Supply Chain Roundup - Week 28 - 2023

Transforming Supply Chains Through Digitalization

In the face of various disruptions like demand fluctuations, high interest rates, trade disputes, natural catastrophes, and workforce shortages, only the most resilient supply chains will thrive. They will navigate through micro-trends such as in-house versus outsourcing decisions, risk evaluations, digital capabilities, and collaborations with suppliers, thereby fostering innovation, crafting new business models, and securing a competitive edge.

Supply chains play a pivotal role in achieving ESG and carbon neutrality goals, with eight major industry supply chains accounting for over half of the global carbon emissions. To build a supply chain that is resilient, eco-friendly, and cost-efficient, businesses must escalate their investment in digital technologies, enabling swift, adaptable decision-making through AI and ML. These technologies not only enhance supply chain flexibility and visibility but also significantly cut down costs. For instance, early adopters have seen a reduction in inventory expenses by 35% and logistics costs by 15%, according to McKinsey, courtesy of AI's precision in minimizing errors and delays.

A case in point is Merck, a German conglomerate in science and technology, which is proactively preparing for future supply chain challenges and regulatory changes by expanding its digital and physical presence globally to ensure predictive quality and swift market access. Merck plans to invest more than € 3 billion in innovation and capacities of its Electronics business sector up to the end of 2025.

More teamwork on data sharing can result in growing the resilience of supply networks, via access to demand signals that allow all parties to plan accordingly. Eventually, this can lead to more straightforward steps in buying and selling, as well as easing risk across the supply chain. 

The Impact of Globalization on Supply Chains

The NY Fed's Global Supply Chain Pressure Index noted an increase for the first time since December, indicating a resurgence of supply chain issues that were previously thought to be resolved. Challenges such as backlog in the UK and Euro area, and extended delivery times in the US and Taiwan have contributed to this pressure.

Despite a decline in air freight volumes, there's an observable improvement across various global supply chain indicators, including reduced delivery times, easing port congestions, diminishing product shortages, and stabilizing global inventory levels (air cargo spot rates to drop 41% year over year in June, according to a July 6 update from Xeneta’s Clive Data Services).

This week, the International Energy Agency released its most recent review of the global critical mineral market this week, raising questions around how countries can diversify their sourcing pools for minerals like lithium, graphite and cobalt. On thing is clear however, high demand is here to stay.

For context, geopolitical tensions, particularly between the US and China, and concerns in the Taiwan Strait are expected to encourage diversification in supply chains throughout the 2020s. The intense demand for critical minerals like lithium, graphite, and cobalt is prompting countries to diversify their sourcing strategies (through measures such as the Inflation Reduction Act), despite the concentration of mining operations in a few nations. (Chile, China and Australia control the vast majority of lithium, while Indonesia and the Democratic Republic of Congo respectively dominate nickel and cobalt supply)

The evolving landscape suggests a gradual shift in supply chains, varying significantly across industries, with Asia, particularly Southeast Asia, emerging as an alternative manufacturing hub for electronics and automotive components. Google (US) will produce its Pixel 6 smartphones in Vietnam for the first time in 2023 to avoid overdependence on China (currently its main base for Pixel 6 smartphone production) and to take advantage of cheaper labour in the country compared to the US.

Advancing Towards Sustainable Supply Chains

The ScotWind Leasing's recent progress highlights the significance of local content in supply chain development. 17 initial projects - out of a total of 20 - have submitted their Supply Chain Development Statements (SCDSs), that required them to lay out their anticipated levels of local content from each phase of their proposed projects. The multi-billion-pound supply chain investment in Scotland could really be a game-changer for the local stakeholder industries.

This initiative is close with Europe's sustainable energy transition goals. In the same topic, this week, Seedtrace, a digital platform aimed at enhancing supply chain transparency, has raised €2 million from Alpha Ventures. This underscores the growing emphasis on accountability in business operations, especially considering stringent regulations like the German Supply Chain Act enforced since January 2023 and the EU's incoming directives.

The push towards sustainability is not just about risk mitigation but also about leveraging it for competitive advantage. Companies are increasingly held accountable for their suppliers' compliance with ESG standards, emphasizing the need for rigorous supplier risk management to reduce supply chain disruptions and compliance issues.

According to a 2022 study by Deloitte and Manufacturer’s Alliance, companies that prioritize supplier risk management and assess the residual risk of suppliers can achieve a 20% reduction in supply chain disruptions and a 14% decrease in compliance-related issues.

For instance, this week, Puma's commitment to transparency in its leather supply chain, through initiatives like the Deforestation-Free Call to Action for Leather, exemplifies the shift towards more ethical and transparent supply chain practices.

Shifting towards innovative business models and adapting to the changing preferences of consumers requires new partnerships with suppliers to build networks of value. The evolving landscape of regulations and shifts in public sentiment will highlight specific ESG concerns, necessitating a reevaluation of how companies evaluate and prioritize their suppliers based on these factors.

Bibliography

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