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Supply Chain Trends for 2023

In many respects, January 1st 2023 is just another day when it comes to the supply chain landscape. The complex world of logistics management doesn’t magically transform when we ring in the New Year. Problems that made 2022 a challenging year for supply chain professionals will likely persist well into 2023. 

Nevertheless, we’ve lived through enough worst-case scenarios in recent years to understand the importance of looking forward and planning for what we can control, fully aware that not every supply chain problem will be easy to spot.

A year filled with preparation for future disruption

One New Year’s resolution every supply chain pro should consider is doubling-down on preparation for future challenges. One in three senior business decision makers surveyed by SAP estimated that supply chain problems will persist into the summer of 2023, while more than half (52%) believe their supply chain needs much improvement. According to a National Association of Manufacturers (NAM) report, 73% of businesses think their supply chain isn’t “completely protected” from weaknesses.

The ongoing challenges of digital transformation

Adopting reliable and functional technology is a logical place to start when creating a more resilient supply chain. The NAM survey identifies increased digital adoption as something most companies are at least planning for.

However, a chain is made up of related and interdependent enterprises. The biggest reason mentioned as a barrier to advancement is a lack of digital maturity among partners (53%), followed closely by a lack of shared data platforms (53%).

Digital transformation remains difficult. One commentator describes supply chains as “big data problems where the buyers have little understanding of the new technology approaches,” often holding on to legacy IT investments long past their sell-by date. 

This is compounded by the reality that it’s hard to contemplate a technology overhaul in a period of aggressive growth, when implementation and training may create an unwelcome disruption. 

On the other hand, when business slows, it may present an opportunity to rethink your technology tools. If you’re unclear as to what modern supply chain technology can offer your business, a 3PL vendor who can understand your goals may be able to steer you in the right direction. 

The need for more innovation

Only 3% of businesses consider themselves innovators, with the vast majority (58%) falling somewhere in the middle of the tech adoption bell curve and a concerning 40% lagging behind as late adopters. According to McKinsey, “close to three-quarters of supply-chain functions rely on the simplest method: spreadsheets. In addition, more than half use SAP Advanced Planning and Optimization (APO), a popular but antiquated supply-chain-planning application that SAP introduced in 1998 and will stop supporting in 2027.” 

Despite the challenges, there are reasons to be optimistic that 2023 will see digital transformation make significant advances in supply chain management.

Decision makers are increasingly aware that technology investments are critical for managing complexity and preparing for future disruptions. We can expect to see more widespread adoption of digital technologies across the supply chain landscape in the coming year as companies seek to increase efficiencies, reduce costs, and improve customer satisfaction levels.

Streamlining the supply chain through SKU rationalization

Another method for increasing efficiency is SKU rationalization which involves discontinuing some product lines while prioritizing others. Stanley Black & Decker are cutting nearly 50,000 SKUs as part of their supply chain transformation plan, with the goal of generating significant savings. Elsewhere, HanesBrands cut their product offerings by 30% over the past two years.

The COVID-19 pandemic fueled a push toward SKU rationalization, particularly among CPG brands, highlighted by Coca-Cola’s “ruthless” rationalization of 2020, which saw them eliminating the entire Odwalla juice brand. However, as with many other supply chain trends in recent years, SKU rationalization is likely to continue as brands strive to simplify their supply chains.

When resources are tight, simplifying SKUs can improve operational execution and make it easier to apply limited resources where they can be most effective. One commentator notes in Forbes that “sales departments frequently fight these (SKU) reductions, but the inflation environment gives supply chain executives extra ammunition to power forward with these initiatives.”

Product portfolio simplification is also a strategy the Harvard Business Review recently endorsed, noting a trend for niche, personalized products. “Many of these products are low margin, lack a strategic purpose, require a broader range of suppliers, and lead to higher manufacturing, freight, and out-of-stock costs. For these reasons, CEOs should look to scale back their product portfolios.”

Inventory management remains a balancing act

SKU rationalization is just one aspect of the inventory management picture for businesses emerging from the pandemic. The “just in time” approach to supply chain management has led to product outages, and as a result, 64% of the businesses surveyed by SAP are trying to enhance their safety stock levels, at least to the point that they have “just in case” reserves. This will help to protect against future disruptions, but it comes at a cost, both in terms of the extra inventory that needs to be carried and the associated carrying costs.

At the same time, supply chain challenges along with consumers tightening their wallets has resulted in a glut of excess inventory for big-box retailers like Walmart and Target. The supply chain of 2022, and moving into 2023 is, as SAP’s Scott Russell called it, “a constant balancing act. Over the last couple of decades, the ‘just in time’ approach traded resiliency for efficiency and lower costs, which in turn made the supply chain fragile. The pandemic and the snowball effect of related disruptions exposed this fragility, which has organizations refocused on resiliency.” 

Real time inventory management alone won’t solve for consumers cutting back on Black Friday spending, but it will give businesses the ability to more nimbly react to changes in demand. AI-enabled predictive analytics can help by providing data-driven forecasts of future customer behavior, allowing businesses to make informed decisions about where to allocate resources.

