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What Kind of Reset Does the Supply Chain Need? Part One

January 9, 2024

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What comes to mind when you hear the word “reset”? According to the Oxford Dictionary, reset means to “set again or differently.” When it comes to the so-called “supply chain reset,” setting up differently should be the working definition. Why? EY analysts Matthew Burton and Joost Vreeswijk insist the world has changed so dramatically that resetting to old ways of doing things would be both impractical and illogical.[1] They explain:

 

Over the last couple of decades, many supply chains have become linear global chains, stretched to their limit in pursuit of efficient, mass production with low-cost countries, just-in-time inventory and limited inherent resilience. These models were geared towards growing volumes of open, cross-border trade in a relatively stable world. Manufacturers also became accustomed to an abundant supply of raw materials, leading to low prices and downward spiral in investments. Furthermore, this low-cost, single-use mentality typically failed to consider the environmental and sustainability impact of products, processes and physical supply routes. However, in the face of international trade policy change and global tax reforms, massive disruptions from the COVID-19 pandemic, the war in Ukraine, increasing China-US tensions, shipping delays, and environmental, social and governance (ESG) pressures, companies in many sectors are being forced to shift to segmented ‘supply networks.’ This involves re-orienting the supply chain towards supply security, energy transition, talent, and increased agility. These factors combined have led to the unfolding of the great supply chain reset.”

 

According to Burton and Vreeswijk, there are five elements that must be considered during the great supply chain reset: 1) Rationalized portfolio; 2) Resilient, circular operating models; 3) Segmented supply footprints and challenging traditional management hubs; 4) Automation and cognitive decision support; and, 5) Collaborative relationships built on value — not cost. In Part One of this article, I want to discuss the first three elements of the great supply chain reset. I will discuss the final two elements in the concluding part of the article.

 

The First Three Elements of the Great Supply Chain Reset

 

Rationalized portfolio

 

Burton’s and Vreeswijk’s first element involves eliminating unnecessarily risky and potentially unprofitable products from a company’s portfolio. They explain, “The first element of the great supply chain reset is rationalizing the portfolio. A radical review of the product portfolio and bill of materials may reveal products that — regardless of their manufacturing location — are no longer profitable to make and sell (if the manufacturer is unable to pass on inflationary costs) or cannot be produced sustainably. These include cheap, disposable plastic goods and fast-fashion products, products that use large amounts of raw materials such as water, biodiversity-damaging products, or items produced thousands of miles from their ultimate marketplace. Manufacturers should question whether such items can survive the pressures of ESG reporting requirements, carbon taxes and consumer demand for ESG.”

 

In previous articles, I’ve discussed how water usage can create friction between manufacturers and the communities in which they are located. I’ve also discussed how environmental lapses can create reputational nightmares and how younger generations of consumers are more concerned about ESG issues than previous generations. I’ve also discussed how extended supply chains can dramatically increase transportation costs and risks. In light of how the world is changing, a portfolio review seems to be a sensible first step in resetting the supply chain. Freelance journalist Nick Fortuna agrees. He writes, “Amid all [this] uncertainty, toss in growing consumer expectations for corporations to reduce their carbon footprint and to disclose their environmental impact, and C-Suite executives have their work cut out for them. The response has been a global supply chain reset aimed at enhancing sustainability, visibility and resilience.”[2]

 

Resilient, circular operating models

 

In the future, according to Burton and Vreeswijk, separating resilience from sustainability will be impossible. They explain, “Sustainability by design is another imperative. In a future circular economy, products will be engineered to last, be able to be constantly repaired and upgraded, with any redundant parts recyclable. This opens up new revenue streams with modular design, enabling different parts to be easily replaced and serviced. The production process will avoid exploiting scarce mineral resources and water, be energy-efficient and net zero, and minimize waste and pollution. All these factors determine the kinds of products a company makes, and where and how they make them. In many cases, the entire bill of materials — the components required to produce a product — may have to be revisited, including raw materials, semi-finished products, or ingredients. It may be possible to reconfigure existing products to become more circular, while others may have to be discontinued.”

 

I have written a number of articles about the virtues and drawbacks of a circular economy. For many consumers, a fully circular economy is a hard sale to make — ownership still matters. Nevertheless, a circular supply chain makes a lot of sense for manufacturers, especially in areas where recovering rare materials makes economic sense. Availability of resources is becoming an increasing concern as more and more countries opt to limit exports for either economic or geopolitical reasons. Burton and Vreeswijk write, “Taking a detailed view of the entire product journey, from design to delivery and beyond, can also help to simplify sourcing, by standardizing as many elements as possible, reducing the range and specification of materials used for production and packaging. This means fewer suppliers and components, which lowers the exposure to disruption. Companies should investigate whether it’s possible to use less material and/or more recycled content, and whether this can reduce total cost of manufacture.”

 

Segmented supply footprints and challenging traditional management hubs

 

For decades, the primary focus of supply chain professionals has been reducing costs. Keeping costs in check is still a concern; however, there are many more challenges that supply chain professionals must now face. Burton and Vreeswijk explain, “Chief supply chain officers now balance multiple conflicting needs of cost, service, sustainability, agility, and resilience. Growing international trade complexity, and the need to manage a widening range of risks, makes it even harder to determine where products should be manufactured and sold. The onshoring vs. offshoring vs. ‘friendshoring’ debate remains, but is further complicated by issues such as sustainability, trade wars, agility and, increasingly, visibility.” Misha Govshteyn, Chief Executive Officer of MacroFab, adds, “Key to this enhanced resilience is achieving a balance between nearshoring, reshoring and offshoring. A recent survey of 2,000 US and U.S. CEOs by Proxima made it clear: Nearshoring is here to stay as a cost-saving measure that strengthens the supply chain and wards against possible disruptions. Forty-three percent of CEOs surveyed have either already implemented or are planning to implement nearshoring or reshoring to improve operations, as opposed to 26% last year.”[3]

 

According to Burton and Vreeswijk, geopolitical considerations are making segmented supply chains an imperative. They explain that the “China plus one” strategy adopted several years ago by many companies was the beginning of this trend. They add, “However, even this may not be sufficient in the face of continued price inflation coupled with trade policy and rule changes aimed at improving national level supply chain resilience that encourages re-shoring or near-shoring. Technology is starting to make such decisions easier, with advances in 3D printing and robotics, making it possible to transform manufacturing conversion costs. 3D printing allows highly personalized and increasingly sophisticated parts and finished goods to be produced locally — often to order, while robotics enables factories and warehouses to operate at or near ‘lights out’.”

 

Concluding Thoughts

 

In the concluding part of this article, I will continue the theme of how emerging technologies are helping supply chain professionals reset their supply chains by discussing Burton’s and Vreeswijk’s final two elements: Automation and cognitive decision support; and, collaborative relationships built on value. I will place special emphasis on cognitive decision support since this is the area in which Enterra Solutions® focuses our Autonomous Decision Science™ (ADS®) platform.

 

Footnotes
[1] Matthew Burton and Joost Vreeswijk, “How the great supply chain reset is unfolding,” EY, 22 February 2023.
[2] Nick Fortuna, “Supply Chain Reset,” MHI Solutions, 8 October 2023.
[4] Misha Govshteyn, “Navigating the Great Supply Chain Reset,” SupplyChainBrain, 12 October 2023.

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