Supply Chain: State of Affairs
Supply chains are plagued with geopolitical, cyber and supply chain risks. Following the pandemic, companies focused on building resiliency and efficiency; however, as important as it is to be agile and profitable, it is no longer enough. Forward-looking companies are focusing on predictability, scalability, and customer value to thrive in the next decade. Executives are building high-skilled talent, rolling out predictive processes like SIOP (Sales Inventory Operations Planning) to proactively change their supply chain networks while providing the vehicle to simulate and optimize, and strategize for success, and upgrading their capabilities with artificial intelligence and advanced technologies.
Current State of the Supply Chain
China dominates the global supply chain. Not only do they produce 30% of the global output, but they impact 80% of the world’s supply chains. In addition, they control the world’s rare earth critical minerals, required for everything from advanced technologies to national defense to medical devices. They produce 71% and process 90% of the world’s rare earth minerals and are willing to restrict access. In addition, they control 80% of some part of the active pharmaceutical ingredient (API) supply chain, required to supply medicines to the world. China has also been threatening Taiwan who controls 90% of the world’s advanced computer chips.
In addition, geopolitical risks run rampant throughout the global supply chain. Russia and Ukraine are still at war, and the Middle East is just calming down after a prolonged period of conflicts and attacks. Iran-backed Hamas invaded Israel, causing Iran-backed Houthi rebels to attack ships in the Suez Canal, a significant supply chain chokepoint. Iran-backed Hezbollah were attacked with exploding pagers, exposing supply chain vulnerabilities in end-to-end supply chains. Cyber risks are also heightened and impacting infrastructure and communications systems. Supply chain risks such as weather-related and strikes also threaten supply chains. For example, the Panama Canal had to reduce capacity by 50% due to a drought, restricting a critical chokepoint and increasing costs in the supply chain.
Natural resources are also gaining in importance and risk, highlighted with the fight over rare earth minerals. Rare earths are not rare; however, it takes time and will to produce them as there are environmental concerns. On the other hand, purchasing them from China just extrapolates the negative environmental impact as China powers them with dirty coal and then they must be transported to their destination. Power and water are also critical in powering the supply chain and increasing in relevance. Oil and gas are used in every supply chain, from manufacturing, mining, shipbuilding, and transporting. In fact, AI is expected to increase energy usage by 50% annually from 2023 to 2030.
Although manufacturing has been in a recession for the last few years as money flooded the system, creating inflation and consumer turned to services following the pandemic, it is showing signs of life. In addition to $7 to $20 trillion in investment announcements from companies and countries in manufacturing, mining, shipbuilding, and data centers, the three key economic levers are turning positive. To read about the new tax law, deregulation savings, tariff stabilization and the benefits of new trade agreements, as well as the progress on interest rates, read our article, “Positive Signs for Manufacturing on the Horizon“.
Supply Chain: A Look Forward
Since the pandemic, companies have focused on resiliency and efficiency. Although responding to changing conditions and remaining profitable is essential, it is no longer enough. Instead, proactive companies are focused on creating a predictive, scalable, and forward-looking supply chain. Companies can no longer hire talent; instead, they must build talent with creative and innovative strategies as slowly building talent is also not sufficient. For example, producing 1 ship per year and going to 2 per year although 100% improvement, is not enough. Instead, you’ll need enough high-skilled talent to go from 1 to 1000 or 10,000.
Our best clients are rolling out SIOP to get in front of changing sales forecasts and customer requirements. They gain insights and predictive capacity plans so that they can simulate what if scenarios and dynamically optimize supply plans. Read our eBook to learn about SIOP and how to implement it successfully Artificial intelligence and advanced technologies are also gaining momentum as clients look for ways to enhance customer value, scale rapidly, and upgrade and automate processes. To learn more about how to utilize AI and advanced technologies in manufacturing, read our eBook, “How AI Powers Smart Supply Chains and Smarter Decisions“.
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