The past three years have brought unprecedented supply chain disruptions. From the continuing COVID-19 pandemic to the Suez Canal blockage and the war in Ukraine – the need to build supply chain resilience has never been greater.
While the worst of the supply chain disruptions seen in recent years are easing, new challenges are emerging, and others are continuing that may define 2023. These include:
- A slowdown in global trade growth from 6.0% in 2021 and 3.2% in 2022 to just 2.7% in 2023, according to the International Monetary Fund
- Continued high energy prices that the World Bank says will be 50% above their five-year average through to 2024
- Rising inflation and interest rates that Fitch Ratings notes are rising faster than expected
- Shortages of skilled workers and raw materials, which the OECD says will persist this year
- Weather events such as hurricanes, floods, and droughts, which McKinsey points out are increasingly disrupting global supply chains
- Geopolitical tensions and civil unrest, which S&P Global Market Intelligence predicts will become even more pronounced in 2023
- Greater push for sustainability, for example with the European Union sustainability disclosure rules and new energy requirements set by the International Maritime Organisation’s MARPOL convention – both effective from 1 January 2023
While preparing for ‘everything’ is next to impossible, companies can boost the resilience of their supply chains, so they are ready for ‘anything’ 2023 might bring. Here’s how.
1. Map key dependencies and scenario plan
By mapping its dependencies, a company can gain a better understanding of where a disruption might disrupt the supply chain. The key dependencies could include critical systems, suppliers, and raw materials, for example. Once the dependencies are mapped, the company can explore various scenarios and plan the actions it would take if any of the dependencies were affected and how it would mitigate the impact. For example, how would they respond if a key raw material was delayed or unavailable, or if a weather event or civil unrest disrupted shipping?
With efficient scenario planning, the company boosts supply chain resilience, allowing for quick and effective responses to multiple scenarios.
2. Leverage data and technology
Leveraging the data produced at all stages of the supply chain can help predict and prepare for disruptions, optimise logistics, and reduce waste. The greater the level of digitisation in the supply chain, the greater the ability to collect data and improve end to end visibility. According to McKinsey, only 53% of companies currently have sufficient or high-quality data. Harnessing this data could help gauge demand requirements and review responses to various disruptions, such as typhoons, earthquakes, or flooding. Companies can then use this data for scenario planning, or to see where energy might be saved or to improve sustainability. It also helps flag any issues and disruptions quickly, so that the company can quickly assess what is affected and what steps to take next. Supply chain analytics can provide more accurate forecasting and help synthesise data. Growing recognition of their value has led to huge growth in the market in recent years. Currently, the global supply chain analytics market is worth almost USD 5 billion and is expected to grow by an average of 21% every year between 2023 and 2030, according to Research and Markets. In the longer term, a data management and forecasting platform can get ahead of outliers in supply and demand. These predictive analytics can identify likely future trends around sales demand, exchange rates, and other important supply chain metrics. With the right data and analysis, a company can better project any possible impact of a supply chains crisis, enabling them to make the swift and effective decisions in times of crisis.
3. Streamline supply chain risk management
Two-thirds of companies say they have implemented new supply chain risk management practices in 2021 and 2022, according to McKinsey. Having a risk management approach in place is key to supply chain resilience. To do this, the company must identify the risks, monitor potential threats and disruptions, and decide how to mitigate the risks. Having a risk management system in place to share any information on risks quickly and effectively is also key, ensuring the company is well in place to prepare for any disruptions well in advance. As the business environments change or as potential risks emerge or fade, the risk management approach can be updated to ensure it remains relevant and effective for managing anything.
4. Prioritise training and preparedness
For a risk management approach to be effective, all the relevant staff in a company must understand it. By providing training to relevant staff across the business, a company can ensure they know how to identify and mitigate risks and respond to disruptions. To maximise the changes of a risk management plan being effective, it needs to be demonstrated and practised regularly. Practicing the approach can help identify the constraints and challenges, plus elements that could be optimised. Regular reviews and time to note lessons learned help ensure the continuous improvement of the risk management approach.
5. Invest in your partnerships
Working with key suppliers and business partners is key to boosting the resilience of the entire supply chain. Working together can also allow for better data share, which improves supply chain visibility. McKinsey has found that companies that took steps to increase end to end visibility were twice as likely to report having faced no challenges from supply chain impacts in 2022. The more connected the different stages, the greater its resilience and agility.
Working together can improve transparency, but also drive higher ethical and environmental standards. If the goal is to improve sustainability, working with suppliers and business partners can help meet that goal. They can share relevant data and work together on steps to improve sustainability across the entire supply chain.
Prioritising supply chain resilience in 2023
With global trade growth slowing, and energy prices and inflation rising, running an efficient supply chain is more important than ever. However, prioritising supply chain resilience can help a company go even further. In a year where weather events, geopolitical tensions, civil unrest, and increasing interest in sustainability are all on the cards, supply chain resilience can ensure a company is equipped to not only survive, but also thrive. By optimising agility and visibility in its supply chain, a company is preparing itself to respond to anything – solving problems quickly and effectively.
To ride out the storm and make the most of what 2023 will bring, prioritising supply chain resilience will be key for many companies.