Like the years preceding it, 2022 was a year of immense disruption and change. The war in Ukraine, the energy crisis, a looming global recession, and a lingering pandemic in some parts of the world, created turbulence in logistics and supply chain management felt by many industries and most consumers.
Inflation and higher energy prices have squeezed consumers’ wallets, leaving them with little appetite for luxury goods. The reduction in purchasing power (and perceived purchasing power) has had a serious impact on businesses—leaving them with greater inventory as consumers aren’t buying as many goods or are delaying their purchasing. All of this compounded by the fact that this change came fast on the heels of several economically healthy years where consumers were buying freely and turning from travel and entertainment to consumer goods during covid years.
These challenges have led many businesses to rethink what resilience in their supply chain should look like to combat the dramatic disruptions and unpredictability.
From just-in-time logistics to just-in-case to something else
Building resilience into supply chains, however, has become more and more difficult. The traditional models used to predict consumer behaviour aren’t as reliable as they once were, due to unprecedented events like the pandemic. The cycle time from one disruption to the next has also become shorter, which has created consumer behaviour that’s directly and indirectly influenced by an ever-evolving web of global events.
Prior to the pandemic, supply chains were relatively stable due to steady global trade conditions. Delivering goods was largely predictable, which allowed for Just-In-Time (JIT) supply chain management. JIT reduced delays and waste through the goldilocks method: having just the right amount of goods on hand—no more and no less.
JIC systems build in buffers throughout the supply chain by maintaining extra inventory at specific stages. This ensures business continuity when peaks in demand are exacerbated by global conditions—as seen in recent years when consumer spending far exceeded expectations. While JIC is not ideal, it has recently been a viable model that allows businesses to meet end customer needs. However, the pandemic, worsening climate change and global conflicts have meant that JIT didn’t fulfil consumer expectations for when they wanted to receive their goods, causing many businesses to revert to a just-in-case system (JIC). But now that rising interest rates and worsening economic conditions are stretching businesses, JIC models are becoming less attractive and even unrealistic, since adding extra inventory at every stage of the supply chain comes with additional costs—some of which will be passed on to consumers, further fuelling inflation.
So how can resilient and flexible supply chains be created without adding additional cost?
Digitised supply chains are resilient supply chains
From an industry point of view, resilient and responsible supply chains can be created by connecting and digitising them, which allows for greater centralisation of information, better control, better decision making and quicker reaction times to changes.
By connecting supply chain flows with data that already exists in digital platforms, businesses can get insights such as sudden changes in consumer demand or disruptions to their shipment. Logistics providers can then quickly take action to respond to that data, moving the decision point forward and providing more time to evaluate impact, react and get the right solution in place. AI can also be utilized to predict and propose the next best option for improving business outcomes. For predictions and recommendations to have true value, a full, digital overview of the end-to-end supply chain is needed, one that includes the ability to collect and collate data from vessels, warehouse, trucks, etc., to build a base for better decision making.
The earlier disruptions are identified, the better it is possible to react. Technology plays a key role in providing this clarity. For example, connected sensors on sensitive cargo give insight into whether there has been disruptive movement to the container. The sooner this information is registered, the better the problem can be solved. That sensor data also gives insights into the larger picture. By aggregating data from sensors, IoT enabled devices and other sources, additional data can be provided to create digital simulations, or digital twins, which allow to see what’s happening across the supply chain in real-time. This gives insight into the whole process, from an individual customers’ cargo to the end-to-end supply chain. The data logistic providers gather from those digital twins can be run through machine learning models, which allow to predict and react to changes like weather or geopolitical events, enabling to direct the flow of goods around disruptions, creating more agile supply chains by proactively adapting to changes.
But to fully connect and digitise supply chains, actors up and down the supply chain must share data and collaborate, so that joint efforts can overcome global supply chain challenges.
Agility leads to supply chain resilience
While digitisation in the industry will create more agility, there are still things businesses can do to improve their supply chain resilience. One is to play both offense and defence when it comes to managing their supply chains, gaining greater agility when responding to changes.
There is a need for improved forecasting (transportation, demand, inventory, buy) and to anticipate the fluctuation in demand based on historical data, real-time data and predictive analytics. This gives businesses more time to redeploy goods to different areas or reconfigure sourcing and distribution networks close to real time for a more agile supply chain. Businesses are already evaluating their sourcing strategy, including near-sourcing (getting supplies closer to where they are needed in the market) to reduce the risk of transportation, weather or geopolitical issues in their supply chains as well as to counter for the now more rapid changes in consumer behaviour.
Businesses are also looking for improved ways of achieving these resiliency measures. Looking for better solutions, more visibility and support to address exceptions to the norm. More elasticity is needed within their supply chain, so they can slow down or speed up delivery of goods based on their situation.
Investing in ‘self-healing’ supply chains in 2023
The recent dramatic impacts to global supply chains have made it clear that a supply chain resilience is needed. Just-In-Time systems don’t build in enough buffer for current conditions and can be too expensive.
The first step for logistics providers is then to further digitise assets and the end-to-end supply chains, to integrate insights into decisions making processes and enhance resolution capabilities, making supply chains ‘self-healing’ to better overcome disruptions and create affordable resilience through agile supply chain management. Businesses also have a role to play in improving supply chain agility through a more proactive, predictive approach. It’s clear that the logistics industry will continue to rapidly evolve in 2023 and beyond, so it’s important for both the industry and businesses to adapt and find innovative solutions in order to remain competitive and successfully navigate disruptions.
Do you wish to stay updated on upcoming must-read industry trends?
You did it, welcome onboard!
Something went wrong
Do you wish to stay updated on upcoming must-read industry trends?
Receive our insights directly in your mailbox by signing up through this form and enter a world of truly integrated logistics. Get inspired by our selection of articles tailored to you, and gain knowledge on relevant business insights in a few clicks. You can unsubscribe anytime.