Here are the top trends to watch for and how operators are shifting gears to keep supply chains strong.
Global supply chain analysts agree 2023 will provide no relief from disruption, but key trends are emerging that show the shape of the year to come. From inflation to a looming recession, to geopolitical challenges, and pressures to report sustainable practices across operations, supply chain leaders are bracing for a climate that requires evolving strategies and swifter response time. Here are the top trends to watch for and how operators are shifting gears to keep supply chains strong.
#1: The Economy
Inflation will continue to be a factor as supply chain leaders look to stay ahead of consumer behavior in the face of higher prices. While recent signs show inflation may have peaked, transitory inflation spikes are expected. Add to that the persistent threat of a recession. As central banks continue to raise interest rates to keep a lid on inflation, economic growth teeters and a recession seems almost certain. This will slow demand and impact production levels. Companies also will continue to struggle with the timing of hiring, labor costs and demand signals. Unpredictable economic conditions are forcing companies to constantly re-evaluate all aspects of business and places an extra burden on supply chains. Not only do companies have to navigate the new challenges of getting products from manufacturing sites to the hands of customers, but also juggle pricing forecasts. In some ways that makes inflation even more disruptive than the COVID-19 pandemic. A September McKinsey report shows inflation remains a top economic risk globally. Inflation in European markets has reached record-setting levels in the last year. Swinging economic conditions have forced supply chain leaders across companies worldwide to turn more frequently to supply chain planning tools that can help them run many more what-if scenarios using real-time data, and platforms that can help them react to disruptions as they happen.
#2: Geopolitical Challenges
The proof mounts that China is not a sound or predictable partner. Fresh waves of COVID-19 lockdowns and the Biden administration’s new technology export controls, designed to limit chip manufacturing out of China, increase the complicated global manufacturing and trade landscape. In 2023 it is likely that new trade barriers will further complicate matters. In fact, trade with authoritarian regimes continues to darken the supply chain forecast for the coming year. Russia’s invasion of, and war with, Ukraine has created multiple global supply chain disruptions, including increased freight charges, container shortages, and lowered availability of warehousing space. The global operating environment has been shifting towards something reminiscent of the Cold War era. Higher geopolitical tensions drive countries to do more business and manufacturing inside, or nearer to, their own borders, which drives up costs. Add to that a persistently unpredictable landscape of trade partners, forcing companies to consider all options and remain conservative in investments.
#3: N-Tier Visibility
Most companies have visibility across their operations and keep tabs on Tier 1 suppliers, but father down the lower levels of a supply chain, so-called N-Tier suppliers are still a significant part of production and demand fulfillment. With increased volatility in the supply chain, companies have shifted to prioritizing visibility of the supply chain at every point. A McKinsey survey showed only two percent of companies have a solid grasp on the location and activities of N-Tier suppliers. That can present significant issues, particularly because some of the most problematic supply shortages, such as of semiconductors, are happening lower down in the supply chain. The survey pointed to the need for more CEOs to aggressively map N-Tier suppliers to better control disruptions.
The cost and uncertain availability of labor will continue to plague supply chain operators into 2023. From near-miss rail worker strikes, to trucking industry driver shortages and layoffs, labor has become a costly gamble. Tech giant Amazon recently announced it would lay off some 10,000 workers, though many warehouse workers were spared from the rare staffing trim. The reduction is expected to mostly impact Amazon’s devices division and follows on the heels of other labor cuts by tech titans, including Meta (Facebook). For Amazon, rising inflation and soaring fuel costs have impacted consumer demand and cost-cutting measures were inevitable. Many companies are facing uncertainty about how many workers to hire or layoff in the face of persistent fluctuations in consumer demand and supply chain disruptions continue to exacerbate the issue. Meanwhile, there are jobs that can’t be filled. There is still a shortage of about 78,000 drivers as the trucking industry wrestles with how to keep fleets running and supplies delivered on time.
ESG (Environmental, Social, Governance) reporting will continue to put pressure on the supply chain industry in the new year. In the U.S., tracking and reporting on the sustainability practices of all suppliers is still not mandatory, but the SEC has issued its Enhancement and Standardization of Climate-Related Disclosures for Investors proposal, which would introduce the first requirements. Europe already requires the reporting of a broad range of ESG activities.
In January 2023, the Germany Supply Chain Due Diligence Act will go into effect and companies will have to show evidence that suppliers are not engaged in human rights. Global brands have issued a round of pledges to reduce carbon emissions over the next two decades and the eyes of investors will be on supply chain operators to find ways to improve both greenhouse gas emissions reduction strategies and raise sustainability goals.
Supply chain leaders must build agility and visibility into their operations and strategies, along with faster and more accurate scenario planning to stay ahead in the year to come. Digital transformations and software capabilities will continue to be a strong ally for CEOs. Software and cloud-based solutions offer end-to-end visibility across the entire supply chain and are rapidly improving a company’s ability to run multiple forecasting scenarios and aid execution strategies.