Against a backdrop of major disruption, energy crises, volatility and inflation, resilience will be the defining factor for supply chains and logistics in the coming years. As organisations seek first to mitigate risk and then build agility and transparency, we will see an evolution in the way goods are sourced and moved around the world. On this resilience journey, technology and sustainability will be the dominant trends.
It’s a landscape rich with opportunity, but not without risk. Drawing on research from our recent supply chain survey and working in conjunction with Professor Omera Khan, Founder and Director of OQK Associates Ltd and global thought leader in the sphere of supply chain risk management, we’ve put together a four-part series exploring supply chain risk in 2024.
Supply chains then and now
In 2018, when we last conducted research into supply chain risk management, we highlighted its potential vulnerability and a lack of coherent strategies to address these vulnerabilities. “Supply chains are not addressing any of the real risks that you would expect,” we reported. “If they were, they’d probably be looking at trade barriers, geopolitical instability, the advent of AI, big data, financial currency variations, commodity price changes, as well as trying to find the right talent.” Unfortunately, many of our concerns have come to pass in ways both expected and unprecedented.
So are organisations today better prepared? Or are there still blindspots? Where do the risks lie?
The challenges ahead
In 2018, the biggest challenges were increased customer expectations, volatility of customer demand, and growing cost pressure. The customer in 2024, while still king, does not pose the most pressing threat to business. Instead, businesses are focused on survival. It’s about weathering crises. However, cost pressure has remained high, and talent and external issues like geopolitical and supplier risk are on the rise.
The challenges facing organisations reflect a supply chain that’s under siege and in need of positive change. The top three challenges our survey identified are: achieving supply chain resilience (65%); talent/people (55%); and inflation and rising costs (50%).
Similarly, the top priorities for supply chains have also shifted. Back in 2018, companies were looking to decrease operating costs and drive revenue growth. Today, they’re looking for ways to build resilience and agility; it’s more about surviving than thriving. And while bringing down costs is still a driver, it’s more about creating a more adaptable and agile company, than simply saving money.
Speaking to the need for resilience, our recent research for the Transformational Leadership survey revealed that almost a quarter of senior leaders believe that supply chain instability is one of the key challenges of today. And one in five warn that it will remain a key challenge for the next five years.
Nevertheless, despite the challenges, almost eight in 10 respondents are optimistic for their businesses and for the global situation more generally (up from 68% in 2018). Are they confident in their abilities to make the necessary improvements or is it a mark of how serious the upheaval has been in recent years, that business leaders think that things can only improve from here?
Risk is on the rise
The factors currently thought to have a direct and significant impact on the supply chain with regards to risk run the gamut, but four stood out for the majority of respondents, including: digitising the supply chain and automating processes; workforce issues; data; and environmental concerns/climate change.
95% of respondents have seen their supply chain risk profile increase over the last three years; up from 68% in 2018. This leap makes sense: the last few years have been characterised by major disruptions and volatility, from a global pandemic and geopolitical instability, to energy crises and inflation. However, this upheaval shows no signs of slowing down and only one in 10 respondents see their supply chain risk profiles decreasing in the coming years. Instead, almost two-thirds of those we spoke with believe it will increase even more.
“Companies are recognising that risk is ever-present and they’ve got to do something about it” says Omera Khan. “They’re starting to embed risk management thinking much closer to their supply chains. And they’re thinking deeply about how to mitigate risk and develop greater resilience.”
Managing risk
Risk management is cited as the single most important performance indicator for the supply chain function by almost a quarter of respondents – more than any other factor. Respondents are exploring a vast array of risk mitigation strategies in order to reduce their vulnerability and ensure continuity.
95% of those we spoke with are pursuing one strategy in particular: strengthening relationships and increasing transparency with suppliers or buyers. Other prevalent strategies – including reviewing contracts, utilising digital solutions and monitoring tools, and multi-sourcing products to reduce reliance on one supplier – speak to the need for greater diversity and visibility. Organisations are taking a look at the bigger picture in order to shore up their businesses and mitigate risk.
“The recent upheavals, particularly the pandemic, forced organisations to rethink, reevaluate, and redo,” says Omera Khan. “And while some people thought things would just go back to normal, it’s become clear that ‘normal’ doesn’t actually last for long.”
Change is the only constant, which is why resilience is set to become the defining factor for supply chains in the coming years. We explore resilience in more depth in the next article in this series.
