Supply Chain Trends 2021 reaffirm that Sourcing remains an important area of focus, while Sustainability and Supplier Relationships make their entrance into the ranking.
Over the last 18 months, the global pandemic has severely shaken markets and disrupted supply-chains worldwide.
Although there are no doubt still challenges (freight rates, commodity prices and Covid outbreaks), the uncertainty in markets has to an extent abated and supply chain professionals are starting a new phase of planning.
The latest report from the American Productivity and Quality Center (“APQC”), “Supply Chain Management Priorities and Challenges” sets out some interesting data on the impact of Covid-19 on the global supply chain. APQC interviewed over 450 global companies across many industries such as Retail, Automotive, Consumer Goods, Industrial and more. As expected, the pandemic significantly impacted 95 percent of organizations’ supply chains. In addition, over 70 percent of supply chains missed some or all of their business goals for 2020. However, even more interesting are the forecasts for the future and the potential opportunities.
Supply Chain areas of focus 2021
Considering the unprecedented challenges faced by supply chains over the past 18 months, what is next? Where does the focus need to be?
The participants showed a clear interest in ‘Supply Chain planning’ (81%). ‘Sourcing and Procurement’ resulted as a key focus, scoring second in the ranking of the future areas of focus (79%). But what are the priorities related to sourcing and procurement for 2021 on the back of the Pandemic?
Sourcing and Procurement
The Pandemic has certainly disrupted supply chains (and continues to with freight rates). In addition, it has impacted the businesses’ ability to trade in the majority of cases. For example, retailers have had their stores being forcibly closed through lockdowns. The Sourcing function continues to become increasingly a strategic (rather than operational) function of any company.
The catastrophic impact of the pandemic on companies is certainly a determining factor in the first position of “reducing costs” (35%) – although a common theme for many buyers – as margin growth or profit generation are increasingly important. With the additional costs of freight and commodity costs, there will likely be push back from suppliers back down the supply chain with the Consumer/end-user ultimately having to pay a higher price into the second half of 2021.
This represents a shift from 2020 when the survey had automation and digitization as the top result, which has likely fallen off the list of priorities given there are other more pressing matters to focus on – business survival as a start!
Also, ‘sustainable sourcing’ (34%) has risen to the top of the survey’s results when it was not even mentioned previously. This further suggests that sustainable sourcing is a key trend that will continue to grow in importance and certainly will not be temporary.
It is good to see that ‘improve collaboration and communication with suppliers’ (34%) also features highly. This recognizes the importance of strategic relationships with suppliers that are often only seen as transactional.
Supplier Relationship Management (SRM)
These results support the view that identifying the right suppliers is of strategic importance to organizations. Too often, suppliers are seen as transactional players in any supply chain, when in fact they are strategic partners and, in some cases, transformational. Whether it is product design, innovation, commercial terms, exclusivity or capacity (to name a few examples), suppliers can drive significant value to your business. In a nutshell, the more aligned companies and suppliers will be, the more beneficial it will be for both. Strategic relationships can also provide valuable support during periods of uncertainty, making the business more resilient.
It is therefore key to implement effective supplier relationship management. Although the reduction of supplier costs is a top priority for organizations, looking at a medium-term horizon by empowering your suppliers (and not beating them up on price) will undoubtedly drive more value over a longer period of time.
The constraints of the current business environment make it tempting for organizations to take drastic steps to reduce costs, but they should not sacrifice relationships and collaboration with key suppliers.
The crises of the last year have shown that organizations must work closely with their key suppliers to mitigate risk and quickly address unexpected situations that arise. Through collaboration and stronger relationships, they can identify weaknesses and create solutions that are mutually beneficial.
Top Trends impacting the Supply Chain by 2023
The respondents listed two key trends that will impact the supply chain over the next two years. There were Robotic Process Automation (RPA) and Sustainability.
Robotics Process Automation (RPA)
RPA is broadly the use of metaphorical “software robots” as part of a business process automation or the implementation of artificial intelligence to carry out tasks instead of humans. By automating repetitive tasks and reducing human involvement in transactional work, the potential for errors decreases significantly. In addition, this type of technology improves productivity and efficiency by enabling employees to spend time on more value-added activities.
Sustainability
In the pre-pandemic era, the respondents’ focus was almost exclusively related to technology and driving efficiencies through their supply chain. It appears that post Covid-19 other themes emerged and one of them being the prominence of ‘Sustainable Sourcing’.
An increasing number of companies and organizations worldwide feel the urgency of focusing more and more on environmental, social and corporate governance (ESG) factors, which make up the second trend anticipated to impact supply chains.
This is an aspect not to underestimate, considering that it will impact also the companies’ sourcing strategies. Certainly, sustainability-related subjects and issues will influence how companies identify and evaluate potential new suppliers and monitor existing suppliers.
Interestingly, the prioritization of sustainable sourcing is not perceived as just a reaction to media, consumer, and regulatory pressure. It is more and more evident that sustainable sourcing provides tangible benefits in terms of speed, efficiency, and risk mitigation. For this reason, procurement will need to include ESG in its strategic plans to carefully consider and coordinate all interactions with suppliers and reach their sustainability goals.
Supply Chain Trends – Summary
Of course, the Pandemic has brought some aspects of companies’ supply chains into focus. Supplier relationships are central to driving value through your supply chain. A shift away from transactional to more strategic (collaborative) relationships will support a company’s growth targets.
At ET2C, we look to provide our clients with insights across our manufacturing base. We understand your needs, and are well placed to address your needs. For more information, please contact us at contact@et2cint.com.
