The Global State of Affairs

Lions, tigers, and bears, oh my!

Wars. Communist threats. Rail strikes barely averted. A severe oil and gas crisis. Inflation soaring. Interest rates rising. Severe weather and stranded passengers. Shortage of baby’s Motrin. What else?!

On the other hand, the specific type of supply chain disruptions that were going on the last few years have eased, at least for the moment. Overall, demand for goods has softened with rising interest rates yet the demand for services remains strong. Of course, it all depends on the specific product or service. For example, iPhones are still in short supply after months of Zero-COVID policies and unrest in China, baby formula remains a challenge due to quality issues, weather events, and lack of resources, there is a shortage of Motrin due to the spike in demand and lack of supply chain control and, as anyone who has tried to do even a simple test knows, healthcare services are hard to come by with no resources for just about anything, even critical tests.

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?

Refer to our blog for volumes of articles on these topics and read more about these types of strategies in our eBook, Thriving in 2022: Learning from Supply Chain Chaos. If you are interested in talking about how to reshape your supply chain, get in front of it with a SIOP process, and successfully navigate these waters, contact us.

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