Businesses Rethink Supply Chain Practices In Light Of Pandemic-Related Challenges
The pandemic has pushed global supply chains to extremes, driven by continued uncertainty and high customer expectations. A survey of 1,300 supply chain professionals by Gartner’s Supply Chain Practice found that as a result of the stressors the past year has put them under, 87 percent plan investments in supply chain resiliency within the next two years.
However, while there is a recognized need for greater resiliency within the supply chain, costs are a priority. Chief supply chain officers (CSCOs) are challenged to find a new balance between resiliency, cost-efficiency and fulfilling increasing customer demands.
Gartner defines resilience as the ability to adapt to structural changes by modifying supply chain strategies, products and technologies, and agility as the ability to sense and respond to unanticipated changes in demand or supply quickly and reliably, without sacrificing cost or quality.
“Supply chain executives overwhelmingly recognize the necessity to make their networks more resilient and agile,” says Geraint John, vice president analyst with the Gartner Supply Chain practice. “At the same time, 60 percent admit that their supply chains have not been designed for resilience, but cost-efficiency. The challenge will be to create an operating model for supply chains that combines the best of both worlds and also delivers supreme customer service.”
Three-quarters of respondents believe that the additional costs caused by the investments in resilience and agility will be covered by the supply chain budget.
“In practice, the concrete investments will likely be a series of activities ranging from incremental projects in small firms to transformative capital investments by global industry leaders,” adds John. “We see that many organizations are investing in diversifying their supply base and redesigning products to mitigate risk. More collaborative relationships with key customers and suppliers is also a priority for almost all respondents.”
High tech, health care and pharmaceutical organizations report that national interests will have increased influence over future supply chain decisions. This does not only refer to imminent national needs, such as vaccines and personal protective equipment, but is also a result of ongoing issues, such as the U.S.-China trade war or Brexit. At the same time, 45 percent of survey respondents think that their customers favor low pricing over domestic sourcing and production—particularly in industries with ferocious price competition, such as retail and fashion. Cost differentials and cost-efficiency will remain key considerations for these supply chains—as for others—when evaluating any redesign of their operational networks. Almost half of survey respondents see lean methodologies, just-in-time systems and low-cost country sourcing as relevant to future strategies.
Gartner says that only 30 percent of those it surveyed report that they are shifting from a global to a more regionalized supply chain model. The high level of integration in global supply chains, the regulatory burden of moving already established supply chains to a different location and the concentration of key suppliers in certain geographies make it difficult to completely regionalize a supply chain network. It also notes that high labor costs and a shortage of skilled manufacturing workers have long been an argument against domestic production in developed Western economies.
Automation as the key to domestic manufacturing, Gartner notes, advanced robotics and other automation technologies provide opportunities to overcome this constraint. Fifty-six percent of survey respondents think that automation will enable them to make onshore manufacturing economically viable.
John says, “Ultimately, the right balance between investments in resilience and agility, and cost-optimization depends on each organization’s individual circumstances, including their financial strength, market position, appetite for risk and external factors such as regulatory requirements or supply chain constraints. If CSCOs choose their investments wisely, they can expect to see positive results as soon as the next disruption.”