While predictions are as volatile as the future they predict, trends are often more reliable, and preparations for those trends are well within the abilities of every company in every industry.
Some of the trends companies must prepare for include increased interest rates, global political and economic turmoil, increased effort to reduce carbon emissions, and digital transformation. Here are some thoughts on how to be prepared.
Increased interest rates
The Fed has made it clear that interest rates will probably nudge up once again. Once up, they are unlikely to come down soon. In an era of tight credit and high interest rates, growth can no longer depend on investments. Instead, companies must take a three-pronged approach to freeing up working capital — by optimizing payables and receivables, reducing costs and inventory, and improving services.
Higher interest rates are supposed to constrict consumer spending and demand. Yet consumer spending is showing a continual upward trend. Strategies for optimizing network design and footprints, quickly reallocating resources, and preparing suppliers for shifting needs enable companies to meet demand, whether it increases or decreases.
Global turmoil will continue, somewhere, sometime. Companies that concentrate their sourcing with one supplier or in one country are more vulnerable than those with multiple suppliers in multiple regions. Supplier optionality begins with a strategic, rather than merely transactional, procurement department that evaluates, manages and negotiates with suppliers, and understands ally-sourcing. Communication between procurement, operations, engineering, and logistics ensures that everyone is on board with procurement’s strategic role.
By adding on-shore, off-shore, and near-shore suppliers to the mix, companies have the opportunity to not only strengthen their supply chain but rethink their logistics. A 3C assessment (capability, capacity, and cost) determines if a change in the location or size of manufacturing facilities, warehouses, and distribution centers is warranted. An optimized network also allows for transportation choices that may reduce greenhouse gas (GHG) emissions and lead to significant cost savings.
Carbon Footprint Reduction
The pressure to control GHG emissions is intensifying as the world closes in on 2030 and 2050 deadlines for the reduction in CO2 emissions. But carbon capture, utilization, and storage (CCUS) technologies are still in the innovation stage, and the companies providing those technologies are prone to failure. To make intelligent decisions, companies need a playbook and risk model to guide their evaluation of energy transition companies and their technologies. A 360-degree sustainability outlook takes into account the costs, risks, and impact of CCUS strategies across the supply chain.
Clear goals and reliable data are also necessary to satisfy both consumer and regulatory demands regarding sustainability. However, the definitions of “sustainability” vary from company to company, consumer to consumer, and country to country. Cooperation between companies can give them a boost in meeting regulatory demands by establishing industry-wide goals, baselines, and standards and help everyone avoid the costs of duplicate effort.
To build cooperation within industries and with regulatory agencies, a company needs long-term reliable emissions data with which to establish a baseline and verify improvements. Companies with well-defined KPIs and accountability are in the best position to provide that data.
As more functions become automated — from IoT sensors to communications with customers — more data accumulates. But more data doesn’t necessarily translate into better or more accessible data. Companies often struggle to establish the monitoring and reporting processes and technologies that support data-based decision making and give leaders visibility into the entire plan-make-buy-move supply chain.
Before embracing any new technology, companies need to consider both their operational readiness and the maturity of their processes. Automating a flawed process merely solidifies the flaws. Supply chain mapping identifies real gaps and opportunities in a company’s supply chain. A comprehensive assessment of every person, role, function, process, and system in your company, combined with a strong sales, inventory, and operations planning (SIOP) process, prepares the company to close those gaps and grasp the opportunities.
Once processes are optimized, communication ensures that data flows between functions and is available to the C-suite. Leadership and organizational improvements might be necessary to establish clear owner, responsible, consult, and inform (ORCI) roles, and eliminate silos. Executive dashboards with self-generated reports can be established to deliver the data with the speed and organization that enable fast, data-based decision-making.
What these trends mean
Companies are always going to face the unexpected and unpredictable. Economic upheaval, geo-political instability, new regulatory mandates, and an AI revolution are trends clearly apparent – no need for a crystal ball. The hard part is knowing how to prepare for these supply chain trends strategically.
The strategies suggested prepare a company for any upheaval, predictable or not. With a three-pronged approach to freeing up working capital, supplier and geographic optionality, cooperation and clear communication within and between functions, companies, and suppliers, and optimized processes, a company gains the flexibility it needs to profit and grow while meeting all challenges.
Matthew Lekstutis is CEO of SGS Maine Pointe.
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