Supply Chain Tremors Will Continue To Rattle The Status Quo

The pandemic rapidly exposed the fragility of networks in our economy, as supply chains that bring goods from overseas to our doorsteps were badly shaken. While it’s easy to blame the pandemic for what might sound like shipping problems, it was unprecedented demand that pushed global supply chains well beyond the capacity it could handle.

Factory closures and labor shortages knocked out production and delivery hubs at the same time as a leap in online shopping sent demand for consumer goods soaring—straining networks and cracking the status quo.

As continuing delays and rising inflation threaten the holiday season, it’s no surprise that more than 3,000 mentions of “supply chain disruption” came up on earnings calls in a single week last month, an all-time record.

Worse still, there are no signs of the crisis easing any time soon. C-Suite executives surveyed by Accenture say supply chains face their greatest stress test in a generation as the pandemic fallout prolongs problems some fear could drag on for years.

While companies have taken steps to respond, leaders predict the long-term impact of supply chain issues to include increased use of automation and robotics, production moving closer to demand, infrastructure being bolstered and rising wages across critical points of the supply chain.

A revolution is unfolding that demands strategically bold, far-sighted decisions and investment in transformation that guarantees resilient, long-term growth for all stakeholders.

Brace for the long haul

Accenture’s survey of 866 companies in six countries taps fears that the economic impact of the crisis could last longer than expected. Predictably, the pandemic is widely blamed for supply chain issues—although business leaders cite complex factors including poor collaboration across networks, excessive demand, worker shortages and bad contingency planning.

The impact has been bruising. A third of executives cite a litany of problems from higher prices for inputs, supply shortages, stressed workers, and radically changing customer expectations. Worryingly, both workers and managers see no quick fix: 66% of all respondents think these issues will last over a year, while 33% of executives say it could drag on for three. Not only could some businesses fail, but 88% of executives expect disruptions to continue inflating prices, forcing consumers to cut spending thereby hurting the wider economy.

In response, many companies are making a short-term shift to “just in case” —pre-ordering supplies and inputs (43%), making contingency plans (43%) and double-ordering inventory (35%). We expect this to shift to “as-needed” or “on-demand” as companies get more comfortable with using granular, real-time data to predict future demand and variances tighten. A significant proportion also restructuring supply chains and inventory management processes (43%) while deepening collaboration with stakeholders (40%).

For many executives, the world has changed forever—with dramatic long-term consequences. Four-fifths believe increased use of automation, AI and robotics will radically enhance real-time supply chain visibility (79%). Nearly three quarters (73%) expect production to move closer to demand—a trend underway, with 34% reporting they have already done so.

And there are strong expectations that wages in critical roles will rise and of major investments in infrastructure such as ports, rail lines and highways.

Adapt now to avoid pain later

Companies can take steps now to guarantee resilience, responsibility and relevance in the longer term.

Change is essentially being driven by the shifting dynamics of consumer expectations and rapidly changing preferences for fast, flexible and cost-effective fulfillment.

Likewise, the pandemic has transformed what consumers expect in terms of sustainability—greatly underlined by the COP26 climate talks—and empowered stakeholders to demand supply chain partners act responsibly. Eliminating excess inventory and hence slashing waste, or shipping and producing what customers want and reusing what they do not, should be seen as investments in new value.

By accelerating digital transformation, the pandemic underlined the importance of quickly achieving scale across cloud investments. Combining data analytics with the cloud’s vast computing power offers huge possibilities to manage service levels and costs, reinforce resilience—and take responsibility for environmental and social priorities. It can empower company leaders to automate at scale in order to augment human talent with AI and drive decisions through real-time analytics.

Yet, today’s supply chains are much more than the sum of their parts, and 40% of executives are deepening collaboration with partners to guarantee supplies. The pandemic has pushed over a third (39%) to focus on the resiliency of networks—for example, by ensuring less than 25% of a critical item’s quantity passes through the same supplier-location-port-route. They instinctively understand that enduring partnerships not only reinforce resilience, but add value by widening access to innovation.

The pandemic’s shock to the system has ensured supply chains will never be the same, and the crisis continues to threaten businesses—an enhanced risk over the holiday season. But just as the pandemic gave companies a brutal reminder that their fate is tied to the resilience of their supply chains, transforming these will ultimately be the key to their survival.