Staying Ahead of Supply Chain Paradigms – LogiSYM September 2020
“Nothing will be the same” headlines are mushrooming. However, Foresight Alliance, a consulting firm that applies foresight, strategy, and research to build organizations’ resilience in an increasingly complex and fast-changing world warns against exaggeration and wishful thinking. “Experts and pundits are forecasting wholesale changes to every industry and every part of life, but only a minority of these forecasts of massive, permanent change will bear out. Some exaggerate the degree and duration of change, mistaking a radically shifted present for long-term transformation. Others are wishful thinking on the part of ideologically or emotionally motivated forecasters,” writes the firm on their website.
The paradigm shifts caused by Covid-19 are no radical changes but accelerations and decelerations of pre-crisis transformational trends. As an example, digitization got a push, which enables new consumer behaviors. Urbanization may experience relief, as people can now work remotely. The crisis softens previous paradigms and creates room for new ones. Organizations and communities that understand to identify and fill the openings can create their future, forcing others to follow. What are areas that are relevant to supply chains where new paradigms are possible?
There is no doubt that digitization is the winner of this crisis. Covid-19 has demonstrated the power of integrated, intelligent and interactive supply chain networks. “Although no one in the industry foresaw the intensity of this crisis, some fashion companies are finding that they are better equipped than others — largely because of their digital know-how,” writes consulting firm McKinsey in the article “Fashion’s digital transformation: Now or never”.
Governments may reduce regulatory barriers in the way of the digital transformation to support the reboot of the economy. Companies can create digital supply chains and digital supply chain services, and, hence, advantage.
Today’s supply chains are complex networks geared towards highest efficiency and the production of highly sophisticated products. Clusters of specialization and aggregation are driving quality up and costs down. But alternative models are emerging, including distributed manufacturing enabled by robotics, artificial intelligence (AI) and 3D-printing, distributed intelligence brought about by the internet of things and distributed labor enabled by the internet and mobile devices. Globalization has morphed into a digitally driven system, which is about to be overtaken by a fast-growing digital services market.
New supply chain paradigms will emerge around connectivity, visibility and distribution of capabilities, talent and assets. Benefiting from or even driving this evolution requires supply chain leadership with a digital vision, a tech-driven innovative culture and talent that is at ease with digital solutions and their supporting technologies. The crisis made talent available for those that value and that can attract them.
3. World order
While leadership and supply chain teams around the world are fighting against the impact of Covid-19, trade and technology 2020, prevented rate increases in certain lists and reduced some tariffs, but since the driven tensions between Beijing and Washington, never went away. The Phase One trade deal that went into effect in February weaponization of SARS-CoV-2 has further degraded the relation between the two world’s leading economies.
A new paradigm may evolve around the opposite poles of the equation. On the one hand, Covid-19 can mark the beginning of a new cold war. On the other hand, the crisis can lead to the return to a global multilateralism. Agile digital supply chain networks and ecosystem intelligence are two ways to prepare for potential openings or new shocks.
4. Environmental protection
“The science is clear that if we keep exploiting wildlife and destroying our ecosystems, then we can expect to see a steady stream of these diseases jumping from animals to humans in the years ahead,” says UNEP Executive Director Inger Andersen. Climate change is one of the challenges that needs attention. “Global CO2 emissions were over 5% lower in Q1 2020 than in Q1 2019, mainly due to a 8% decline in emissions from coal, 4.5% from oil and 2.3% from natural gas,” concludes the International Energy Agency in their Global Energy Review 2020. But, we need the 2020’s rate of decline of emissions for the next 30 years if we wish to limit global warming to 1.5°C. Future supply chain leaders will embrace a circular economy in which a used product is returned, recycled, and then reused in some way. Current Initiatives such as Coca Cola’s “World Without Waste” and Unilever’s “Sustainable Living Plans” are first steps toward a circular economy.
