Volatility will continue to be the watchword for supply chain operations in 2023. Supply chain managers are redesigning processes and increasing digital controls to enhance flexibility and manage risk while keeping costs low in the face of inflation, uncertain consumer demand, labor shortages, disrupted logistics, and extreme weather. As they evolve, supply chain trends for 2023 range from rethinking supplier relationships to rerouting commodities to adjusting digital strategy.
14 Supply Chain Trends to Know in 2023
Supply chain stress is at an all-time high – significantly higher, for instance during the 2008 global financial crisis.
The outlines of a more robust supply chain model — one that can tolerate volatility as a permanent state — have begun to appear, and supply chain executives will fill in the gaps in the next year. Some lists of trends that will be in or out of favor in this key year include globalization and just-in-time operations in the “out” column, while others are hesitant to reject these long-standing practices entirely. Nonetheless, trends in the “in” column overwhelmingly favor agility over running lean operations — but not at any cost.
Volatility has clearly increased the importance of monitoring, assessing, and adjusting opportunities and risks across the whole supply chain. What else can we anticipate?
1. Sustainability. As people face more weather-related damage to their communities and interruptions to the supply chains on which they rely, environmental sustainability challenges and extreme weather, such as hurricanes and wildfires, will keep them in the public view in the future. Climate experts and policymakers are increasing their calls on businesses to decrease their supply chain contributions to global warming while also adapting their supply chains to survive catastrophic weather events.
The case for sustainable supply chains is more compelling than ever. Beyond goodwill, firms have tended to rationalize their sustainability efforts as brand-building exercises to appeal to customers’ sensitivities, become more desirable employers, and meet investors’ environmental, social, and governance (ESG) norms. These concerned stakeholders are increasing in number and range from business partners to lenders.
Supply chain regulation results in two digital mandates. The reporting data required for compliance will necessitate increasing insight into supply chain sustainability – well beyond Tier 1 supply partners and into Tier 2 and beyond. And, in order to meet objectives for enhanced supply chain resilience in the face of catastrophic weather events, better analytics will be required to identify variable risks and achieve supply chain agility.
2. Supply Chain Agility. Almost all 2023 supply chain trends are aligned with the Uber trend of agility. Decades of driving toward leaner supply chains to cut costs eventually caught many companies off guard as volatility increased during the pandemic and beyond. Times have changed — so much so that the very reference model for supply chain operations recently underwent its most significant update in over 25 years, with a new emphasis on digitization.
Agility circa 2023 is embodied in new physical and digital models, especially those that are modular, micro, and composable, as in:
– Micro supply chains
– Micro warehousing and fulfillment
3. Localized Supplies. To avoid single points of failure, many firms are expanding into single-source, single-region methods that rely on two or more suppliers from many areas. As a result of this change, particularly with Asian suppliers establishing factories in Mexico, some American companies are purchasing components closer to home and performing final assembly in the United States.
The year 2023 will reveal how far and how quickly firms will rebalance their onshore, near-shore, and offshore sourcing. Companies may be hesitant to localize a supply chain if it requires a large upfront investment, greater labor expenses, or the construction of a new supplier network from scratch. Meanwhile, with transportation congestion projected to ease in the coming year and maritime freight prices falling from record highs, some of the immediate impetus to localize may be relieved. Notably, even if a corporation and its suppliers are not global, there is frequently residual global risk to manage from suppliers’ suppliers on far-flung coasts.
4. Increased Inventory Reserves. Recent supply chain pressures, like the trend of localizing commodities, resulted in inventory stockpiling. However, economic estimates for 2023 indicate that businesses such as retail may confront a glut of inventory paired with a likely drop in consumer spending owing to inflation. As a result, businesses will pay particular attention to their inventory reserves as a critical financial mechanism for anticipating the percentage of inventory that will not be sold.
Inventory reserves, whether for raw materials or completed items, are forward-looking and fluid expenses applied to the cost of goods on a balance sheet (as opposed to write-offs, which are only done after the fact). The better managers can project the percentage of goods that will never move by factoring in historical inventory patterns and current market conditions, the more accurately they can calculate inventory reserves and roll them up into net inventory — all of which is critical to understanding a company’s net worth and future revenue opportunities.
These and other inventory factors make inventory management software a more valuable tool for businesses to stay current and responsive.
