The Need For Supply Chain Innovation: Why You Should Watch These Four Trends ?

The Need For Supply Chain Innovation: Why You Should Watch These Four Trends ?

The Need For Supply Chain Innovation: Why You Should Watch These Four Trends ?

Feature Article by Wolfgang Lehmacher – Operating Partner, Anchor Group and Dweep Chanana – Managing Partner, Anchor Group

Recent years have placed supply chains into the spotlight and onto many board agendas. In a world of almost continuous disruptions and intense competition high performance supply chains have become the decisive factor.

This is reflected in the elevation of operating executives to the C-suite. Tim Cook, CEO of Apple, was COO before becoming CEO; Alan George Lafley, CEO of Procter & Gamble, took a commission with the U.S. Navy as a supply officer first; and Mary T. Barra, CEO of General Motors, is known for her strong operations and supply chain management background. With this invitation of supply chain heads to the board room come higher expectations and higher levels of investment that will impact the quality of future supply chain networks.

The networks are being impacted on the one hand by major but transitory shocks such as U.S.-China trade tensions, Covid-19 measures and the Russia-Ukraine crisis. These have brought resilience and near-shoring back on the agenda. But what will really happen? Companies will make better use of what they have and what they can find in the ecosystem. It is prime time for visibility / inventory management tools and outsourcing. This will not go away – rather, operating flexibly and in an agile manner in a volatile world will be the table stakes of 21st century supply chain management. On the other hand, there are longer-term megatrends shaping supply chains. These are rooted in a changing business and competitor environment, altering consumer behavior, regulators’ policy decisions and a shifting geopolitical global power balance.

  1. Market fragmentation and consolidation

Entire markets are being redefined by the opposing forces of fragmentation and consolidation, with industry boundaries getting blurred.

Transport markets tend towards consolation, which we have observed with the container liners and the emergence of new business models brought about for example by platform aggregators. For instance, Maersk and CMA CGM are building end-to-end logistics capability chains, while over USD 6bn was invested by VC investors in freight marketplaces alone through 2019. Conversely, new players like Amazon and Alibaba have revolutionized not only the retail but also the logistics industry. Record levels of VC funding, over USD 11bn in 2021, is creating more challengers still.

With the consolidation and blurring of industry boundaries, it is no longer clear who is partner and who a competitor. The changing market dynamics is forcing incumbents, such as forwarders and brokers to find their new place in a crowded and consolidating competitive landscape. How this affects prices and contracts is unclear, but it will shift the profit share away from incumbents by commoditizing or taking away high-margin segments from them. All companies must think today as to what their core business is and either consolidate or re-invent themselves.

  1. Customer control and ever-rising expectations

The fundamental trend reshaping supply chains over the last two decades has been the shift from supply push to demand pull through the rise of e-commerce. With consumers having the world under their fingertips, it is increasingly them that decide how things move through the chains. Online buyers have emerged as an influential actor in the connected world of chains, making it vital to comprehend how the consumers’ ever-rising expectations affect supply chain design and operation going forward.

Figure 1: US E-commerce sales as a % of total sales, 1999 – 2021. Source: US Census Bureau.

 

This has already given birth to 2-day, 1-day and same-day deliveries with 30-minute time windows, which led to accelerated adoption of logistics platforms and drives the imminent adoption of drone delivery. Reflecting this, McKinsey estimated that last-mile delivery models received the most funding of any category of logistics startups (c. USD 2bn in annual VC funding) from 2015-2019.

There are additional areas where consumer demand sets the standard too: individuality increases the number of stock keeping units (SKUs), requires more frequent change to designs, and brings production or customization closer to the customer; sustainability concerns and ethical considerations drive the need for transparency and information, including proof of provenance, supply chain security and product or producer identity and authentication. To meet all these demands, companies increasingly expect that their business partners digitally integrate into their chains.

  1. Increasing level of (climate) regulation

Both consumers and regulators demand ever increasing environmental performance from businesses. We can expect regulation to be tightened and for institutional investors to demand greater transparency on environmental reporting.

Companies have responded by making ambitious voluntary pledges. Most recently, Maersk advanced its  commitment to achieve net-zero greenhouse gas emissions forward by ten years to 2040.

With transportation accounting for over 15% of greenhouse gas emissions (even more in developed markets), there will be immense pressure on the logistics industry to change. However, Supply chains will play a key role in this transition too. Even as companies set ambitious decarbonization goals, working with their partners and adopting innovative technologies, solutions and practices will become critical. In this process, sustainable chains will become both a regulatory imperative and good business practice.

  1. Asia rising and connected regional platforms

The rise of Asia has contributed to today’s geopolitical tensions and misalignment. But Asia will continue to grow as a manufacturing base and consumer market. Supply chains will adjust to this reality and we can expect that the Asian supply platforms will become increasingly granular and performant. But Asia is only one piece of the global supply chain puzzle. Europe and North America will invest in their platforms too resulting in a world where interconnected regional platforms allow companies and consumers to optimize lead times, inventories, costs and carbon footprints.

The world is in turmoil and we need new tools and practices to navigate through changes and shifts. To thrive, companies are advised to adjust their way of operating in a structured manner and to build an agile company and supply chain network. This starts at the top with the way the board works and establishing flat structures with accelerated decision-making. But the speed required to respond to market shocks, dynamic customer behavior and drastic policy changes leaves little choice and can only be achieved through close to real-time information and modular infrastructures. Data received through a broad range of feeds computed with the help of powerful analytical tools and recommendation engines is a prerequisite to manage large-scale supply networks in a disrupted and volatile environment. It is that data-driven company which has the best chances to weather the increasingly violent “storms”.

About the Author
Wolfgang Lehmacher is operating partner at Anchor Group and advisor Topan AG. The former head of supply chain and transport industries at the World Economic Forum and President and CEO GeoPost Intercontinental is advisory board member of The Logistics and Supply Chain Management Society, ambassador of The European Freight and Logistics Leaders’ Forum, advisor to Global:SF and founding member of the think tanks Logistikweisen and NEXST.

 

 

 

Dweep Chanana is Managing Partner at Anchor Group. He was Head of Venture Investments at Momenta Partners and Managing Director at Touchstone Ventures. He also served as Director, Strategy and Business Development for Family Services at UBS Wealth Management, and led a UN financed market entry and financing program in Kenya. A telecommunications engineer by training, he worked with Lucent and Hughes.

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