Supply Chain Management: Preparing For The Now.

2023 might be when supply chain teams want to take a deep breath, pull their shoulders back, and sigh in relief that 2022 is over. No doubt about it, 2022 was a challenging year. However, the fight is not over. Supply chain reliability takes a new complexion with multiple challenges for 2023.

While many might forecast a decrease in supply chain challenges, a more informed view is that the obstacles loom in a different form.

Here we share what to expect as growth slows in the face of the pending recession. The redefinition of the supply chain from a period of 7-8% growth to a slower pace has its own set of problems. Focus on five:

1. COVID and China. Companies dependent on Chinese manufacturing should brace for extreme shortages and supply disruption. COVID impacts will be far worse than expected, peaking 2-3 weeks following Lunar New Year. (The holiday period starts on January 22nd and ends on February 5th.) The issue? COVID levels, while unknown, are high, and lunar New Year celebrations will escalate the spread. In the face of death and disruption, demand in China will fall. Next steps? Understand your organization’s dependency on China and decrease the risk wherever possible.

2. Organizational Adjustment and Realignment. In Q1 reporting, in the face of the decline of growth, expect companies to prepare write-down stories that include inventory write-offs and employee lay-offs. Steps to take? Get serious about inventory management. The write-downs are a great source of data on how the organization failed— misaligning demand and supply. Learn from past issues to redefine inventory management practices.

3. Shifts in Demand. History will be a poor predictor of future demand. Plan for a richsession. What does this mean? This recession will hit the well-heeled consumer more than in the past. Use market data and model supply chain flow based on consumption to understand the trends and align the supply chain based on actual spending. Side-step traditional demand modeling practices dependent on historical orders and shipments. Throw history out the window.

4. Supply Shortages. As the Russian-Ukraine war rages, energy and petroleum-based products drive a different type of discussion. European energy costs, coupled with the pending power outages, affect manufacturing reliability. Advice? Get close to your suppliers through a robust supplier development organization.

5. Delays in Container Bookings. With the fall in demand, the forecast is 25-30% of containers to be postponed or rebooked on future ships. What does this mean? Expect extreme variation in lead time. Build a planning master data layer to help inform the organization on expected deliveries based on actual bookings. Lead times as we know it, will change. Expect variability and erratic behavior.

Conclusion

Do not fool yourself that traditional processes and technologies are equal to solving these unique set of problems. The answer lies in building capabilities to sense market data while reducing the dependency on enterprise data and functional, silo’d processes. Use the coming shock waves as an impetus to change boardroom thinking.