5. Flexible Contract Integrations. Volatility is a nightmare for supply chains that rely on large, long-term fixed-price contracts to save money on volume. New model contracts attempt to assist the success of both the supplier and the customer in more fluid partnerships by allowing purchasers to split orders into smaller blocks and change orders if the market evolves. Buyers and suppliers, who face many of the same volatility challenges, are also putting additional contingencies, such as inflation clauses, into contracts.
It is certainly not easy for businesses to accomplish this flexibility while also broadening their supplier base to avoid single sources of supply chain failure. This is why, in 2023, contract management will be more important than ever, relying on digital supply chain strategies that collect data from IT and operational technology systems to provide greater insight for managing increasing complexity.
6. Increased Ecommerce. Following an enormous spike in online buying early in the pandemic, B2C e-commerce continued to grow in the run-up to 2023. Which will triumph in the coming year: consumers’ newly ingrained online habits or their renewed yearning for “real life” in-store shopping, travel, and entertainment? Or will inflation dampen overall consumer spending?
Consumer behavior uncertainty will keep supply chain managers on their toes. To be sure, there are questions about sales volume, but also about preferences such as in-store shopping, internet marketplaces, direct-to-consumer (D2C) sales and subscriptions, quick delivery of online purchases, BOPIS, and online/in-store returns. Customer expectations for hassle-free returns, for example, place strain on retailers’ abilities to manage reverse logistics in the supply chain.
Meanwhile, with B2B marketplace sales surging in the early 2020s, B2B is poised to become a larger e-commerce industry. This sea change will increasingly encompass B2B marketplace purchases of the real raw materials and components that go into final products, rather than just office supplies and other requirements for running a firm. Both suppliers and buyers stand to benefit, but they must also handle big changes in their digital supply chains.
7. Customer-Centricity. As consumers become more digitally linked to brands, supply chains play an increasingly crucial role in customer experience (CX). It’s striking that, these days, it seems like every customer and business wants to know where their purchase is in the supply chain with the click of a link.
The D2C model is one to keep an eye on in 2023. Online D2C brands were among the greatest winners in the CX race in the early 2020s. Unlike the previously described B2B shift toward more marketplaces, this B2C model tries to avoid online marketplaces to connect clients more directly, employing a hyper-focused, customer-first approach that frequently relies on subscriptions and social media marketing. D2C brands amass a wealth of client information. However, as e-commerce and social development stagnate, many of these firms are increasingly diversifying channels, even as more traditional brands attempt to incorporate D2C tactics into their own omnichannel strategy.
8. Customization. Customer demand for more options and customization appears to be increasing. However, supplying such product variety in 2023 may necessitate new supply chain models as well as considerable attention to cost and complexity, especially given that supply systems are already under tremendous strain in the current context.
Mass customization, which combines mass production with personalization to create distinctive products on a reasonably big scale but at a reasonable cost, is one option for meeting this need. In this situation, technology enablers such as 3D printing could play a role in customizing a product near the conclusion of production.
Another approach asks for the creation of micro supply chains, as previously discussed, to maximize the handling of customized orders while minimizing the impact on core supply chain segments. Order processing could also be automated.
9. Internet of Things (IoT). The increasing adoption of new higher-speed, lower-latency wireless technologies — from ubiquitous 5G cellular to in-building Wi-Fi 6 and 7 — is powering billions of additional IoT connections, and the supply chain is a key beneficiary. 5G will continue to extend cloud-based networks’ capabilities with sensors and edge computing to gather and process data on operations and logistics closer to the source, in collaboration with other wide-area wireless networks and in-building networks. Gartner expects that by 2025, intelligent edge ecosystems will be used to make 25% of supply chain decisions.
Applications range from drones and robotics to gadgets that can track the creation of a packaged food product, for example, from sourcing ingredients to manufacturing, shipping, and retail sales, all while monitoring environmental and social factors.
10. Cloud-Based Solutions. According to an annual poll by MHI, a supply chain industry trade association, the cloud is currently the main platform for most supply chain software, with a 40% adoption rate in 2022 and expected to reach 86% in 2027.
Cloud computing is providing the groundwork for a number of supply chain advances. Mesh technology, for example, enables the gathering and combining of data from numerous supply chain systems to generate a “digital twin,” a virtual counterpart that can be utilized to aid decision-making and intelligent operations orchestration. In practice, inventory data, for example, might be coupled with transport timetables and allotted transport vehicles to avoid stockouts.