“Imminent fiscal recovery packages could entrench or partly displace the current fossil-fuel-intensive economic system,” states a paper of Oxford Smith School of Enterprise and the Environment. The research shows that policies can achieve economic recovery and decarbonization in parallel. Important is that the packages are subject to the fulfillment of environmental protection measures and targets. “66% of all global emissions are released when raw materials are converted, processed and manufactured into goods for consumption,” we can read in the White paper on solutions to mitigate climate change and assessment of Danish Strongholds. A new paradigm will hopefully emerge around the circular economy and the related redesign of the global supply chain network.
5. Consumer behaviour
McKinsey finds that five themes have become evident among consumers across the globe: the shift to value and essentials, the flight to digital and omnichannel, the shock to loyalty, the health and “caring” economy, and the homebody economy. These themes created changes in demand forcing companies to adjust their chains, channels, and offerings. Unclear is whether these changes are here to last.
Changing consumer behaviour is among the hardest things to do. Only the true innovators, like Alibaba, Apple, and Tesla were able to drive new consumer paradigms. Demand sensing technology will help supply chain professionals to become smarter about the sales side, which helps to drive sales but also allows for better planning of logistics and manufacturing capacity. Companies can clearly make a dent.
6. Organizational models
Wherever we are, we wish to be informed. About the traffic situation, the stock exchange, Covid-19 etc. Supply Chain professionals wish to know what is happening in the networks and their ecosystems. Whether everything is fine, or whether attention is required. Today, you can have your personal control tower always with you and in your pocket. Smartphones and notebook computers are making the office and work mobile. A development that helped many companies to stay operational during the pandemic.
“Despite its speed, we’re still in the earliest stages of the Work-From-Home Revolution, and it could take years or even decades of trial and error to get right,” writes Christopher Mims in The Wall Street Journal. We need new organizational models. But these can only function and last if they are grounded in new leadership paradigms. These include the belief in digitization and automation, and the ability to come up with models that not only allow to manage processes and assets, but also lead people remotely. In supply chain, remote inventory management which replaces the cumbersome routine labor of counting screws and switches will be part of the new automated supply chain paradigm. Computer vision and AI help to redesign and optimize the work along factories’ assembly lines. Despite all the opportunities related to automation, human skills will continue to count in supply chain management. A foundational belief of the digital supply chain paradigm.
Paradigms emerge in minds. The most important ones in the heads of our leaders. The reboot of the economy would benefit from stability. Stability, which is a paradigm in itself is largely driven by the alignment of leaders around global paradigms. Like the belief in capitalism, the advantages of the movement of goods and smooth international relations. The value of global institutions and the need for protecting climate, forests and oceans. Times are tough. We have not overcome the consequences of the global financial crisis. Terrorism is a permanent threat. The gap between the poor and the rich is widening. Climate degrading and SARS-CoV-2 seems to be here to stay. New leadership paradigms are in high demand, with supply chain networks at the mercy of the actions of the leaders around the world.
The analysis shows that new paradigms can only result from the mindset of our leaders and their ability to tap into the intelligence and innovative potential of their organizations and communities. Challenges are rising. Covid-19 feels like science fiction. Volatility and uncertainty are the labels of the new normal. The best business response is the creation of intelligent data-driven supply chain networks.
Hence, the new supply chain paradigms will largely be centered around data and analytics that enable automation and agility. Through information that describes the conditions and developments in the ecosystem, such as tariff changes, traffic jams, bad weather and congestion at the destination ports. Knowing where inventories and goods in transit are and what they encounter is the prerequisite for timely decision-making to prevent delays, damages, and theft. The dataset around the flow of goods allows for simulating options. Data-driven supply networks empower professionals to create their own futures to achieve advantage.
Paradigms are mental constructs. They are idealistic models, such as the ideal leader, the ideal firm, the ideal economy, and society. Paradigms are our beliefs and models that help us navigating the world. The true art of staying ahead of paradigms is to create them. Constantly, and particularly during a crisis. Bain & Company finds that “Across industry sectors, companies that took bold and effective action during the 2007–08 global financial crisis performed much better than those that retreated to precrisis approaches and activities”. While “nothing will be the same” is probably an exaggeration, the world needs urgently some significant positive change.