The COVID- 19 crisis, post-pandemic economic repercussions, ongoing inflation in numerous nations, and the Ukraine war have put supply chain management at the top of enterprises’ agendas. Tech Mahindra’s president of Americas strategic verticals, Lakshmanan Chidambaram, discusses supply chain issues business executives must address.
Globalization and outsourcing have connected economies and markets in far more complex ways than anyone could have envisioned. The linear way the entire symphony plays out in the marketplace is admirable, as global marketplaces and the supply chains functioning inside and across them have continued the progress toward near seamlessness.
Before the pandemic, supply chain management was not at the top of the agenda for boardroom discussion. Business leaders across sectors are looking for ways to address the gaps in their supply chain networks. They have become more aware of their supply chains’ vulnerability to potential disruptions. They have had experience with local disruptions and have good executable plans to fill in such gaps. But this disruption is truly global in nature and has opened various fronts to deal with for any supply chain organization. Many organizations went from relatively low risk to being forced into ceasing operations almost overnight because their supply chain depended heavily on a few geographies.
Though the last two years have witnessed multiple disruptions, they have, in many ways, given the opportunity to reset and build a more resilient, agile, and future-proof global supply chain network. It is apt to say that every challenge provides its opportunity. According to industry reports, the market size of the US supply chain management services industry has grown by 3.4% Opens a new window per year on average between 2017 and 2022. It is projected to reach USD 19.3 billion by 2028, growing at a CAGR of 9.02%, emphasizing the growth and urgency to strengthen the manufacturing and supply chain ecosystem.
Key Areas of Focus for Future-proofing the Supply Chain
There are a few crucial areas in the supply chain for leaders to consider and act upon while driving the shift toward a resilient and future-ready supply chain system:
- Taking decisive action on reshoring/ nearshoring
- Deepen/ Expand visibility on the supply side
- Unlock the value of your supply chain data through Digital Twins/ control towers
- Make ESG part of your core supply chain strategy
Taking decisive action on reshoring/nearshoring
The focus on cost efficiencies for decades has created a very tilted supply base dependent on just a few geographic regions around the world. Supply chain leaders have spent a lot of their time and resources on processes and technology to measure, flag, and improve risk but have stayed away from the physical solution of diversifying their supply base from being overly dependent on one or two geographies to a more global set up.Â
The cost equations of the past are no longer relevant. The new manufacturing capabilities in Mexico, India, and a few ASEAN countries, along with the respective government’s push to attract industries, are changing how leaders think about their sourcing strategies for the future.
Diversifying large spend is a difficult problem as it is, but accelerating its pace is making it more complex and therefore needs tighter collaboration between industry leaders and service partners. A service partner’s knowledge of the client’s product, their engineering practices, nuances of their supplier development process, and relationships within the destination markets are all key components for a successful engagement.
Deepen/expand visibility on the supply sideÂ
The visibility of your supply lines, especially in a tiered supply network, has come to be a key challenge for most organizations. While there has been a lot of progress in developing relationships and openness with the Tier 1 suppliers, Tier 2 and below are still not very well established. The reasons are not limited to technology capabilities alone, but the desire to reach out to this next level of suppliers and the overload of information that it would provide.Â
Also, the size of suppliers as you go down the tiers could be small, and they may or may not have the ability to interact digitally with the end client. Fortunately, a lot of advancement has been seen in just the last three years in the technology space as it relates to SC visibility. The ability to connect to the N- tier, the transmission of qualitative data (including future and available capacities, productivity and quality initiatives), and a common platform to run visuals, build what-if scenarios, and trigger actions are all part of the new generation of collaboration platforms.
The value to be derived from these platforms still relies on the quality of shared data, seamless integration with other ERPs and platforms, and a curated set of visuals, workflows and analytics crafted for your needs. Obviously, these collaboration platforms can only work if the people who use them can trust each other.
Unlock the value of supply chain data through digital twins/control towers
The ideas above are focused on the sourcing function within the supply chain. But for the overall supply chain to be resilient, all components of the chain have to contribute. Information has to be shared across planning, sourcing, manufacturing, logistics, and distribution, and that too, on a near real-time basis. Even though each of these functions has made important contributions, they can sometimes work against each other and cause the organization to lose sight of its bigger goals.
That is starting to change now with the introduction of SC Control towers powered by Digital Composite twins. With the advancements in computing power and data storage, you can now think of creating a virtual twin of your entire supply chain that would include your physical assets like factories and warehouses, your workforce, and your information flows. It is an extension of the work that has been done in the IIoT space to create twins of products and assets. As per industry analysts, the digital twin market will cross the chasm in 2026 to reach $183 billionOpens a new window in revenue by 2031, with composite digital twins presenting the largest opportunity. This type of digital twin offering provides insights into complex environments that either merge a range of data sources across silos or address mixed things, people, and process environments. Composite digital twins are usually made to track and improve how discrete digital twins and/or complicated business processes work together.
Control towers can then be deployed, feeding off these composite twins to drive action in real-time and give a significant amount of process control to the operator on the factory floor. Using a modular design to improve understanding and build trust in the organization would be a more stable way to get value from control towers.Â
Make ESG part of your core supply chain strategy
For most products, upwards of 80% of greenhouse emissions would fall into the scope three spectra, meaning these emissions result from activities not owned or controlled by the reporting organization. That means indirect emissions in the company’s value chain, such as related emissions in purchased goods and services, product end-of-life treatment, employee travel, etc. Further analysis shows that a significant portion of these emissions is from an upstream value chain.
Therefore, procurement leaders play a pivotal role in a company’s environmental, social, and governance (ESG) footprint since they are the organization’s primary link to the upstream value chain. They can also shift the focus from designing for how easy it is to make something to designing for how it will affect the environment, society, and the economy.
While most leaders understand the concept of ESG and why it is important for their organization, only one-fifth of the total pool of leaders are actually driving ESG in their sourcing decisions. The most common challenges cited are a lack of data/tools and talent to support such initiatives. The market has matured quite rapidly in this space, and several resources are available to bridge this gap. Leaders will have to reach out for such capabilities to implement an ESG playbook that suits their needs and aspirations. CPOs will have to start including carbon intensity and scope three emissions impact in their sourcing decisions in addition to all the traditional criteria around cost, quality, and delivery.
A series of events over the last 2-3 years have shown the weak points in our global supply chains. Decision-makers all over the world should use this crisis as an opportunity to take a fresh look at their supply networks and take decisive measures to diversify their supply base, and invest in the right digital tools to drive visibility and collaboration. This new vision should take advantage of the skills and resources around the world to transform supply chains into more resilient ones that are better prepared for success despite unforeseen challenges and crises.
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