Tomorrow’s supply chains will be less linear, involving a more complex, connected network of onshore, friendshore and farshore players, working as partners and linked into common approaches to circular design, sustainable sourcing, manufacturing, packaging and logistics. Sourcing decisions will be based more upon resilience, rather than merely minimizing costs. Although manufacturers should aim for a diverse range of suppliers to spread geographical and geopolitical risk, they also need sufficient depth of business to develop trusted strategic relationships.
To do this, they are reducing their overall supplier base, focusing more on outcomes not transactions, to foster collaborative partnerships, where other members of the value chain are incentivized to innovate and get involved earlier in the product process — ideally at design stage.
Another key decision is whether to manufacture in-house or contract out. The former brings greater reliability and control, but potentially higher costs and exposes companies to the global talent shortage. Contracting out, on the other hand, gives more flexibility to scale up and down at short notice, with contractors able to deliver manufacturing “centers of excellence” to access the latest skills and technology. However, outsourcing production risks IP leakage and a breakdown between manufacture and design, as well as making companies dependent on fewer suppliers, reducing bargaining power.
The pace of transformation to these new models will be heavily influenced by government action, notably tax incentives and grants, and penalties for non-compliance with ESG legislation.
Reconfigured, rebalanced, resilient
Many of today’s supply chains have become too long, brittle and opaque to adapt to an increasingly disrupted world. If the byword for the past 20 years or so was scale and low cost, then the next decade will be characterized by resilience, sustainability and a broader definition of value.
In the great supply chain reset, companies need to reconfigure from linear to segmented, rebalance from primarily offshore to multi-sourcing, and become more resilient by forming longer-term, mutual partnerships. To do this, they should demonstrate critical capabilities in supply chain segmentation, portfolio and lifecycle management, ESG and circularity, ecosystem partnering, data analytics and risk, underpinned by innovation.