The modern supply chain is a complex web of organizations, systems and resources that needs data-driven and logical permutations to bring products to the consumer. Though a smooth supply chain is essential for a thriving world, recent events have revealed its fault lines.

In 2020, up to $4 trillion in revenue may have evaporated. We spent 2022 continuing the battle against the disruptions of 2021 that caused demand to shoot through the roof. And panic ordering to mitigate this has resulted in a cascading effect. Overstock became a complicated problem as inflation increased and demand changed. Therefore, it’s important to understand the trends and strengthen the supply chain permutations with historical data and futuristic insights to prevent future losses.

In 2022, inflation reached 8.3% in the U.S. by August, and 10% in the Eurozone by September, alarming business leaders cited in McKinsey’s latest global survey on economic conditions.

The emerging year presents supply chain organizations with an imperative to analyze, predict and resolve issues before they arise, in accordance with the trends listed below:

Cost consciousness, and how it influences consumers and businesses. The supply chain was stressed by long queues created by a sudden spike in demand and material movement in 2021. Just as businesses started resolving it by stockpiling, inflation dampened demand, making consumers concerned about costs. In 2023, revenues may be positive in some quarters and negative in others; however, regardless of how it fluctuates, people will remain cautious of rising prices. And increasingly frugal consumers will lead businesses to focus on cost reduction using the following techniques: 

• Inventory optimization. Companies have moved from just-in-time to just-in-case inventory management. As a result, inventory levels have skyrocketed, locking up significant working capital. As companies become more sensitive to costs in 2023, they’ll resort to inventory optimization to reduce expenses associated with backorders, overstocking, stockouts and wastages while delivering products efficiently. Businesses must carefully balance the need for extra safety stock to cushion against disruptions with the need for releasing working capital. They can keep optimal stock levels using inventory systems and networking tools supported by advanced technologies such as artificial intelligence, machine learning and data science. Gartner forecasts indicate that 25% of supply chain technology applications will use intelligent algorithms or AI techniques in 2023.
• Vendor consolidation. In light of recent disruptions, businesses have expanded their vendor base to diversify risk. They’re likely to seek some vendor consolidation as it affords them higher purchasing power, better prices, lower freight and fewer transactional costs. The trend is moving in the direction of simplifying the inventory procurement process by limiting vendors while balancing risk. Segmentation will play a critical role here, as companies decide which categories of vendors to consolidate versus which ones to keep diversified. This is a proven strategy for companies to lower costs incurred for acquiring inventory and managing partnerships.
• Spend analysis. Topping the list of cost-efficiency measures in 2023 will be application of spend analysis, to uncover inefficiencies and improve visibility off entire expenditures. In addition, companies will want to identify spend leakage, enforce contract compliance and streamline the entire system. 
• Logistics costs. It will be a business goal to reduce logistics costs by increasing efficiency and timely delivery. Any business that sells products must manage the movement of its goods efficiently to continue thriving. Logistics is critical to achieving this through real-time information and full operational transparency.

Online ordering and lower costs. Consumers have enjoyed the convenience of online shopping for quite some time now, having spent $861.12 billion online with U.S. retailers in 2020, up 44% from 2019. In 2023, businesses will have to figure out a way to offer consumers the luxury of online ordering, in-store pickup, curbside pickup and home delivery — all at the lowest possible cost. That's where consumers are expected to become more price elastic. To lower consumer costs, companies need to reduce their overhead by delivering products cost effectively, necessitating optimal inventory management. Businesses will also become more selective in their product assortments, and reduce stock in response to increasing consumer cost awareness.

Demand forecasting. Traditionally, demand forecasting relies on historical data; however, current circumstances require businesses to anticipate demand actively using future-oriented variables. As demand contracts, companies will be investing in making their supply chains resilient to mitigate risk. In addition, a selective product assortment strategy is necessary for businesses to provide consumers with what they want while keeping costs low. In light of all this, supply chain management strategy will depend heavily on demand forecasting that incorporates current and future macroeconomic trends, rather than relying on history.

Digital supply chain and autonomous robotics. There’s been a steady increase in digital supply chain investments over the last few years. Businesses have been upgrading their software by implementing ongoing initiatives and engaging in long-term projects. There’s a possibility that these ongoing projects will stall in 2023 due to inflation and associated stagnation in economic activity. As far as autonomous trucks and drone deliveries are concerned, it’s unlikely that they’ll become a reality in 2023.

Adaptability. This year will see businesses focusing on developing supply chains that can adapt to changes and disruptions without adversely affecting time, cost, quality or performance. Supply chain risk emerges from vulnerability and exposure to unpredictable events like geopolitical disruptions, natural disasters, pandemics and resource shortages. The first step to making supply chains more adaptable and agile is to identify the vulnerabilities within their own systems, to anticipate and cope with rapidly evolving operational environments and situations.

In general, supply chain prospects seem positive in 2023, although not as strong as before the pandemic. Congestion in the shipping industry is getting more manageable now, and recovery is picking up pace. A return to normalcy is anticipated sometime in 2023. There’s a glimmer of hope, and the world of supply chains appears to be on the mend. It’s up to businesses to adapt to the changing scenario, and strengthen their supply chains in response.

Majaz Mohammed is senior director, supply chain at Tredence Inc.