In today’s gridlocked supply chain, characterized by congested ports, container shortages, Covid-19 outbreaks and rising costs, supply chain CEOs are targeting two areas of concern for the immediate term.
Of the 199 CEOs and senior business executives surveyed across supply-chain-intensive industries by Gartner, 17 percent see cost optimization as the No. 1 issue that chief supply chain officers (CSCOs) should prioritize, running neck-and-neck with 16 percent of execs who cite supply-chain resilience as their top issue.
As importers seek to get back to a level of normalcy, CSCOs more than likely will to have to master a balancing act to ensure that supply chains continue to operate efficiently.
Gartner’s view of “cost optimization” does not solely mean cost cutting but instead, optimizing the overall outcomes derived by the business, according to Thomas O’Connor, senior director analyst with the firm’s supply chain practice.
O’Connor pointed out that cost optimization largely manifests in three forms: operating for cash where expedient spending reductions are made that improve cash flow; optimizing network performance, typically via organizational alignment; or enabling profitable growth.
He highlighted that the retailers and brands looking to operate for cash can looks to the example of The Home Depot, which contracted its own container ship in June to support inbound sea freight to the U.S. and unlock increased cost and capacity certainty.
Optimizing costs takes into account a business’s risk and growth requirements, thereby creating a link to supply chain resilience. Gartner defines resilience as the ability to adapt to structural changes by modifying supply chain strategies, products and technologies.
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“Gartner survey data identifies that 87 percent of supply chains are planning to invest to increase supply chain resilience by 2022,” said O’Connor. “Couple this with the various cost pressures being experienced by businesses today such as raw materials price inflation and freight capacity challenges and it becomes that cost optimization and resilience initiatives are not an either/or proposition. Both must be prioritized.”
To balance the top two priorities, companies must first develop a more detailed picture of their upstream supply chains, he said. This means mapping the supply base beyond Tier 1 suppliers as such that they clearly understand their Tier 2 and Tier 3 suppliers, their potential service and costs risks, as well as associated price pressures.
These companies can also leverage real-time data to sense changes in their supply and demand bases, which integrates into a centralized decision-making tool such as a control tower. Advanced technologies like AI and machine learning can derive insights from this data and support supply chain response to ensure both the resilience of operations and optimized costs.
Brands also must rethink their existing operating models, O’Connor said.
“For example, use automation to support cost-effective nearshoring of manufacturing operations or capitalize on regional capabilities and the strengths of partners and subsidiaries by creating a geographically segmented approach to supply and demand,” he told Sourcing Journal.
As CSCOs navigate the lingering effects of the Covid-19 pandemic, they also must prepare for the growth agenda the CEOs have in mind for the future, Gartner warns.
In fact, the survey, conducted from July 2020 through December 2020, showed that 60 percent of CEOs expect an economic boom to start by year-end 2022.
With that in mind, CSCOs will face ongoing challenges, namely when it comes to the balance of supply and demand in different parts of the world, which O’Connor described as “non-linear.”
“Varying approaches by geography will be required with some regions with high Covid cases and low immunization rates needing to prioritize business continuity,” O’Connor said, “while others that are more rapidly emerging from the pandemic, such as the U.S. and U.K., strive for commercial opportunity and growth while remaining cautious and aware of the potential for markets to backslide due to new variants of the disease.”
Digitization is the most common theme
The majority of the respondents surveyed say they want to focus on technology as they adapt to current industry concerns, with 80 percent planning to increase year-on-year investments in digital capabilities.
But the prioritization of digital appears to be shifting from a general, undefined ambition for digital business transformation toward more targeted initiatives. It is now on the CSCOs to confirm their CEOs’ intended meaning of digital business within the context of their own organization or industry.
Survey respondents’ most popular areas for digital business investments were e-commerce (16 percent), customer interactions (9 percent), data analytics (9 percent) and customer experience (7 percent).
CEOs anticipate the pandemic will have a lasting impact on their businesses, with over two-thirds of survey participants indicating they will use the pandemic as an opportunity to focus on redesigning the business. Further, 79 percent of CEOs expect to see significant and enduring behavioral changes in society, the organization and individuals that are a direct result of the pandemic.
Top supply chain officers have more say in C-suite
A major positive going forward is that despite the issues plaguing the supply chain, the role of the CSCO has played a bigger role in the C-suite in recent years.
O’Connor pointed out that 56 percent of surveyed supply chain executives in Gartner’s annual Future of Supply Chain Survey identified that they believe their CEOs and executive management see the supply chain as an equally important part of their business success to sales and marketing or product development.
“This is a real positive for CEO-CSCO communication,” said O’Connor. “The challenges of the last 18 months have further reinforced the critical role of supply chain in business with growing references to supply chain and logistics in listed companies’ earnings calls and similar forums where CEOs discuss their organizations.”
And while many of these companies may not be viewed publicly as making decisions that are in the best interest of everyone involved, 43 percent of CEOs from supply-chain driven industries stated that they see their organization’s purpose as going beyond shareholder needs, which came as a pleasant surprise to O’Connor.
“Yes, shareholder needs are critical, but they are also incorporating the needs of employees, customers, suppliers and other stakeholders,” said O’Connor. “Hopefully this will be an area where we see CEOs continue to expand their view of organizational purpose into the future.”