Risk management and supply chain diversification

Supply chain risk management is another area where digital transformation can have a big impact. The pandemic has forced companies to reassess their supplier relationships, with many realizing that they were too reliant on a small number of suppliers for critical components and/or services. In the future, we can anticipate more companies diversifying their supplier base as a way to mitigate risk. This will require increased collaboration and coordination across the supply chain, which can be facilitated by digital tools and platforms.

Carrier diversification has been shown to lower delivery times and improve final mile coverage, with regional carriers allowing businesses to optimize for cost, transit time and overall efficiency. The world of ecommerce, in particular, is looking beyond the big three carriers to deliver a competitive advantage.

There’s more to diversification than simply adding more partners. Effective risk management means understanding not only the relative health of your Tier 1 suppliers, but potentially how vulnerable they are based on their own supply chain, the so-called “n-tier” problem. In a post-pandemic world, we can expect to see more companies placing a premium on supply chain visibility and using digital tools to achieve it.

3PL vendors help with supply chain flexibility and scale

Shopify, a core platform in the ecommerce world has noted that “For many successful ecommerce businesses, 3PLs have been—and will continue to be—the secret ingredient that have allowed them to weather the recent supply chain crisis.”

In a landscape full of supply and demand fluctuations, businesses will continue partnering with 3PL companies in order to have the flexibility to scale their operations and focus on their core competency. As Shopify puts it, “3PLs are specialists in logistics. By allowing them to manage your shipping and fulfillment, you’ll have more time to invest in big-picture strategy.”

While diversification reduces the risk of having all your eggs in a single basket, it nonetheless increases the need for effective coordination and collaboration tools. By digitizing the supply chain, businesses can gain visibility into their supplier base, track performance, and manage relationships more effectively. 

Guy Bloch, CEO of delivery technology firm Bringg observed, “To really do (final mile) well and always find the most efficient driver to satisfy your customer at a margin that works for you, you need to digitize.”

Supply chain staffing is evolving in today’s tech world

Staffing has been a challenge throughout the supply chain ecosystem in 2022, and again this trend is set to continue in the coming year. While labor shortages have hit the world of warehousing hard, and the driver shortage has eased only slightly, the less visible supply chain labor crisis may be in the area of knowledge workers.

99% of respondents in a McKinsey survey conducted in 2021 recognized the need for more in-house digital supply-chain talent, a tenfold increase on the previous year. Strategies for resolving this include hiring new talent and reskilling existing workers. Outside contractors may help in the speed of digital transformation, but as McKinsey notes, “Organizations that invest in developing their people while launching a transformational change program see a higher success rate than those that do not.”

With that said, simply hiring more young tech talent will not address the knowledge worker shortage. McKinsey highlights the reality that younger tech workers may have the right background for digital transformation, but lack the broad perspectives needed to translate data science to value creation. Senior supply chain leaders have an important role to play and must learn to direct tech talent accordingly and invest in training across the organization.

Meeting the needs of in-demand knowledge workers

Staffing for the digital supply chain may require a different approach to your company culture. Early in 2022, Gartner reported that 61% of supply chain leaders expected the emerging hybrid work model to be a permanent shift. Since then, various businesses in different industries have attempted to bring staff back into the office more often. However, hybrid work may be table stakes at this point. 

Going beyond hybrid and embracing a truly distributed model for knowledge workers—including remote, virtual, and flexible options—may be key to attracting the right talent.

Gartner’s Suzie Petrusic noted, “In an environment of talent and labor shortage, supply chain leaders anticipate employee expectations to become more demanding and feel that they must prepare to meet those expectations – or lose to competitors that do.”

While finding frontline workers has been a challenge in ’22, one should not ignore that the knowledge workers of any digital supply chain are themselves in high demand. Michigan State University reports, “Demand for supply chain professionals exceeds supply by about 6 to 1, making it difficult to not only attract new employees, but to keep the ones already on board.”

Develop future business leaders with T-shaped skill sets

In the report, Michigan State University recommends that businesses focus on creating appealing career paths for mid-level employees as they have the potential to be future leaders for your business. Building T-shaped skills is essential, meaning that they have a broad, strategic mindset, understanding the business well enough to see the bigger pictures.

For new graduates in the in-demand supply chain management field, your technology investments matter. Arizona State University’s Dale Rogers notes that job-hunting students “care a lot about how ‘forward thinking’ a firm is before they go to work there,” including the types of technology the company uses.

Automation may reduce the demand on workers for those who adopt it. But in the short term, strategies for finding and retaining warehouse workers include offering flexible schedules, competitive pay, and a team-oriented work culture. For some, the solution is to outsource the function to a third party as much as possible, whether a lumper service or a 3PL partner who can focus full-time on warehousing issues.

Customer experience and the joy of convenience

Customer experience will continue to be a key battleground for businesses in 2023. One pundit describes the relationship between supply chain management and customer experience as, “symbiotic, and, especially under current global circumstances, very important.”

Offering shoddy customer service is a sure way to lose customers, and increasingly good customer service is service that offers individual value to the customer, such as sharing real-time updates on the status of orders moving through the chain.

