know the impact of government on how long supply chains take to recover. Until everyone was stung, few companies were gathering that data.
From all the years I've been in supply chain, companies have chased parts, had problems, given their best shot and never ever wrote down what they did. The supply chain continued to be reactionary because people moved on too quickly, thinking that the problem was solved. Until the next crisis.
Now, with the significant changes in how we live and learn and companies like Google and Amazon leading the way, we are realizing that supply chain is not primarily about how well you can react; it's about how predictive you can be. In light of COVID-19, only 17% of our survey participants have rated their predictive supply chain as "excellent." In fact, only 13% even stated that they were fully executing a predictive supply chain risk management program.
The problem is that the language of supply chain software focuses on increasing agility and flexibility...but not predictability. Maybe because you need data to predict. And the bigger and broader the data, the better the solution.
Supply chain professionals need to shift the conversation from how we can best respond to problems to how we can prevent problems from arising in the first place. Predictive supply chain modeling will create faster, less expensive supply chains and—at least in healthcare—it will save lives. Think for a minute about the COVID-19 vaccine. As important as it is to be agile when you don't have a model, I believe the work around virology depends on not simply responding but learning and modeling the change and impact. Supply chain networks will benefit from that same thought process.
2. Increase Investment in Automation
Now, when I was discussing regionalized assembly, you may have been wondering, "Won't that be more expensive?" Potentially.
But assembly does - or soon will - rely on automation. The automation model has been growing since around the '80s, when the automotive industry realized that they had to have a supply base, but they also had to have consumers with jobs and factories in those regions. Automation cut costs. According to Fortune Business Insights, the industrial automation market was estimated to be worth $168.8 billion in 2019 and will be worth $326 billion by 2027.
That doesn't mean that companies will cut their manual workforce. But in exacting tasks that don't require specialized skills or knowledge, multiple industries are exploring and incorporating more automated solutions. For example, retail is using automation to run warehouses, steward data, check for out-of-stocks and more. Think of companies who have people attempting to perform complicated calculations that computers can do more quickly and efficiently. For example, people are trying to plan material requirements when material requirements planning (MRP) has existed for decades. It is far more accurate and efficient than humans doing the order calculations. MRP is automated and leverages accurate, high-level math; it's much better suited to a machine than human calculation.
Moving forward, expect to see some of the common, mundane tasks become digital at a more aggressive rate. The cost of implementing automated solutions will go into using more valuable digital answers to solve problems. For instance, if metrics on the Factory of the Future (FoF) don't include the ability to build digital answers beyond their four walls, then businesses will start to dwindle. Companies must realize they do not exist independently; they are part of a network. And if supply chain is managed intelligently, they are probably replaceable.
Consequently, companies must plan on advancing at the same rate technology does. Make sure the value stream you are managing is most efficient and predictable. Not only for today's environment but—more importantly—for tomorrow's disruptions.
3. Turn Brainpower to Innovation
When our PhDs aren't racking their brains to accomplish a task more well-suited to automation and predictive analytics are preventing problems, they're freed up for strategic development, creative problem-solving and innovation.
When most people think of innovation, they tend to think of a clever gadget or new software. But that kind of thinking leads to the situation we now find ourselves in -- too many tools with too little intentionality and purpose behind them.
"Innovation" doesn't necessarily equal an invention. Seth Mattison, CEO of FutureSight Labs, an organizational design and transformation firm, told The Edge magazine, "Innovation doesn't have to be launching a big new, expensive or risky strategy, product or service. It's looking for new ways to improve small, internal processes. Where could we do this a little differently? Where could this be better?"
The innovation-makers can't just be anyone in the organization. For this role, you need to recruit somebody who lives in the business, knows the data, understands the pain-points and can focus on the most effective metrics to measure and address the issue. So, when you think of recruiting the folks to run your future supply chain network, consider the great negotiators or mathematical PhDs with minors in computer science and automation. Maybe even mix in a visionary dreamer who can help the geniuses see what could be.
Supply chain history has been forever altered by the disruption of COVID-19. The pandemic served as a wake-up call to supply chain professionals as they use these challenging times as an impetus for something much greater: the future of supply chain.
Special Report: Supply Chain Resilience in a Post-Pandemic World
Insights from over 700 supply chain decision-makers at OEMs with more than $500 million in revenue on how they are managing their supply chains in light of COVID-19 and other market dynamics.