Opinion: The supply chain disaster is actually good news – for these 3 reasons

So what ? Then we can direct our attention to solving these problems. Here is how we can do it.

Move from cost-optimized supply chains to regional networks

Obtaining goods from Asia is difficult these days. It doesn’t matter what container ships are waiting to enter the Los Angeles and Long Beach ports, or the truckers queuing for containers to be unloaded in the yard. Tariffs and continued manufacturing shutdowns for government power rationing have added costs and uncertainty to shipments from China. Countries in South Asia have struggled to fill the void as waves of workers have been infected with COVID.

Tracing back to Deloitte’s 2016 Manufacturing Competitiveness Index, the growing importance of technology was expected to shift manufacturing from low-labor-cost countries to sites with a resource-savvy workforce. digital. COVID has accelerated digital adoption.

COVID has also rewarded companies with alternatives integrated into their supply networks. Air travel was an expensive substitute for water, as one U.S. company learned in 2021 when it needed to obtain fiberglass bath walls from manufacturing sites in Asia to build and renovate customers in the United States. United States. Mexico and its digital skills to support manufacturing in the United States and Canada have allowed it to restructure its production to supply the market in the Americas while keeping costs in line. It also switched to a range of land and sea transport options to optimize alternatives for finishing, packaging and storing products.

Going forward, expect companies to rely more on suppliers in neighboring low-cost countries and explore shorter, more flexible transportation options as they seek to reduce both risk. and costs.

Companies are also changing the way they work together. Aviat Networks
AVNW,
-3.45%,
a communications technology company, has subcontracted its manufacturing to a supplier on several continents. Over the past few years, this flexible partnership has enabled supply movement in response to extreme weather conditions, tariff imposition and labor supply dynamics.

Expect buyers and suppliers to increasingly partner up through physical and digital expertise to serve markets more transparently, moving away from low-cost, high-volume procurement contracts. with restrictive conditions.

Another advantage of moving from low-cost suppliers to regional partner networks is that it is environmentally friendly. Yale Climate Connections reported in August that international shipping is responsible for 3% of the world’s greenhouse gases, more than airplanes. Shifts to regional supply networks allow companies to switch between trucks, rail and shorter shipping.

With up to 85% of a company’s environmental impact in its supply chain, companies are responding to investor interest in ESG by tracking the impact of their suppliers and customers as part of their environmental posture. Logitech International
LOGI,
-0.73%

CONNECTION,
-0.51%
announced on September 9 that he was adopting a positive approach to the climate, by addressing its carbon footprint across their entire value chain, including indirect emissions. The goal is to achieve carbon neutrality this year, to put the company on the path to net zero emissions by 2030, and beyond, to be positive for the climate.

Companies improve supply chain oversight

In March 2020, Accenture reported that 71% of companies surveyed did not have contingency plans for business operations beyond three weeks. It took a global pandemic to show us the issues with tightly-tuned connections across our global manufacturing infrastructure.

Our integrated and cost-optimized supply chains have worked so well that managing these business-critical activities could be two levels below that of the CEO and well out of sight of the boardroom.

The supply chain drama and business disruption of the pandemic has shown boards of directors that understanding the supply chain is integral to overseeing business risk. Boards have started to include supply chain expertise as well as cybersecurity and digital transformation into their modern hiring matrices. Audit and risk committees integrate the supply chain into their review cycles.

But a board’s oversight of the supply chain is more than reducing the risk for transforming goods from production components to customer value. Supply chains offer valuable business information, from a company’s profitability levers to the needs of its customers.

As options for sensors, cameras, and IoT data become more available, integrative supply chain information about a business goes beyond management’s functional Key Performance Indicators (KPIs). With increasingly granular, transparent and timely information on the cost elements of serving different customer segments, the board’s compensation and human capital committees will examine how to encourage rapid communication in the areas of sales, marketing, production and logistics of a company, as well as performance incentives within them. . Strategic plan reviews will incorporate data from a company’s supply chain integration, as boards re-examine the implications on topics ranging from technology to talent management.

A wake-up call for consumers

In March 2020, consumers quickly distorted functioning grocery supply chains, piling up toilet paper, non-perishable foods and hand sanitizer. We have created home offices in spare rooms, driving up the price of wood considerably. We learned there were semiconductors in our cars and started to panic about the holiday toy shortages in August.

It’s time for consumers to start realizing that we are distorting the supply chain and are suffering as a result.

Consumer engagement is a powerful force in reshaping supply chains.

Conscious consumerism has joined the lexicon of the fashion industry following the collapse of Rana Plaza in Bangladesh in 2013. Consumer outrage over safety practices and working conditions that have killed more than 1 100 garment workers led to the Alliance for Bangladesh Work Safety (mostly American brands) which reported that half of the 650+ factories had completed all safety measures in five years, with the rest completed at over 80 %. Another 220 brands, mostly European, reported similar results with their monitoring of more than 1,600 factories through the Accord on Fire and Building Safety in Bangladesh.

Beyond the impact on workplace safety and wages, consumer awareness has fueled innovation in the fashion industry and its supply chains. Mainstream retailers have experimented with recycled merchandise, platforms like Tradesy have staked online marketplaces to sell second-hand luxury items, and businesses like Rent the Runway have emerged with high-end clothing ownership alternatives.

COVID-19 has already changed the buying behavior of consumers. It has fueled business innovation in last mile delivery. Will 2022 be the year that we consumers not only get more stuff faster, but wonder how much we really need?

Bets Lillo has held executive positions in operations, finance and strategy at four Fortune 100 companies. She is now an Executive in Residence teaching Global Supply Chain to graduate students at TCU’s Neeley Business School in Fort Worth. , in Texas.