Why Supply Chain Leaders Shouldn’t Let a Good Downturn Go to Waste

Originally published on Logistics Viewpoints

For a few years now, supply chain professionals and pundits have been speculating on what the so-called “new normal” will look like. That’s shorthand for a supposed future state when pandemics, natural disasters, political conflicts – pick your disruption du jour – have receded into the background and our supply chains can once again operate in a relatively stable environment.

I propose it’s high time we acknowledge the futility of the “new normal” conversation and put it to rest, once and for all. Normalcy is no more. Things have changed, for good, and the environment we now work in is one of constant volatility.

The big-picture macroeconomic signals we’re getting of late seem to bear this out. After months of dire predictions, many in the financial community are lowering the odds of a recession in the next year. Much of this newfound optimism is attributable to a record jobs report in January – and yet we’ve seen a spate of layoffs in tech and other industries. Closer to home for supply chain professionals, driver shortages continue to plague the industry. Freight rates have plummeted, brokerages are struggling, and the industry is still bloated with excess inventory. And we’ve yet to experience all of the possible repercussions of the conclusion of China’s zero-COVID policy.

The compelling case for investing in supply chain tech, now

Bottom line, there’s plenty of market volatility and risk to go around. But we’re also seeing many of the supply chain industry’s biggest digital pioneers displaying real moxie in recognizing the opportunity in front of them. These are the companies and leaders that aren’t letting a good downturn go to waste.

A famous 2010 HBR article, “Roaring Out of Recession,” studied how 4,700 public companies fared during the recessions of 1980, 1990, and 2000. 17% went bankrupt, went private, or were acquired. But “9% of the companies didn’t simply recover in the three years after a recession — they flourished, outperforming competitors by at least 10% in sales and profits growth.”

Core to their success was scenario planning on multiple fronts, together with smart investments in technology. “The first reason to prioritize digital transformation ahead of or during a downturn,” says Katy George, a senior partner at McKinsey, “is that improved analytics can help management better understand the business, how the recession is affecting it, and where there’s potential for operational improvements.” HBR also cites technology’s ability to cut costs and to make “companies more agile and therefore better able to handle […] uncertainty and rapid change.”

Supply chain leaders get it, as confirmed by recent PwC research that shows:

• Investing in advanced supply chain capabilities bears fruit through lower costs, increased revenues, improved sustainability, higher asset utilization, better risk management, and greater rates of on-time, in-full delivery to B2B and B2C customers.
• For supply chain “digital champions,” investments in advanced supply chain capabilities pay off in an average of 22 months, and these companies see higher returns relative to other companies and “digital novices.”

And a FourKites survey of 350+ supply chain leaders tells us that the past few years of supply chain disruptions — including COVID-19, market volatility, global political conflict, material shortages and extreme weather events — drove 73% of respondents to begin investing in supply chain visibility, with 46% planning to invest more in 2023.

Build the next generation of supply chain solutions, today

The year ahead represents nothing less than a golden opportunity to accelerate the creation of automated, interconnected and collaborative global supply chains that span transportation, warehouses, stores, trucks and more. A future where:

• Data (as noted by PwC) is “free-flowing” and “unencumbered by department silos,” so companies can generate insights to identify shocks before they happen, streamline operations and improve the customer experience – regardless of role.
• Collaboration is pervasive and transparent across supplier ecosystems, so that every participant can respond in concert with changing conditions.
• Supply chain solutions solve problems not just in transit but throughout the planning and order life cycle — from order processing, to transport planning, to fulfillment, yard, tracking, and post-delivery.
• Through data sharing and collaboration, companies and their partners can better understand and solve for their sustainability and decarbonization challenges.

These are the tenets of world-class supply chain management in an era of constant volatility. And, once implemented properly, having a collaborative, tech-enabled supply chain network powered by free-flowing, actionable data will unlock measurable business value. Once that’s in place, CFOs will notice:

• Improved margin by lowering your cost of goods sold. With the right data you can reduce your overall transportation costs, both accessorial costs and overall freight spend. While many companies assemble great sourcing and procurement teams when it comes time to renegotiate freight contracts, they often fail to provide good documentation that allows them to negotiate from a position of strength.
• Reduced working capital. For example, imagine your company moves 10,000 containers a year with an average contents value of $75,000. If it takes 50 days from ownership transition at origin to receipt at the warehouse, you could save $2M in inventory, or $250K in working capital, if you reduce transit time by one day (50 to 49 days).
• Faster order-to-cash. With real-time data on the status of orders, shipment tracking, and delivery confirmation you can optimize your order fulfillment process to reduce lead times and delays in collecting payments.

The opportunity for progress is here

In the last several years, the supply chain industry has made tremendous progress in building a digital foundation that sheds light on global supply chains and in-transit goods that have been, quite literally, lost in the dark. Now, with powerful AI and ML technologies to generate predictive ETAs, we can reroute shipments in anticipation of possible disruptions, eliminating manual track-and-trace efforts.  And we can accomplish even more as we break down silos and put supply chain data in the hands of front-line, customer-facing teams. As a result, inventory management improves, workforce productivity increases and customers become happier and more loyal.

We now have an opportunity to take automation, orchestration and supply chain insights to entirely new levels of sophistication and impact. Let’s not waste it.