Supply Chains of 2021: What could possibly go wrong?

By Dr.Madhav Durbha, Group VP, LLamasoft
Dr.Madhav Durbha, Group VP, LLamasoft reflects on the year 2020 and predictions for 2021 in the supply chain industry...

When we were putting together 2020 predictions, nobody could have foreseen the events which have unfolded. This year has been defined by COVID-19 and its various disruptions. For people and businesses alike, it has been one of the most challenging and unpredictable years in many of our lifetimes. 

From a supply chain point of view, we have seen immense disruption. When lockdown measures were at their most extreme, we witnessed closure of manufacturing facilities, distribution centres, ports, and retail stores. We also faced shortages of things we often take for granted, such as toilet paper and basic food such as pasta and rice. On a national level, the repercussions are set to be huge. Even without considering the costs of new lockdowns, the Office for Budget Responsibility has reported that the UK Government will have to borrow £372 billion for the current financial year (April 2020 to April 2021). Prior to the pandemic, this figure was estimated to be £55 billion.

Going into 2021, many business leaders will be thinking: what else could possibly go wrong? Unfortunately, if 2020 has shown us anything, it’s that disruptions can come when you least expect them. For 2021, the focus must be on preparing for the unpredictable and strengthening supply chains across the globe. So, without further ado, what can we expect to see in 2021?

Rising to the top of the business agenda

Until 2020, supply chain was a business function which largely operated in the background, receiving very little attention in either the national media or people’s day-to-day lives. Deliveries would arrive as expected and everything would run like clockwork, bar the occasional delay.

However, the old adage: ‘you don’t know what you’ve got till it’s gone’ rang true in 2020. National lockdowns and social distancing measures exposed serious weak points in the supply chain, causing huge delays and disruptions which affected people’s daily lives. 

Owing to this, people and businesses alike are paying much more attention to the supply chain. In the business community, mentions of the supply chain have shot up dramatically. From January to May 2020 supply chain disruption was mentioned nearly 30,000 times in the earnings calls of the world’s 2,000 largest firms. This is compared to 23,000 in the same period last year. 

What this means is that supply chain has become a more important topic for the C-suite and the board rooms. In 2021, the supply chain will take centre stage on the business agenda.

Same risk, better resiliency

Until an effective vaccine is discovered, disruptions caused by COVID-19 will continue into 2021. While there have been some predictions about when a vaccine might be available, in truth, we cannot be 100 per cent certain. One thing we can guarantee, though, is that, whether it’s COVID-19, Brexit’ or other geopolitical tensions, there will always be disruptions in this never normal world we inhabit. 

As a result, the level of risk in 2021 will remain elevated and will be part of the new normal. What I anticipate will change is businesses’ resiliency to these risks and disruptions. CFOs are taking an increased interest in how supply chains can support business growth and reduce financial risk. The financial implications of supply chain disruption or inefficiency can be huge, with over 80% of a company’s costs tied up in the supply chain

To manage this risk and improve efficiency within the supply chain, uptake of technology will undoubtably accelerate and as such many organizations large and small are accelerating their digital journey. Where technology such as AI, machine learning and digital twin was once seen as a ‘nice-to-have’, it is now essential to set the winners apart, a theme that was highlighted in a recent survey of retail industry executives by RSR Research. To become truly resilient in the supply chain, optionality is key. Using a supply chain digital twin, which acts as a virtual representation of a business’ supply chain, businesses can model a wide range of possibilities to ensure they can assess and prepare for any disruption they can imagine. Probabilistic models and simulation technology tied to financials will play a pivotal role.

One industry where improvements will be imperative is healthcare and life sciences. This is an industry which is lagging behind others such as FMCG or High Tech in terms of supply chain technology adoption. Yet, it will be an industry the world is relying on more than ever in 2021. As the hopes for COVID-19 vaccine to be available in 2021 remain high, the vaccine makers in collaboration with governments and private entities will have to make sure that the vaccine can be accessible to most of the world’s population at the earliest. Besides this, disruptions caused by COVID-19 also elevated the weak links within the pharma supply chain in general. Unless there are vast improvements in 2021 and the digital adaptation for the industry is accelerated, this will prove immensely challenging. 

More visible and sustainable supply chains

In 2020, we have seen a number of companies pledge to be carbon neutral by 2030. This will only be possible if businesses create shorter, more circular supply chains. Currently, one of the greatest contributors to air pollution and CO2 emissions is transportation, which makes up almost a quarter of global CO2 emissions. Yet, only 30% of companies are currently incorporating sustainability into their supply chain decisions. 

Speaking to businesses, there is more desire to achieve end-to-end visibility across the supply chain to identify vulnerabilities and risk. By achieving this as a first step, businesses will be able to more accurately identify inefficiencies which contribute to increased CO2 emissions, for example, excessively long transportation routes or sub-optimal warehouse locations.

With these insights, businesses can then utilize the latest technology to optimize their supply chains and ensure they are both shorter and more circular. Will 2021 be the year we see huge change on this front? Probably not, as it’s a long process and most businesses are just starting their journey. However, businesses will have to be showing consistently positive results by 2025 if they are going to convince investors and customers that they will reach their sustainability targets. 

2020 has been the year where pre-existing supply chain rulebooks have been thrown out. 2021 will be the year where business models are adapted to the new ways of working. If businesses are to survive and succeed in a world where one disruption replaces the next, resilience and agility, powered by the latest supply chain technology, will be crucial.

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