Sustainability and due diligence laws force action

In addition to the digitisation of industry and commerce, the effects of the Covid-19 pandemic have also emphasised the importance of supply chain management and sourcing. Ralf Duester, board member of the SCM software specialist Setlog, summarises which trends will shape the year 2022.

His analysis is based on conversations and data from Setlog customers who use the SCM tool OSCA, e.g. more than 100 brands in the fashion industry alone.

1. Sustainability and due diligence laws force us to act

The topics of sustainability, decarbonisation and social compliance are becoming of utmost importance for businesses. Following the Glasgow World Climate Conference, consumers, politicians and business partners are calling on companies to act quickly.

New legislation is driving the pace. In road transportation, there is a strong trend towards e-vehicles and hydrogen-powered trucks. Companies are increasingly considering how to implement circular economy strategies so that fewer products need to be destroyed. More and more, transportation and product packaging come under scrutiny.

Managers are taking topics such as carbon emissions, resource consumption and their social responsibility in global sourcing very seriously. In Germany, the Supply Chain Due Diligence Act has been launched, and the European Union is working hard on regulations.

2. Sourcing and purchasing models are being rethought

The pandemic has shown: companies need to consider and implement individual approaches to sourcing to become more resilient. Analyses of automotive manufacturers, for example, may show that re- or nearshoring of certain products or components makes sense. This may be more expensive, but it makes supply chains more stable.

However, in the consumer goods sector it makes more sense to keep production in the Far East due to the enormous cost difference between Europe or the US and Asia. Furthermore, when it comes to a company’s profits – sourcing, procurement and supply chain management are becoming increasingly important.

The reason for this is that opportunities to push through higher price points in lower and middle product segments have become rare. Prices are becoming more transparent for the consumer through buying platforms. Today, profits are achieved through purchasing – or more precisely – through process optimisation.

In the purchasing models of the future, collaborative thinking will prevail – and all partners in a supply chain will align their actions accordingly. In addition, inventory levels of companies are being redefined due to increased network disruptions – such as environmental disasters, strikes or the pandemic. The disruption in global transportation has shown: For certain industries that depend on a few suppliers, it may be necessary to build higher safety stock levels and rethink order processes in general.

3. Supply chains are being replaced by supply networks

The collaboration of companies with purchasing offices, suppliers, factories, testing laboratories, logistics service providers and distributors is becoming increasingly important. As a result, companies will seek to further strengthen their business networks in the upcoming year. Since the beginning of the Covid-19 pandemic, company-internal systems have proven not to work ideally.

As a result, companies will use tools and platforms that enable secure data sharing as well as support tight collaborative workflows around forecasting, orders, deliveries, production, capacity, and inventory in real time. Collaboration, the optimal use of data and streamlined information flows eliminate errors and delays as well as reduce lead times and inefficiencies. At the same time, all stakeholders can reduce costs and improve their competitiveness.

4. Human resources management becomes more important

Studies show: One of the biggest challenges companies in industrialised countries currently face is a shortage of workers. This applies to specialists in transportation and customs as well as to highly qualified experts in supply chain management.

In Europe, many countries see a severe shortage of truck drivers – in Germany alone, there are 80,000 vacancies. Associations have been calling for better working conditions and higher wages for years. Companies will only remain successful if they pay close attention to recruiting. They must also enter cooperative ventures with universities. And they cannot avoid training their long-time employees in supply chain management – because the complexity of their tasks continues to increase.

5. ERP silos are eliminated

It is a fact that small and mid-sized companies rely on one or two ERP systems, some multi-national corporations on 20 or even more. Even before the pandemic, the inefficiencies of these self-constructed silos were obvious. Covid-19 acted as an amplifier.

The coexistence of systems artificially added to inventory buffers, caused information gaps and delays, and resulted in high IT costs for interfaces, maintenance, and upgrades. Companies will tear down these silos because they can no longer afford the cost, effort, or associated hassle. The best solution is to move supply chain workflows to a collaborative network platform that cuts across all silos and enables both data sharing and data transfer across production lines, departments and companies.

So-called best-of-breed solutions enabled through REST API interfaces in an intelligent IT architecture break down silos and enable collaborative, cross-company workflows with transparent data exchange.

6. Supply chains are seen as competitive advantage

Due to material shortages and the Covid-19 pandemic, supply chains in many companies broke down for the first time since the end of World War II. Increasingly, managers are asking themselves: Can they continue to rely on the existing supplier relationships and logistics chains in future? Many are analysing and re-evaluating suppliers, transit times, and even their own order and sourcing management.

Instead of just looking at list prices, a risk surcharge – depending on the country of origin and other criteria – is calculated for each critical component. Those who reorganise their supply networks can use stable and flexible supply chains as a competitive advantage.

7. Supply chain managers embrace modern technologies

Companies are realising more and more that thousands of decisions with dozens of parameters must be made every day. Experienced managers alone do not help. Companies need to trust new technologies, such as artificial intelligence, to make decisions. The best of the best will automate processes more and take advantage of artificial intelligence in prescriptive analytics and autonomous agents to gain efficiencies.

Managers will adopt supply chain software technologies to increase their companies’ resilience and competitiveness. As a result, new automation technologies eliminate dozens of positions and roles within an organisation. Thanks to modern technologies, companies can generate speed from planning to delivery, reduce buffers and manage processes more efficiently.

8. Optimisation of supply and demand match

Companies are turning towards technologies that optimally match demand with available supply for and within specific delivery windows. If circumstances change, products sometimes need to be reallocated to orders – almost in real time – to keep service levels high while minimising costs. Companies that use software and algorithms to manage demand and supply globally will be one step ahead of the competition.

Generally, rapid changes in supply and demand make it impossible to forecast based on the past. The best strategy is for companies to devise agile approaches to permanently optimise the use of resources and production capacities. Modern demand planning software and business intelligence tools are increasingly important here.

9. Omnichannel comes without an alternative

The years 2020 and 2021 have shown that for companies to remain successful, become faster and more resilient, the potential in all sales channels must be exploited: brick and mortar, wholesale, e-commerce, sales partners and platforms. Only businesses who follow this strategy will remain successful if one or even more of the channels weaken.

Companies also need to be able to consolidate demand across all channels and to increase service levels and revenue while reducing costs. To do this, they need powerful SCM software.

10. Direct-to-costumer makes the difference

If you haven’t optimised this channel yet, your competition may outrun you fast. Managers must have a handle on “batch size 1” production and delivery, master the returns business, and have a last-mile solution in place.

They also need e-commerce technology that can handle the multitude of choices and item variations customers want. In B2B but also B2C markets, this includes drop shipments, which are created, handled and optimised with the necessary transparency of SCM solutions. This allows retailers to sell goods to consumers without having them physically in stock.