April 15, 2022
Three Themes Shaping the 2022 Supply Chain Agenda
The past two years have brought unprecedented instability. Yet, when we conducted our latest annual Key Issues Study – during the fourth quarter of 2021 – some executives were already seeing and expecting smoother sailing. About one-third of companies reported stabilized business conditions. Over one-half predicted stabilization in 2022, and only 11% expected instability to continue into 2023 or beyond. That was before news of the COVID-19 Omicron variant, before the reality of emerging inflation and talent risks set in, and before the conflict in Ukraine.
In this article, we highlight results from the 2022 Key Issues Study and implications for supply chain leaders in planning through uncertainty – during 2022 and beyond.
Understanding the enterprise priorities
Enterprise digital transformation remains the No. 1 priority, with 61% of companies having a major initiative on the 2022 agenda – up from 53% the previous year. In the face of talent challenges, companies have also stepped up their focus on diversity and inclusion initiatives. More than one-half – 58% – now have such initiatives, compared to just 35% two years ago. On the other hand, sales, general, and administrative (SG&A) cost optimization dropped further down the ranking – from third place in 2021 to fifth place in 2022. This is consistent with an observed shift in focus from margin preservation to growth.
Supply chain priorities
TThe backdrop of disruption and rapidly evolving business conditions clearly influenced supply chain executives’ 2022 priorities – illustrated in the image below. Notably, executives expressed concerns about their ability to meet business expectations around their top three priorities: reduce supply chain risk to ensure supply continuity, enhance product availability and improve supply chain agility. Those areas are all interdependent, and they all reflect the continued need for executives to manage supply chain disruptions and improve customer experiences such as service levels.
Collectively, these 10 top priorities reflect four key themes.
- Supply chain resilience and agility improvement is front and center, with the function’s top priorities dependent on this.
In 2021, supply chain disruption made headlines daily. Indeed, Key Issues Study participants’ expectations of supply chain risk increased dramatically – up 33% relative to 2021. Not surprisingly, reducing supply risk claimed the top spot on the 2022 supply chain agenda, after having not broken into the top five priorities in the two previous studies. In tandem with managing supply chain risk, enhancing product availability and improving supply chain agility followed as supply chain executives’ second and third objectives for 2022, respectively. Meeting these three objectives will require having a resilient supply chain that can ensure supply continuity while responding to pandemic-related demand spikes and supply chain disruptions, which are expected to continue in 2022.
Estimating realistic medium- and long-term demand amid ongoing uncertainty has become more difficult and increasingly important to drive continuous improvement in sales and operations planning and integrated business planning (S&OP/IBP). Matching supply requirements (production, inventory and logistics/transportation) to demand has become more challenging given bottlenecks in every link of the supply chain – labor shortages, raw materials, containers, shipping, ports, trucks, railroads, air and warehouses. To be resilient amid demand shocks and supply disruptions, supply chains must test different capacity and production scenarios to project network shortages and inventory gaps, define mitigation opportunities, and understand financial and operational implications.
Leveraging multisourcing and qualifying alternative suppliers are the most common risk mitigation activities. Over the next year, activities expected to see the biggest increase in use include the ability to quickly change suppliers, increase visibility to Tier 2 and 3 suppliers, and expand risk data and supply/market intelligence.
- Supply chain leaders recognize the need to balance resiliency and agility with optimizing costs to enable profitable growth.
Already facing significant challenges to be more resilient and agile due to supply chain disruptions, supply chain executives are preparing for another demanding year of having to do more across planning, manufacturing and delivery/logistics without comparable increases in staffing or budget. The fact that supply chain cost-efficiency – which traditionally is among the top one or two supply chain priorities – ranks fifth this year does not mean that it has lost its importance. Rather, it reflects the accelerating imperatives to improve supply chain resiliency and customer service levels that are competing with it for time and attention.
