Remember those days 12-18 months ago when we were saying that we’re headed into a new normal? In the thick of the pandemic, waiting for things to reach some sort of equilibrium? Well then what? War in Europe, two months of COVID lockdown in Shanghai, inflation run amok, food scarcity and fuel shortages.
What does the next 12-18 months look like? It’s anybody’s guess. Many experts are saying that we live in unprecedented times. They say there is no way to predict the future as this series of events has not intersected in modern history.
- Recession seems to be on the horizon and central bankers are doing their best to avoid hard landings.
- Energy availability and pricing could swing wildly based on outcomes from the war in Ukraine.
- Agriculture is under threat due to snarls in fertilizer and grain exports.
- Climate events continue to disrupt at an unprecedented rate.
- The number of ransomware attacks have decreased recently, but it might just be that hackers are stretched thin due to the intense cyber war between Ukraine and Russia.
- Even with trillions of dollars of pandemic-related personal savings in place, it might not be enough to keep consumer spending on the move, which could result in an inventory hangover.
Supply chain efforts in the past year have been focused on supply continuity and inflation. These issues are hugely significant, but we may have a case of “target fixation.” We learned at the start of the pandemic that the companies that fared better had built their resiliency and agility strategies some years prior, and they simply accelerated the progress as the pandemic unfolded. Analyzing the complete landscape is more important than ever. This is not the time to hold back on strategies and tactics for building sustainable resilience in our supply networks. We can’t delay our efforts, which include making our supply chains more adaptable.
On the Move
Friend-shoring is how a podcast on the Wall Street Journal describes it. Is this reshoring, nearshoring, offshoring? Well yes, a bit of all, with security at the heart of it. When we asked our chief supply chain officer community about the state of their global locations, 75% said they are making moves. While these are typically smaller in terms of the overall network, it indicates networks are in continuous motion. The network is no longer a set piece to be reviewed every 18 months. When changes are planned, additional selection criteria are coming to the forefront. Leading the list are energy security, availability and pricing, political stability and climatic impacts.
Elephant in the Room
Is there an inventory bubble on the way? Many think so and it’s been a growing topic of conversation with our clients. Blank sailings at Shanghai have left plenty of goods on the beach waiting to move. Things will free up in the coming weeks and the bubble will start to clear out. Retailers have said the holiday season has already begun; this is months earlier than typical, implying an inventory increase. Should we continue to hold traditional inventory performance and targets at the heart of supply chain metrics, or should we be more pragmatic about how we look at them? Think about playing golf — you wouldn’t expect the same score in Scotland during stormy weather as you’d achieve in sunny Florida. Yet that doesn’t mean you can’t win. Leaders and investors might need to accept increased inventory as a normal byproduct of resiliency and adaptability.
The focus of many supply chain executives has been on greenhouse gas (GHG) reduction in recent years. They are right to do so, but we’ve come to a point where we need to recognize that our supply chains need to adapt to the climatic events that are occurring now. Consider the impact on the workforce where the ambient temperature is 32 degrees Celsius and the humidity between 80 and 90%. “Wet-bulb” conditions are a threat to human life, and they were reached on May 1, 2022, in Chennai, India. This is not the first time or location a wet-bulb event had occurred, and they are growing more frequent. Supply chains will need to adapt to these events through greater use of air-conditioning and energy, commuting practices, remote working and employee well-being programs. In some cases, we may need to rethink our sourcing and manufacturing location strategy.
The time has come, the facts are facts. We’re faced with unprecedented changes in our supply networks and a new normal doesn’t seem to be emerging. Resilience was just a buzzword in 2019, but we all know what it means to us now. Over the decades we have been taught to search for the most refined and optimized solutions. But in the face of uncertainty, we need to build sustainable resilience that addresses the most likely scenarios, even though we don’t fully understand them. This may lead to suboptimized outcomes, but it might be the best we can do in the absence of normality.
Wade L. McDaniel
VP Distinguished Advisor
Gartner Supply Chain