The Global State of Affairs

The world has entered a new era of persistent uncertainty. Geopolitical tensions, inflation, labor shortages, energy challenges, technological disruption, and shifting global supply networks are fundamentally reshaping supply chains. While individual crises will come and go, the broader trend is clear: companies that proactively redesign their supply chains will be far better positioned than those waiting for conditions to stabilize.

The headlines change almost daily—wars, rail strikes, inflation, severe weather, healthcare shortages, and geopolitical tensions—but they all point to the same conclusion: volatility has become the new normal.

While the specific supply chain bottlenecks that dominated the past few years have eased, they have been replaced by new challenges. Demand patterns have shifted, inflation and higher interest rates have changed purchasing behavior, and disruptions continue to emerge across industries. Rather than disappearing, supply chain risks have simply evolved, reinforcing the need for companies to build greater agility and resilience.

The Energy Paradox

We are in odd times. For example, when it comes to energy, the best and brightest say it keeps them up at night. We seem to be experiencing a paradox.

  • Environment vs coal: Germany is firing up coal plants (according to Reuters) even though they have been on an environmental push for many years yet coal is the largest source of CO2 emissions.
  • Cleanest energy or purchase: Although the US produces the cleanest energy in the world, producers aren’t receiving approvals and so the US is purchasing from dirty producers (and dictators) like Venezuela.
  • Broken commitments: According to Bloomberg, a year after China committed to stop building coal plants, they completed 14 plants beyond its borders and will finish another 27 soon. You have to wonder if the word commitment has been redefined.
  • CA laws vs common sense: California’s policy and reality are not aligned. For example, the law requires a new engine in drayage trucks yet there is a backlog for new trucks. Product will not be able to get from the port to the warehouse. California is holding warehouses responsible for the trucks that travel to and from the warehouse (similar to In ‘n Out being charged for the emissions of the cars in line). It puts warehouses in a lose-lose situation. Interesting that there are MANY popping up in AZ. And, CA is requiring electric trucks yet charging capabilities are not available. Trucks without power to drive do not transport.

What will this mean?

We are in for VUCA – volatility, uncertainty, complexity and ambiguity. Specifically, we will experience the following:

  • Reshaping of supply chains: Executives have figured out that it doesn’t make sense to “count on” supply from China and other countries as zero-COVID policies, domestic priorities (at the expense of US companies), service and quality risk, and lengthy lead-times are unacceptable. Thus, they are reshoring, nearshoring, expanding capacity, and finding new sources of supply. As supply chains evolve, disruptions will continue at an accelerated pace.
  • Stagflation: High inflation and economic stagnation is here to stay. There is little change in Ukraine which will lead to shortages in food, key commodities, and other critical items, thereby creating inflation and scarce resources. The China-Taiwan tensions are not dissipating as Taiwan continues to produce 90% of the world’s advanced computer chips. There is no doubt why China wants to control Taiwan. At the same time, there are 1 million FEWER people in the workforce than pre-COVID yet the Federal Reserve continues to increase interest rates to increase unemployment to try to bring down inflation. Of course, there aren’t enough high skilled resources as it is. Yet the economy is starting to falter due to the rising interest rates, and the government just passed another BIG spending bill which will spur inflation. On the other hand, consumers are cutting back with high inflation rates.
  • Technology transformation: The pace of change in technology isn’t slowing down. Companies are automating everything possible. After all, if you cannot find workers yet need to service customers, leveraging technology and digitizing your supply chains is a great way to go. 3D printing is transforming not only the way we do business but also the associated supply chains and transportation infrastructure. And the strategic use of data, predictive analytics and the combination of AI (artificial intelligence) and IoT (internet of things) is changing the landscape.
  • Human capital transformation: As the baby boomers retire, companies are left with BIG gaps in capabilities and resources. The changing demographics are leading to confusion, STEEP learning curves and evolving ways of doing business. In-person, virtual, and hybrid options are changing the landscape. Yet resources remain scarce for high-skilled, critical roles.
  • Energy transformation: A bit of common sense will have to enter the equation for those who want to survive. Proactive thinking with common sense will be required to thrive. Certainly, renewable energy will progress at an accelerated pace, and new energy sources like nuclear fusion will continue to generate excitement. Yet if we don’t use the cleanest energy available produced in the US during this transformation, we will remain at a crossroads. The best and brightest will combine common sense with new options.

Are you prepared?

The only thing for certain is that everything will change. The most successful clients will be resilient, proactive, innovative, and collaborative. Specifically….

  • Reshape your supply chain before it reshapes you: If you stay still, your supply chain will ‘leave you’. Resiliency alone will not cut it. Instead of waiting to see what will happen and responding to evolving conditions, CREATE your supply chain of the future.
  • Secure your financial future: Stagflation isn’t for the faint of heart. Utilize best practice SIOP (Sales Inventory Operations Planning) processes to match demand and supply, gain access to customer and product profitability analytic capabilities, rigorously manage cash flow and manage inventories, and invest wisely in capex and critical resources while cutting unnecessary spending and automating everything not nailed down.
  • Secure talent: Even with a recession, there will be a shortage of the “right” talent in the “right” place at the “right” time. Think forward, reallocate resources, supplement talent, provide education and training, and do whatever it takes to secure the ‘right” talent to ensure your future.
  • Secure technology: Southwest has proven that if you don’t invest in critical technology infrastructure, a disruption could turn from a ripple to a tsunami. Invest and upgrade in the “right” technology in the “right” place at the “right” time.
  • Secure energy and natural resources: Sounds a bit odd, but you better think about the appropriate levels and types of energy and natural resources required to secure supply of your products and services to your customers in advance. Use common sense AND innovation.

Path Forward

There will be more risk – and more opportunity – than at any time in history. The strong will get stronger, and the weak will get weaker. Although challenging times are ahead, it will be rich with opportunity for the proactive, resilient, innovative, and collaborative. Where will you head?

 

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The Case for US Manufacturing