To thrive amid uncertainty, technology and digital transformation will be key.
The prospect of a global economic downturn, geopolitical uncertainty and talent shortages driven by long-term demographic shifts all weighed on the minds of executives as they responded to our 2023 Key Issues Study.
Executives are looking to technology as they consider how to manage the forces of change: 45% of executives said they are accelerating digital transformation (automation, advanced analytics and modeling) – more than any other response measured, including capital spending and cost reduction programs. The cloud has moved to the forefront as the platform organizations must leverage for agility, growth and transformation. In the study, 42% of enterprises reported having legacy solutions that must be replaced.
But organizational disconnects hold back many companies from achieving the transformation they are targeting. More than one-quarter of study participants across business functions said the inability to successfully transform their business and related functions is of key concern.
Amid unprecedented uncertainty, supply chain executives ranked their priorities for the coming year
The winds of change bring a new normal – with the top three priorities focused on supply chain resiliency
Optimizing inventory levels took over the No. 1 spot, and the study indicated 70% of supply chain leaders have been using inventory optimization to buffer against risk. Reducing supply risk claimed the No. 2 spot among 2023 supply chain priorities, indicating some stepwise improvement in managing supply risk.
Rounding out the top five priorities for 2023 are enhancing product availability, improving supply chain cost-efficiency, and improving sales and operations planning/integrated business planning (S&OP/IBP) capabilities. Meeting these three objectives is interdependent with the top two – optimizing inventory and reducing supply risk – and will require having a cost-effective, resilient supply chain driven by strong planning capabilities that can ensure supply continuity, while responding to demand optics and supply chain disruptions in 2023.
What keeps supply chain executives up at night
Supply chain disruptions continue to make headlines. The question for 2023 is not if we will see supply chain disruptions, but what will cause them – for example, the economy, political unrest, cybersecurity and/or climate events. Approximately one-half of study participants cited supply chain disruptions as a top risk concern for 2023.
Supply chain executives have low confidence in their ability to address some top priorities
Our analysis looked at the top 10 supply chain priorities from the perspective of both relative importance and supply chain leaders’ confidence in the ability to meet business needs. Two of the top three priorities – optimize inventory levels and enhance product availability – fall in the critical development area, indicating high importance but limited ability to meet expectations. They reflect the continued need for leaders to manage supply chain disruptions, reduce supply risk and improve customer experience such as service levels. Given leaders’ confidence in their ability to meet business expectations in these areas is low, emphasis on these priorities is all the more critical.
Supply chain executives can better balance initiatives with top priorities
It’s not surprising that 71% of organizations have a 2023 initiative to address the top priority – inventory optimization. Here’s what else they plan to tackle:
Companies are falling short on some key supply chain metrics
Key supply chain metric performance underscores the need for a more resilient supply chain and, in turn, improved customer experience by focusing on matching supply to demand to minimize disruption for customers.
Notably, these four key metrics fell short of expectations a significant portion of the time. All of these metrics are typically part of a balanced scorecard for measuring the effectiveness of S&OP/IBP, which underscores the renewed focus on supply chain planning capabilities.
How supply chain leaders feel about their level of preparedness compared to last year
Supply chains’ ability to be resilient – that is, respond/recover quickly and cost-effectively from unexpected events – will continue to be tested. Supply chain leaders feel better prepared to address demand volatility and supply constraints, but less so for economic pressures, climate disasters and geopolitical unrest. While nearly one-half of respondents believe they are better prepared to address inflationary pressures, a significant percentage feels otherwise.
How executives will mitigate supply risk
In 2023, investing in and reinforcing risk management is critical to minimize disruption, and protect revenue and profitability against both expected and unexpected supply disruptions. These are key elements supply chain executives currently have in place:
Over the coming year, they expect the biggest increases in risk mitigation activity to center around the ability to quickly change suppliers, product line simplification/SKU rationalization, and expansion of risk data and supply/market intelligence.
Supply chain workloads will jump, while resources remain flat – this creates critical gaps
Addressing these diverse priorities will require resources and transformational expertise. The Key Issues Study confirms and quantifies what supply chain leaders already know: They must find a way to do more with less.
Overall, supply chain executives expect their budgets across planning, manufacturing and delivery/logistics to be relatively flat at 0.6%, 1.3% and 1.3%, respectively, and head count to be relatively flat/slightly down across the same areas (-1.3% for planning, -2.3% for manufacturing and 1.0% for delivery/logistics). With workloads projected to jump between 4.3% to 6.5% across those areas, the supply chain will need to make up productivity gaps of 5.6% for planning, 8.8% for manufacturing and 4.4% for delivery/logistics during the year, which implies high expectations for the performance of supply chain technology to close those gaps.
Supply chain executives will rely on technology to fill the gaps
Planned increases in technology spending for planning and delivery/logistics demonstrate that organizations are investing in technology to increase supply chain automation, enabling them to drive supply chain resilience and keep pace with evolving supply chain risk, customer expectations and global complexities, as well as improving productivity and efficiency.
Part of that increase in technology spending will go to increased deployment of supply chain planning technology
Supply chain technology is deemed a key enabler of the top 2023 priorities to optimize inventory, reduce supply chain risk, improve product availability and improve S&OP/IBP, while improving supply chain cost-efficiency. Organizations have an opportunity to move value-producing supply chain technology beyond the pilot phase. Indeed, many are planning significant increases in large-scale deployment of advanced planning and scheduling, inventory optimization, and S&OP/IBP tools. As in previous studies, S&OP/IBP tools were rated as providing the highest business value among supply chain technology tools.
Analytics will be key to supporting this year’s top priorities
One-half of supply chain organizations have a 2023 initiative planned to roll out data management/analytics technologies. While supply chain intelligence/analytics remain primarily in the pilot stage, large-scale deployment will triple in the next two to three years.
Organizations should prioritize leveraging/integrating internal and external data, optimizing dashboards, and adopting predictive and smart analytics to enable insights and data-driven decision-making.
Sharpen your focus for 2023
As economic and other disruptions remain a feature of the outlook for 2023, supply chain organizations will need to adjust their priorities to ensure they are able to support supply continuity and service levels cost-effectively in the upcoming year. Certainly, making sure investments and resources are well aligned with top priorities is critical. Here are several other areas that we believe require full consideration:
- Stay focused on the customer as you challenge your organization to become more resilient, agile and cost-effective.
- Invest in digital transformation wisely, using digitalization to automate and improve the efficiency and accuracy of supply chain planning, manufacturing, and distribution/logistics.
- Close the digital knowledge and skills gaps through effective talent retention and acquisition strategies.
- Strengthen your data foundation, but also invest in the skills/acumen and tools and techniques required to turn data into insight.
- Develop a sustainable enterprise cost optimization approach to pursue lasting cost reductions, while also bolstering supply chain resilience.
Download the full report to learn more about supply chain executives’ top priorities for 2023, including optimizing inventory levels, reducing supply risk, enhancing product availability, improving performance management capability, enabling supply chain digital transformation, and improving supply chain cost-efficiency, agility, and resiliency.