At another level, the cloud enables supply chain managers to access vital information from wherever they happen to be – not insignificant in what is frequently a 24-hour business. Businesses can also benefit from a rising number of cloud-based software-as-a-service (SaaS) offerings, such as packaging solutions that allow customers to compare freight forwarders and manage storage.
11. Advanced Automation. According to surveys, supply chain leaders are aiming to automate employing everything from warehouse robots to artificial intelligence (AI) in the back office. The goal is to transition from automated to autonomous supply chain operations, which Capgemini defines as “an integrated, frictionless, and customer-centric supply chain function that delivers cognitive, touchless operations and transparent data-driven decision-making.”
Autonomous operations are the polar opposite of manual processes relying on siloed information transmitted via email, which can also delay supply chains and hamper adaptability in the face of crises. Using just-in-time rules and algorithms, for example, an advanced order management platform can help aggregate and stage shipments. And autonomous equipment, such as drones, will enhance formerly manual-intensive jobs by working autonomously and in networks.
12. Increased Visibility. A supply chain control tower enables cross-functional teams to formulate an orchestrated response to what is observed, increasingly by applying AI-suggested decisions to this “single source of truth,” which is enabled by data analytics, collaboration platforms, and other digital tools fed with metrics, key performance indicators, and controls.
In practice, these two models could help answer simple problems like what to do when cargo is delayed. However, scenario planning may be their ultimate manifestation. All the moving pieces, from buildings to raw materials to finished goods to customers, are integrated and recombined with an eye toward possible occurrences, variables, and intended outcomes to generate various methods to satisfy customer expectations at the lowest feasible cost. A virtual stress test, for example, might determine whether facilities and operations are suitable for the holiday season.
However, there is still a significant obstacle to overcome before realizing the full potential of digital twins and control towers. According to research, most organizations still have a long way to go in terms of obtaining supply chain visibility, particularly beyond Tier 1 suppliers through their suppliers’ suppliers and on down the line to the next tier and the next. And this is the root cause of many supply chain breakdowns.
13. Improved Forecasting. Greater visibility will continue to hone organizations’ demand forecasting skills. In a rapidly changing world, traditional forecasting methodologies based on previous sales data cannot accurately predict supply and demand. From sales to supplier lead times, delivery schedules, warehouse availability, and storage costs, every input to supply chain planning is vulnerable to wider, more rapid swings nowadays.
A more advanced demand forecasting model is aimed to create projections over the long, medium, and short term and to respond to continuous swings by combining increased visibility and advanced analytics. Companies that can monitor internal and external demand signals to create more frequent projections, for example, can cut production on a timely basis and minimize inventory write-downs. Advanced demand forecasting can even improve responses to minor changes in demand, such as a little change in the weather or additional ad placement.
14. AI and Machine Learning. If agility is the driving factor behind supply chain developments in 2023, AI and machine learning will be the enablers. AI is anticipated to grow the quickest over the next five years of any advanced technology evaluated in the MHI annual poll, with only 15% of respondents using it currently and rising to 73% over the next five years.
Experts warn that even organizations that have already invested in AI have yet to achieve their full potential. According to a BCG analysis, they’ve mostly used AI’s predictive powers to forecast demand for planning purposes, but in the next years, supply teams will grow to trust AI’s autonomous decision-making capabilities, giving AI a wider role in supply chain operations.
Across geographies, channels, and climates, supply chain managers face a kaleidoscope of possibly concurrent disruptions at all levels of the supply chain, from demand to supply and out to their suppliers’ suppliers. Without assistance, no supply chain team can keep track of all potential inefficiencies and fault lines, let alone take effective action in a timely manner.
AI, on the other hand, may learn from previous decisions made by the team, correlate data across departments, and recommend actions for comparable scenarios. It can then continuously analyze the generated data to make recurring decisions that optimize performance and provide recommendations to improve the supply chain, much of which takes place increasingly autonomously over time.
Get Ahead of Supply Chain Trends with NetSuite
Finally, supply chain agility is determined by the visibility of data and the ability to understand and act on it. NetSuite supply chain management solutions meet these important needs, allowing businesses to monitor and optimize the movement of goods from suppliers through manufacturing and into the hands of customers. They are an important part of NetSuite ERP, an all-in-one cloud business management solution that automates fundamental activities and provides visibility into operational and financial performance.
2023 will continue to put supply chain managers to the test, with ongoing volatility likely to cause concurrent disruptions at many levels of supply and demand. Data and the judgments made from it will decide the agility to adapt, recover, and remain resilient in this climate.
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