Tackling the new normal in the post-COVID supply chain

In recent years, both supply chains and the broader economy have experienced an extraordinary series of shocks. The effect of these has been to create volatility and disruption on a massive scale, which has started to look less like a brief blip and more like a new operating normal for manufacturers and consumers.

With the pandemic now firmly behind us, it's important to consider what this new normal means for Ireland's supply chains, and how businesses can enhance their resilience in the face of this rapidly evolving geopolitical landscape. Willam Taylor and our Strategy team explain below.

Instability: the post-COVID normal?

At the global level, supply chain instability is showing few signs of disappearing. KPMG’s latest Supply Chain Stability Index quantifies the extraordinary number of stresses on the global supply chain since 2020, including pandemic, geopolitical, and cyber events:

The index predates several conflict escalations in 2022 and 2023, which only serves to amplify the baseline level of volatility. With Sino-US decoupling well underway and the EU also making meaningful moves towards manufacturing repatriation, it seems safe to assume that supply chains are not returning to pre-pandemic norms.

Stability Index findings

So, how exactly are they changing? The Stability Index, whose focus is the US context but has global implications, notes three strong trends:

Sourcing: countries and companies are seeking to boost resilience by lessening their reliance on China, with knock-on effects for ocean and air freight as well as countries picking up US import demand, such as Mexico and Canada.
Labour: the supply chain labour network is experiencing unusual volatility, as well as a significant loosening, while transport labour demand is shifting from seaports to land ports as U.S. supply chains reduce reliance on China in favour of regional trade partners.
Inventory: inventory levels are rising as manufacturers rethink just-in-time strategies to find a better balance between service level and risk.

Instability in the global supply chain is reflected very clearly in business sentiment. KPMG’s Sept 2023 Future of Supply Chain report, which surveyed 300 global supply chain professionals across multiple industries, found widespread anxiety about instability in the supply chain.

Amongst the headline findings were that:

47% of respondents believe they are vulnerable to disruption
71% anticipate rising raw materials costs as a pressing challenge
70% anticipate upstream supply chain disruption as a pressing challenge
67% anticipate meeting customer expectations for speed being a pressing challenge
62% anticipate labour shortages being a pressing challenge

Transparency is another major concern that emerges from the report, which shows that:

87% of respondents see visibility as ‘critically important’.
61% consider the development of more supply chain visibility to be a top priority.
52% consider reducing the number of suppliers based in geopolitically unstable geographies as a top priority.
43% have no visibility of or are “largely unclear” about the performance of their Tier 1 suppliers.
Only 28% have clear visibility into their Tier 2 suppliers.
39% plan to invest in digital technology to bolster their data synthesis and analysis.
37% see labour shortages impacting supply chains in the long term.

Unsurprisingly, such findings are widely reflected in the concerns of Irish CEOs.

According to the 2023 IBEC CEO report, supply chains are one of the primary issues keeping Irish business leaders awake at night, with supply chain disruption remaining a challenge for two thirds of manufacturing firms, and supply chain issues forming the single greatest external challenge facing Irish businesses in the year ahead.

Tackling the new normal in the post-COVID supply chain

The response: moving from tactical to strategic supply chain

How can Irish businesses navigate this new normal? Through our work with manufacturers and logistics operators, we see a clear imperative to move from tactical to strategic supply chain operations. In particular, we think this means a focus on: transparency, labour, and resilience. Below we flesh this out in greater detail.

Transparency

As the Future of the Supply Chain report makes clear, a large majority of supply chain professionals see visibility across the supply chain as critically important, but far fewer have achieved this. In the new normal, businesses can no longer afford to put off the actions necessary to make this kind of radical transparency a reality. This will demand comprehensive operations mapping and development of a transformation strategy, likely to include:

Working with T1, 2, and 3 suppliers directly to report/disclose issues in a timelier fashion.
Data sharing with multiple tiers up and downstream in the supply chain. Greater use of AI and data analysis to drive insights.
Standardising supply chain and operational practices across internal facilities and extending out into supplier networks.
Partnering with industry stakeholders to collectively tackle bigger ESG issues, such as modern slavery, environmental and geo-political issues.

Labour

With labour costs rising and relevant skills in increasingly short supply, there is a new urgency around efforts to reskill and optimise the labour force to deliver fit-for-purpose supply chain logistics. It is critical that businesses prioritise people development strategies, benchmarked against peers and with a view to differentiation. At a minimum, such strategies are likely to include:

Investing in skillsets and the whole-career development of employees, not neglecting soft skills.
Being open to hires from diverse backgrounds to bring into the supply chain, to enrich the workforce perspective.
Investigating automation, outsourcing, and other labour-saving technology options, including robots and AI in warehousing, or AI-driven decision demand planning.

Resilience

The premium is growing on the ability to resolve unavoidable supply chain disruption. Businesses need to be crystal clear about the robustness of their existing supply chain networks, via appropriate due diligence and stress testing, as well as willing to explore improvement opportunities. A strategic approach to resilience will involve:

Using tools such as risk registers to plan early on for controllable risks, and regularly reviewing business continuity plans.
Understanding long-term demand trends and modelling how cyber, disease, ESG, geopolitical or safety events may affect required inventory levels, and incorporating such learnings into demand forecasting and inventory management (recent historical examples such as COVID provide a rich source of data to learn from in this respect).
Developing business continuity plans for sole sourcing arrangements or supply chain nodes that exist in any area of high risk, and being prepared to invest in such.
Considering the likely effects of significant supply chain stakeholder failure, e.g. a major customer is lost or a significant supplier has a factory fire.

Conclusion

The global supply chain disruptions of recent years have made it abundantly clear that supply chain resilience is no longer a choice but a necessity for businesses in Ireland and around the world.

To thrive in this new normal, companies need to develop more strategic approaches to supply chain operations, necessitating a triple-pronged focus on labour, resilience, and transparency.

Now is the time for Irish businesses to take a hard look at current supply chain operations for their robustness, transparency, technology and human resource requirements, to soberly anticipate the requirements of the coming five years, and to strategise accordingly.