Customer-centric supply chain organizations will challenge themselves to not only be resilient and agile, but also be cost-effective, while meeting the evolving needs and demands of customers to enable scalable growth and remain competitive. Not surprisingly, almost one-half of supply chain organizations have a 2022 initiative to increase cost-efficiency.
Overall, supply chain executives expect their budgets across planning, manufacturing and delivery/logistics to grow 5%, 3.4% and 4%, respectively, and head count to be relatively flat for manufacturing and delivery/logistics, while growing 4% for planning. With workloads projected to jump by nearly 8% to 10% across these areas, the supply chain will need to make up productivity gaps. A substantial increase in technology spending for planning and delivery/logistics demonstrates companies are investing in technology to increase supply chain automation, enabling them to keep pace with evolving supply chain risk, customer expectations and global complexities, as well as improving productivity and efficiency.
- Supply chain executives are investing in digital transformation and talent to support it.
Digital transformation and people initiatives are the most common on the 2022 supply chain agenda. The majority of supply chain organizations will be focused on talent enhancement, data management and analytics, automation, and technology upgrades as a means to address supply chain resilience and other top 2022 priorities.
The study indicated that the evolution to digital transformation across the supply chain includes a significant number of organizations adopting technology to improve availability/visualization of information and business intelligence.
Consistent with improving S&OP/IBP – the No. 1 supply chain priority in last year’s Key Issues Study – about three-quarters of organizations have adopted S&OP/IBP technology and deem it to provide high business value, with continued growth in adoption expected and large-scale deployments doubling over the next two to three years. Given this year’s top three supply chain priorities – reduce supply chain risk to ensure supply continuity, enhance product availability and improve supply chain agility, which all contribute to creating a resilient supply chain – it’s not surprising that organizations plan to increase their use of advanced planning and scheduling and inventory optimization tools.
The technology supporting manufacturing and warehouse/logistics networks has shown significant adoption across organizations, with network design and optimization tools expected to see the greatest growth. About 60% of supply chain organizations expect to implement large-scale deployments of transportation management and planning tools and network design and optimization tools in the next two to three years.
To maximize the return on technology investment, however, supply chain leaders must be ready to develop talent and new competencies because skills gaps impeding digital transformation are anticipated to be the most likely disruptive supply chain trend among study respondents. Digital technologies are critical tools that give companies the ability to do more with fewer resources. Yet, supply chain organizations will only achieve superior results if they can develop, train, and retain associated talent.
As they address talent requirements, supply chain leaders must be prepared to manage the unprecedented increase in voluntary turnover that is occurring in response to the COVID-19 pandemic, generally referred to as the Great Resignation. It is impossible to know how persistent this trend will be and how profoundly it will impact business. But in 2022, there is no escaping it, and supply chain organizations must develop specific talent retention strategies to mitigate its impact.
Disruption will continue – but supply chain organizations are preparing
Supply chain executives cited skills gaps preventing execution of digital transformation programs, artificial intelligence (AI) and geopolitical risks impacting supplier relationships as the most likely disruptors to their operations. Many supply chain organizations are actively planning for most of these scenarios and/or already executing response plans. More than one-half are planning to address skills gaps, while 29% are already executing efforts to do so. However, while supply chain executives consider it somewhat likely that innovation in AI and geopolitical risks will fundamentally change the way the function works, relatively fewer are acting on that versus simply monitoring those dynamics.
Sharpen your focus
It’s clear the turmoil of the past two years is not coming to an end – at least yet. The research findings above represent a very broad and ambitious agenda. Supply chain leaders will need to be laser-focused – making sure they are investing their time and resources in the areas most critical for elevating their value to the enterprise.
So, where should you focus? That, of course, will depend on your specific needs and operations, but based on our work in the market, we believe the following five areas apply broadly to most supply chain organizations:
- Stay focused on the customer
- Invest in digital transformation wisely
- Close the digital knowledge and skills gaps
- Turn data into insight
- Drive sustainable cost reduction
Collectively, action in these areas creates agile organizations that can weather continuing change.