Supply chains around the world are under immense pressure. Between a global pandemic, labor shortages, geopolitical tensions, and more, supply chain leaders have faced disruption after disruption over the past few years (see Figure 1).
Figure 1. Global supply chain disruption index.[1]
In the face of this volatility, organizations of all sizes need to re-evaluate how to optimize their supply chain operations. Building resilience, digitizing processes, and prioritizing sustainability are key focus areas for supply chain leaders in 2024.
This article explores the top 3 ways that enterprises can optimize their supply chain to drive success now and in the years ahead.
1. Strive Towards Resilience
Before recent supply chain shocks, many companies focused heavily on efficiency and lean operations. The goal was to keep inventories low, move product quickly, and reduce costs.
However, this left supply chains vulnerable to external disruptions. Now, resilience, or the ability to anticipate and adapt to volatility, is a top priority. According to a survey from Deloitte, improving supply chain resilience is a top strategic objective for 87% of supply chain executives in 2024.
Here are some strategies to build resilience:
Bring Production Closer
Shortening supply chains by moving production closer to demand can significantly improve responsiveness and stability. For example, some companies are reshoring manufacturing back home to have more control and mitigate geopolitical and trade risks.
General Electric is one company that has announced plans to reshore jobs and production to the U.S. after previously offshoring significant parts of its supply chain. With greater political tensions and the risks exposed by the pandemic, more localized and regionalized supply chains can provide much needed stability.
Diversify Suppliers
Relying on a small number of suppliers, especially if they are concentrated in one geography, is risky. For example, when a fire forced chip supplier Renesas to halt production in Japan in 2021, it disrupted operations for auto manufacturers worldwide.
Having a diverse supplier base distributed across different regions provides a buffer if some suppliers experience disruptions. According to McKinsey research, best practice is to dual source key components from different geographic locations whenever possible.
Optimize Inventory Strategies
In unpredictable conditions, a just-in-case inventory approach where companies keep more safety stock across the supply chain is lower risk than just-in-time models.
Advanced analytics tools can help determine optimal just-in-case inventory levels to balance both customer service levels and carrying costs. One medical devices manufacturer used prescriptive analytics to reduce inventory by over 30% while also improving their ability to meet demand.
2. Accelerate Digital Transformation
Digitalization is critical for supply chain optimization, yet research shows many companies are still lagging. Investing in supply chain technology and building digital dexterity in the workforce are key steps to take.
Leverage Digital Solutions
There are a growing number of supply chain technologies offering stabilization, efficiency gains, and enhanced visibility:
- AI and machine learning – Predictive algorithms parse through data to rapidly identify patterns, anomalies, and generate insights. This powers more accurate demand forecasting, risk analysis, and scenario planning.
- IoT and sensors – Connected devices like RFID tags provide real-time tracking and condition monitoring as inventory moves through the supply chain. This enables precise inventory visibility and preventative maintenance.
- Control towers – Centralized command centers harness data across planning, logistics, and procurement on one platform to gain end-to-end supply chain visibility and coordinate decisions.
- Digital twin – Virtual models of the supply chain network enable scenario testing, pinpoint vulnerabilities, and simulate the impact of disruptions. Companies can then optimize planning and build in flexibility.
Adoption of these advanced technologies is growing but still limited. A Deloitte study found only 8% of firms are currently using AI across their supply chain, indicating significant room for expansion.
Balance Technology and Talent
Successfully adopting digital supply chain solutions requires both investing in technology and developing supply chain teams‘ digital skills through training programs. Building this digital dexterity empowers employees to maximize value from new tech.
Leading organizations take a holistic approach – they don‘t just implement software, they focus on change management and cross-functional coordination. Companies should ensure supply chain workers are digitally literate and able to adapt to the introduction of advanced technologies through reskilling programs.
3. Make Sustainability a Priority
Beyond improving resilience and digitization, companies should optimize their supply chain to incorporate sustainability. This has benefits for the environment, society, and the bottom line.
Environmental Sustainability
Eco-conscious consumers and stricter regulations are pushing companies to reduce their supply chain‘s carbon footprint. For example, research shows 87% of consumers are willing to change purchasing habits to help the environment.
Steps organizations can take include:
- Optimizing logistics and transportation for efficiency. For example, optimizing truck loads and avoiding empty backhauls.
- Using renewable energy like solar or wind power across operations and working with green suppliers.
- Implementing sustainable packaging initiatives like reducing material usage and utilizing recyclable materials.
Supply chain giant Unilever has committed to net zero emissions by 2039 and is working closely with their suppliers to drive sustainable practices.
Social Sustainability
Social sustainability involves ethical practices such as:
- Responsible sourcing policies to avoid human rights abuses in the supply chain. Mandating suppliers adhere to codes of conduct around factors like worker conditions and safety.
- Providing good working conditions, fair wages and development opportunities for supply chain workers to improve retention.
- Fostering an ethical, diverse and inclusive corporate culture that boosts talent retention. The supply chain struggles from severe labor shortages, so focus on worker satisfaction is key.
Leading companies recognize that supply chain sustainability encompasses both environmental and social factors.
Economic Sustainability
Sustainable supply chain initiatives can generate significant cost savings in areas like energy expenditures, waste reduction, and transportation optimization. They can also help attract investment and get ahead of impending environmental regulations.
A study by McKinsey found that companies with sustainable supply chain programs had 20% higher operating margins compared to peers.
Key Takeaways
To recap, here are the 3 main ways enterprises should optimize their supply chains for success in 2024:
- Resilience – Bring production closer, diversify suppliers, optimize inventory strategies
- Digitalization – Implement supply chain software, IoT sensors, AI/ML, control towers, and upskill workers
- Sustainability – Incorporate environmental, social, and economic sustainability to reduce costs and risks
With strategic focus on these areas, supply chain leaders can drive growth and be well-positioned to manage uncertainties ahead.
For more guidance on supply chain optimization, see these additional resources:
- 7 Benefits of Supply Chain Optimization
- 5 Steps to Optimize Your Supply Chain Operations
- Top 12 Supply Chain Management Best Practices
1 Source: Resilinc Supply Chain Intelligence ↩