There has been and continues to be an increasing perception of risk in the supply chain. In research by BIE, 68% of respondents said their supply chain risk profile had increased over the last three years, and 77% envisage their supply chain risk profile continuing to increase over the next three years.
Yet the biggest challenges that the supply chain has been focusing on are the same big challenges that the business has been focusing on, which is getting involved in the day-to-day activities of looking at customer expectations. The supply chain is not addressing any of the real risks that you would expect to see in an organisation.
But what should the supply chain be focusing on? In a recent post, I talked about the talent shortage risk. In this post, I take a look at how macroeconomics, the changing retail environment and advances in technology are presenting challenges - and opportunities - for organisations.
Geopolitical instability is currently a hot topic for the supply chain. Brexit means potential trade barriers with some of our biggest markets. The reality is that a lot of organisations trade with the EU. Will they go through the time, effort and investment of trying to trade with Australia or Asia? Is it even possible to make up the market loss from Europe with rest of world trading?
On the other side of the pond, Donald Trump is taking a very protective stance towards managing the US economy. Effectively, the US is now going into trade wars with the EU, with China, and with Canada. With so much going on, how do we identify and mitigate the risks associated with these things?
If you look at this year alone, in the space of eight months we’ve seen a shift from an outward-looking to a very inward-looking US. That’s a rapid political shift, and supply chains aren’t agile enough to match that. The current reality is that if a business is outsourcing its manufacturing to a company in China and they placed an order in February this year, that product would still now, at the start of September, be being shipped to a European distribution centre. And within that eight month lead time the geopolitical situation has changed radically. So how can organisations predict what’s going to happen in 12 months?
The changing retail environment
Consumer buying behaviours have evolved hugely over the last ten years and will continue to do so over the years to come. We are living in an on-demand economy, and the risk to organisations is if they fail to appreciate the new dynamic and continue to structure business models in an analogue way.
Businesses need to be themselves, be flexible, and they need to be willing to embrace change to meet the developing demands of the customer. We’re already seeing a big shift away from bricks and mortar towards online platforms that take customers on a journey.
The rise of an ‘on-demand’ economy means organisations need to welcome the benefits that new technologies can bring. The risk is that things like the industrial revolution 4.0 and AI will be seen as inhibitors when instead they need to be seen as enablers of greater responsiveness.
The technology landscape is changing rapidly. The reality is that supply chains are going to change fundamentally as technologies like 3D printing become more prevalent. There could very well be a time when every household has a 3D printer and can print their own consumables. These changes will demand shorter, more responsive supply chains with significantly more agility. The historically big and expensive projects such as large ERP implementations may become a relic of the past. Organisations need to ask themselves, are they ready to grab hold of these opportunities?
The risk profile is changing - and it’s an ever-dynamic thing. Organisations need increased flexibility within the supply chain so they can react to different dynamics. We need to see more agility so that organisations can keep pace.
One of the only ways of doing that is by shortening the supply chain. This is likely to bring some reshoring of manufacturing into low-cost EU countries, and this will be a positive thing. However, the UK must decide what they hope to get out of Brexit and be as open a trading partner with the rest of the world as possible.
In our Supply Chain Risk Survey 2018 we explored the biggest challenges for the supply chain function, how organisations are dealing with current risk factors, and how much of a role transformation is playing within the function. To download your copy of the report, click the link below.