While many businesses struggle with the pressure Amazon’s delivery speed creates, some research suggests that delivery convenience counts too. Having a delivery arrive at a convenient time may matter more than sheer speed. If you can offer customers flexibility in time slots, do so. If not, at least let them know where their goods are.

Customers pay attention to emails that update them on the status of their purchases, with one pundit suggesting that confirmation emails are opened around 60% of the time, far beyond Mailchimp’s retail benchmark of 18.39%

Supply chain sustainability, driven by big business

Expectations around sustainability will continue to grow in 2023, not least because major business players are setting significant supply chain goals that suppliers are going to have to start meeting. As big business comes under pressure to clean up its act, the supply chain is where 90% of a company’s environmental impact is likely to take place. Logically, it’s going to be under increasing scrutiny, and expected to respond to shifting expectations. 

Apple informed suppliers that it expects key suppliers to follow their lead in achieving carbon neutrality, with CEO Tim Cook saying, “We’re looking forward to continued partnership with our suppliers to make Apple’s supply chain carbon neutral by 2030. Climate action at Apple doesn’t stop at our doors, and in this work, we’re determined to be a ripple in the pond that creates a bigger change.”

What that means for suppliers includes ongoing tracking of their own sustainability efforts, and potentially audits designed to bring them into line. The interconnected nature of business means that one doesn’t have to be a supplier to a global mega-brand to discover that one of your key account’s sustainability goals has suddenly become your own.

Other pressures to deliver on sustainability goals

Good intentions on environmental issues are a start, but they only take you so far. The Council of Supply Chain Management Professionals published the State of Supply Chain Sustainability report for 2022, noting that the pandemic put the supply chain into the public eye in a way it never had been before, with emphasis on transparency and resilience. For some firms, sustainability has become a risk management issue, and not without good reason. 

The report highlights that the greatest pressure for supply chain sustainability comes from end consumers and investors, with corporate buyers close behind. The biggest shift in sentiment towards sustainability comes from the aforementioned investors, and from government and international governing bodies.

It is, however, notable that there’s a significant gap between intentions and actions. When asked to compare goals to investments, respondents reflected the reality that across the board, actions are lagging behind goals. Worryingly, that gap has only grown wider for climate change mitigation over time.

Coming back at you, the rise of “circular logistics”

For logistics providers, it may be time to rethink reverse logistics as interest in the “circular economy” grows. With demand for sustainability rising, the ability to track and handle used product returns will become increasingly important. Logistics providers who understand the growing importance of sustainability, and the need to meet it head on, will be best placed to succeed in 2023.

What does the circular economy look like? It’s Walmart selling more refurbished items and piloting reusable packaging. Tech giants like Intel are transforming reverse logistics to move from a “make, use, dispose” product model to “make, use, recover, reuse, reclaim.” Ikea, long considered a source of affordable furniture, will buy back furniture for resale. Durable outdoor apparel brand Patagonia allows customers to trade in used gear, which is then offered as “worn wear.”

The long term goal is to create a closed loop system of production that cuts out waste, with more reusable and recyclable products. In the short term, expect more brands to rethink their reverse logistics needs. 

This new emphasis on reverse logistics is taking place alongside the logistical challenges ecommerce and other retail businesses face with product returns. The logistics of returns are, if anything, more complex than those of the initial shipping process, but the ability to smoothly return a purchase is an important part of the customer experience on offer.

Companies now have the challenge of streamlining this process while reducing their own carbon footprint, and this is likely to be one area where sustainable thinking and customer experience collaboration is needed.

Who says the supply chain’s not cool?

The future of logistics includes more sustainable solutions, ongoing digital transformation, an influx of knowledge workers and a greater emphasis on risk management and service. Most of this will take place outside the public eye. But what of the much-anticipated moments where supply chain science fiction becomes science fact?

The global warehouse robotics market is expected to nearly double from $4.7 billion in 2021 to $9.1 billion in 2026, and we should increasingly see a mix of human and automated processes delivering more streamlined logistics services.

We may never get flying cars, but we already live in a world of products built and increasingly shipped by robots. And drone deliveries? Amazon Prime Air is set to drop packages of up to 4lb in the backyards of residents in Lockeford, CA and College Station, TX.

Meanwhile, Walmart is taking the final mile airborne. With 90% of Americans living within 10 miles of a Walmart store, and a relatively inexpensive $3.99 delivery charge to tempt people into the residential drone delivery experience, it’s an interesting proposition, and one that’s potentially more environmentally friendly than gas-powered final mile. Though, it’s also a solution with significant infrastructure set up costs, and the potential for significantly limiting regulation from a risk-averse FAA.

The bad news for city dwellers is that regulation makes drone delivery more of a suburban strategy, dropping small packages in backyards, not on urban stoops.

The future’s there for those who seize the day

The future of logistics will be built on the back of sustainable, digital, and thought-based solutions that fit the customer experience. Logistics providers who understand the importance of sustainability, collaboration, and customer service will be best placed to succeed in 2023.

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