Article by Stacey Varsani
Founder & Principal Consultant, Hadouken Consulting
Like many people, I realized how fragile global supply chains can be when I couldn’t get many of my usual products in Singapore during the pandemic. There were, unfortunately, some permanent victims, like my kids’ favourite cereal, which we can now only find in the US.
The events of 2020 put supply chains to the ultimate test, revealing vulnerabilities that continue to impact businesses today. With ongoing challenges stemming from the Russia-Ukraine conflict, economic downturns, and geopolitical unrest, companies are grappling with a complex landscape that demands strategic responses. Understanding the main challenges facing supply chains today and how businesses are responding is crucial for navigating this tumultuous environment.
Key Challenges:
International Conflicts and Political Unrest: Geopolitical tensions have significant ramifications for global supply routes. Disruptions caused by conflicts can lead to delays, increased costs, and uncertainty in sourcing materials. For example, the Russa-Ukraine conflict has led to increased energy prices, sanctions, and flight restrictions, making it more difficult and costly for companies to source products from China and Eastern Europe.
Rising Fuel and Energy Costs: Surges in fuel and energy prices affect transportation costs, directly impacting the bottom line.
Consumer Expectations: Today's consumers demand faster shipping at a lower cost, creating pressure on businesses to streamline their operations
Labour Shortages: Persistent labour shortages in many industries are complicating supply chain operations, for example, the shortage of truck drivers in the U.S.
Cybersecurity Concerns: Although new technologies represent a huge opportunity for developing strong, resilient supply chains, cybersecurity risks are also on the rise.
Increasing Regulatory Requirements: The trend towards greater transparency and accountability requires organizations to have visibility of and actively manage risks across their entire supply chain. For example, the focus on emissions data has decisively shifted from Scope 1 (direct emissions) and Scope 2 (purchased electricity) toward Scope 3 emissions (entire value chain emissions).
Data Quality and Fragmentation Issues: Many companies face challenges implementing digital solutions due to fragmented supply chain data and a lack of common platforms. This can be a large, costly obstacle to the effective implementation of technology.
What Can Businesses Do?
In response to these challenges, many companies have been forced to adopt a reactive approach and are often focused on firefighting. However, many are also working toward implementing sustainable solutions, which requires a strategic mindset and takes time. Here are several ways businesses are adapting:
Digitization of Supply Chains: Businesses are investing in technologies like scanning apps, stock management software, and AI-driven solutions for demand forecasting, inventory optimization, predictive maintenance, etc. As of 2023, 9% of companies across all industries were using AI in supply chain management (source: McKinsey). However, the trend towards adoption is accelerating, with 2024 being described as "the year of widespread AI adoption" across multiple industries (source: Statista).
Prioritizing Data Quality: Going hand-in-hand with digitization, companies are focusing on solving data quality issues where they have the most significant impact. In order to make use of digital solutions, it is key that the data going into and coming out of these systems is accurate, consistent, and secure.
Diversification of Supply Sources: Strategies such as reshoring, nearshoring, and the "China+1" approach help companies mitigate risks by establishing alternative sourcing options.
Electrification and Automation: The electrification and automation of logistics processes are becoming increasingly important for improving efficiency and reducing environmental impact, especially in the context of labour shortages.
As businesses continue to navigate these challenges, a proactive and strategic approach will be essential for building resilient supply chains capable of adapting to an ever-changing landscape. By leveraging technology, diversifying supply sources, and incorporating sustainability, companies can position themselves for long-term success.
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