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Is there a new “normal” in supply chains?

There is no return to “normal” for supply chains

Conventional wisdom believes that the majority of the world has moved on from the pandemic so that supply chains will return to normal. 

However, this isn’t the case. The world has permanently changed, and supply chains are going to continue to face challenges for decades to come. 

Some of those challenges include:

  • The supply chain will continue to be threatened by disruption during the next decade 
  • A peaceful and stable world is the best environment for supply chains 
  • With declining population demographics, buffer stock is necessary for a smoothly running supply chain 
  • Environmental, social, and governance (ESG) goals are in conflict with supply chains optimized for speed and cost. By prioritizing ESG, we must deal with supply chain risks. 
  • With companies continuing to invest in technologies that can mitigate supply chain challenges, supply chain technology will become the big winner in venture capital. 

Increasingly more companies will be forced to rely on advanced supply chain technologies due to tighter supplies, higher energy costs, rising geopolitical risk, and strained transportation networks.

Supply chains work better in times of peace. 

Supply chains have always been subject to disruption, as anyone who has worked in the industry can attest to. Natural disasters, terrorism, economic cycles, and capacity shortages have created challenges since the beginning of trade.

Supply chains rely on labor

There has been a massive arbitrage between developed and developing countries. Due to cheap labor, lax environmental and labor regulations, and a lack of concern for sustainable natural resources, the world has experienced unprecedented prosperity and peace.

P.D Cheap labor is becoming scarcer, particularly in Asia. This is largely due to aging populations – the average age continues to increase and there are fewer people working in these manufacturing jobs.

Supply chains are unstable due to ESG requirements

Companies have instituted ESG requirements that require disclosures and monitoring of how and where products have been sourced. This pressure means that goods that are produced in factories that don’t match Western standards for environmental controls and human rights may not be available to Western consumers. The factories that do produce goods that match Western standards will often be more expensive and therefore there will be less buff stock in the system.  

Supply chain technology will be the big winner  

Companies will look closer to home for product sourcing. They will prioritize production in countries that are far more stable and friendly.  

Latin America will become a big winner, as it benefits greatly from having direct land transportation networks with North America and seas that are well protected by the U.S. Navy. 

The American South and Midwest will also see an acceleration in manufacturing and production, as they can offer predictable and resilient sourcing, without the geopolitical risks of foreign suppliers or the labor unions of the Rust Belt.

Automation, including robotics, will become more important. Nearshoring manufacturers will try to offset higher production costs with robotics and other automated production systems.

Supply chain market intelligence systems, a data category that monitors developments around supply and demand, will be critical for supply chain professionals who are trying to navigate increasingly complex and opaque markets. Materials and product supplies are no longer guaranteed, so the need for constantly refreshed data models that track the balance of supply and demand will be critical to the success of companies.

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