The supply-chain disaster is actually good news — for these 3 reasons

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“Supply chain” seems to be the one-stock answer to everything that’s wrong in the world these days. That’s because the supply chain is shorthand for how the world is connected – from idea to product to consumer.

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This supply-chain disaster is real. Thank goodness.

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Human psychology, as with all the systems we have designed, recognize meaningful alerts when they are persistent and personal.

Then what? Then we can turn our attention to fixing those problems. Here’s how we can do it.

Move from cost-optimized supply chains to regional networks

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Getting goods from Asia is difficult these days. It doesn’t matter if container ships wait to drop into the ports of Los Angeles and Long Beach, or truckers queue to unload containers at yards. Tariffs for government energy rationing and rolling manufacturing stoppages have added cost and uncertainty to shipments from China. Countries in South Asia have struggled to fill the gap as waves of workers have become infected with COVID.

Dating back to Deloitte’s 2016 Manufacturing Competitiveness Index, the growing importance of technology was projected as manufacturing leans away from low-labour-cost countries in favor of places with a digital-savvy workforce. COVID has accelerated digital adoption.

COVID has also rewarded companies with options built into their supply networks. Air transportation was a costly alternative to water, as one US company learned in 2021 when it needed to acquire fiberglass shower enclosures from Asian manufacturing locations for customers in the US for manufacturing and remodeling, by contrast, a consumer products company. found a combination of wage rates in Mexico and digital skills to support manufacturing in the US and Canada allowed it to restructure production to supply the US market with costs in mind. The product also toggles in a range of land and water transport options to optimize finishing, packaging and storage options.

In the future, expect companies to rely more on suppliers in nearby low-cost countries and explore smaller and more flexible transportation options as they seek to reduce both risk and cost.

Companies are also changing the way they work together. network soon
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A communications technology company outsources its manufacturing to a supplier with a footprint on multiple continents. Over the years, this flexible partnership has enabled the movement of supplies in response to extreme weather, the imposition of tariffs, and labor supply dynamics.

Expect buyers and suppliers to increasingly partner in physical and digital expertise and serve markets more seamlessly, moving away from high-volume, low-cost supply contracts with restrictive terms.

There’s another benefit to moving from low-cost suppliers to a regional partner network: It’s more environmentally friendly. Yale Climate Connections reported in August that international shipping is responsible for 3% of global greenhouse gases – more than airplanes do. Moving to a regional supply network allows companies to switch between truck, rail and small water transport.

With up to 85% of the company’s environmental impact in its supply chain, companies are responding to investor interest in ESG by tracking the impact of their suppliers and customers as part of their environmental posture. Logitech International
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announced on September 9 that he was adopting a climate-positive outlookAddressing its carbon footprint across its entire value chain, including indirect emissions. The goal is to achieve carbon neutrality this year, setting the company on a path to net zero emissions by 2030, and beyond that, to be climate positive.

Businesses increase supply-chain monitoring

Looking back to March 2020, Accenture reported that 71% of the companies it surveyed did not have a business operation contingency plan in place for more than three weeks. It took a global pandemic for us to show up to problems with tight connections in our worldwide manufacturing infrastructure.

Our integrated, cost-optimized supply chains worked so well that managing these business-critical activities could be two levels below the CEO, and well out of sight of the boardroom.

The supply-chain drama and business disruption of the pandemic have shown boards that understanding supply chains is integral to monitoring enterprise risk. Boards have begun to incorporate cyber security and digital transformation along with supply-chain expertise into their modern recruitment metrics. Audit and Risk Committees are working on the supply chain throughout its review cycle.

But a board monitoring of the supply chain is more than just a reduction in exposure to the transformation of goods from components of production to customer value. Supply chains provide valuable business insight – from the levers on a firm’s profitability to the needs of its customers.

As alternatives to sensors, cameras and IoT data become increasingly available, the integrated supply chain information about the business rises above the functional key performance indicators (KPIs) of management. With increasingly granular, transparent and timely information on the cost elements of servicing various customer segments, the Board’s Compensation and Human Capital Committees will consider whether the Company’s sales, marketing, production and logistics domains are within them as well. How to encourage faster communication in performance incentives. , The strategic plan review will include integrated data from the company’s supply chain, as boards reconsider the impact on topics ranging from technology to talent management.

a consumer wake-up call

In March 2020, consumers quickly pervaded the working grocery supply chain, billboarding toilet paper, non-perishable foods, and hand sanitizer. We built home offices in spare bedrooms, dramatically increasing the prices of lumber. We learned that our cars had semiconductors, and we began to panic over the holiday toy shortage in August.

It is time for consumers to realize that we are suffering along with the distortion of the supply-chain.

Consumer engagement is a powerful force in reshaping supply chains.

Conscious consumerism joined the fashion industry jargon after the collapse of Rana Plaza in Bangladesh in 2013. Consumer outrage over safety practices and working conditions, which killed more than 1,100 garment workers, led the Alliance for Bangladesh Work Safety (mostly American brands). Which reported that half of all 650-plus factories had completed all safety treatments within five years, with the remaining more than 80% complete. Another 220 mostly EU brands reported similar results with their monitoring of more than 1,600 factories through the Agreement on Fire and Building Safety in Bangladesh.

In addition to impacting workplace safety and wages, consumer awareness fueled innovation in the fashion sector and its supply chain. Traditional retailers experimented with upcycling merchandise, platforms such as Tready bolstered online marketplaces to sell used luxury soft goods, and businesses such as Rent the Runway emerged with proprietary options for upscale clothing.

COVID-19 has already changed consumer buying behaviour. It has spurred business innovation in last mile delivery. Will 2022 be the year in which we consumers not only get more stuff faster, but ask ourselves how much we really need?

Bates Lillo held executive roles in operations, finance and strategy at four Fortune 100 companies. She is now an Executive in Residence teaching global supply chain to graduate students at TCU’s Neale Business School in Fort Worth, Texas.

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