It’s no secret that the pandemic exposed vulnerabilities in the supply chain. From the unprecedented consumer demand of toilet paper to the Suez Canal blockage, supply chain issues have had more than their fair share of the global spotlight the last 18 months. Some have focused the blame on a singular issue—the over-dependence on offshore suppliers and the negative impact that has caused when shortages have occurred (for example, the automobile chip shortage).
Reports now show a growing prioritization and record rates of reshoring for North American companies in the wake of recent disruptions as an estimated 83% of North American manufacturers are likely or extremely likely to reshore (up from 54% in March 2020). Besides the pandemic, President Biden’s executive order on American Supply Chain Resilience and similar mandates by other governments are rekindling the discussion on reshoring.
However, significant reshoring is not a practical solution in the short-term as it could take over a decade to undo the level of offshoring for industries like semiconductors and pharmaceuticals given the capital investments and skills ramp required. Besides, growth in China, India, and other parts of Asian will have companies think of building optionality and diversifying sources of supply more than major reshoring. If the pandemic has taught us anything, it’s the importance of flexibility and agility in the supply chain. Although reducing offshore supply is one valuable lever for decreasing risk, companies should not think of it as a silver bullet to solving supply chain hang-ups. Now is the time to re-evaluate supply chains from the ground up, building back better, stronger and more resilient for the future. Here’s how.
Modernize your supply chain
New technologies and the large-scale digital transformation of the supply chain are helping companies keep up with the accelerated pace of change. No longer seen as just a cost center, leaders now have the opportunity to showcase the strategic nature of supply chains in meeting business goals. Rather than ripping and replacing, newer cloud-based supply chain technologies coexist with the current landscape and help organizations break down silos, share information, stay flexible and allow faster decision making. Platforms that incorporate artificial intelligence are able to harness massive amounts of data to help leaders stay informed and refine supply chain strategies when needed. Supply chains are critical to the health of any business, but companies need to ensure they are open to the possibility of their own digital transformation to fully embrace it and not get bogged down by legacy systems.
Maximize agility and minimize risk
A modern, well-designed supply chain gives organizations the ability to make predictions about the future, come up with a range of scenarios and adjust accordingly, not just to lower costs but minimize risk, maximize resilience and meet multiple business objectives. To achieve this, organizations need to be able to visualize their entire supply chain to understand where risk exists and how to reroute supplies in a cost-efficient way when sudden changes occur.
Businesses can do this by building “digital twins,” virtual supply chain models that weigh the outcomes of different “what-if” scenarios. These outcomes allow businesses to understand the cost, service and inventory implications of each path forward, given the myriad different variables affecting supply chains. By testing these models in a digital sandbox, businesses can find the best-possible solutions to implement in the real world, as well as justify decisions such as changing suppliers, re-routing logistics or increasing inventory levels.
Incorporate diversity and sustainability into supply chains
Social and governmental pressure is also forcing companies to evaluate the ethical impact of their supply chains, as environmental, social and governance (ESG) becomes a driving force for change in businesses worldwide. A recent report conducted by Ecovadis and the Stanford Graduate School of Business found that 71% of suppliers believe sustainability contributes to supply chain resilience. And, Deloitte’s CEO survey found 90% of organizations aspire to be industry leaders in diversity, equity and inclusion (DEI). However, operationalizing ESG on an enterprise scale has not been easy.
Despite initiatives to improve a business' ESG posture, there’s a major gap between good intentions and tangible action. This is because, for years, traditional ESG actions were happening in silos or taking years to carry out. Similarly, standalone DEI programs have struggled to make a significant impact on business supply chains, due to a lack of access to the right technology and information.
Turning intent into action requires a modern, cloud-based solution that puts ESG factors right where spend decisions are made, so that companies can make decisions to better both their financial and social bottom line. Using an artificial intelligence (AI) model for supply chain network optimization, for example, can be instrumental for businesses to meet ESG goals such as reducing carbon footprint, water consumption and climate risk, as well as direct more spend to small, local or diverse suppliers. Evaluating sourcing bids can also include previously hard to measure criteria such as CO2 impact, second-tier impact, diversity, quality, tariffs and fees and more. This AI-powered sourcing allows supply chain leaders to consider more factors such as ESG at an accelerated rate, ultimately bolstering resiliency and driving more revenue for the business.
The pandemic forced business leaders to re-evaluate their supply chain like never before, but it’s important to take these lessons learned and apply them post-pandemic as well. Continuing to modernize your supply chain with the latest technology, knowing how to use that technology to its full benefit, and using your supply chain to positively impact the world at large are more impactful and sustainable than just focusing on the growing demand of reshoring. The global supply chain affects us all and we all have a duty to ensure we are improving it regardless of what obstacles come our way.