Inflation in the post-pandemic global economy poses unprecedented challenges to supply chain professionals; here’s how to innovate your way through them.
At the time of writing, inflation in the US had reached 8.2% for the 12 months ending September 30, 2022. To find a precedent for inflation at this level, you’d have to go all the way back to the first Reagan administration forty years ago.
We can’t be certain how long this inflationary period will last or whether the Federal Reserve’s efforts to control it will be successful, but we do have a relatively clear idea of the interconnected set of causes behind it.
The Russian invasion of Ukraine in February and the sanctions it has led to drove global energy prices through the roof, with Europe exposed as we head into winter.
This exacerbated the challenging situation the world has faced thanks to the COVID-19 pandemic that began in early 2020. From unprecedented levels of fiscal support measures offered by governments to avoid an employment catastrophe injecting huge amounts of money into key global economies to the lockdown measures around the world whose impact they were intended to mitigate, the pandemic was one of the most economically disruptive events in modern history.
And few elements of the world’s economy were more exposed to its impact than global supply chains.
As global demand for finished goods abruptly shifted in 2020, it set off an unpredictable chain reaction of events we are still grappling with – not the least of which has been countries’ uneven exits from the acute phase of the pandemic. Supply chains that had been optimized for just-in-time manufacturing and delivery tottered under the weight of port delays, shortages in transport vehicles on land, sea, and air, and pauses or reductions in component manufacturing thanks to local or national lockdowns.
Indeed, with the global manufacturing center of China still facing sporadic regional lockdowns under a ‘zero COVID’ strategy that the Communist Party has shown no indication of ending, some of these issues are still with us and likely to be so for some time.
So, times are tough for supply chain professionals.
But we can either cross our fingers and hope the situation fixes itself overnight, or we can pursue innovative solutions to these challenges.
Technology holds the key to managing the rapid pace of change and meeting the challenges we face.
Indeed, in a 2021 survey of supply chain executives, EY found that 64% of respondents believed digital transformation is set to accelerate thanks to the causes listed above.
What does this look like across the interconnected specialisms of planning, procurement, manufacturing, and logistics?
Here are my three suggestions for how supply chain professionals can embrace technology to manage the current inflationary environment.
Embrace data and analytics
Digitizing a supply chain end-to-end can not only drive new efficiencies but can also open new revenue streams.
If, as seems likely, we’re likely to see ongoing abrupt shifts in both supply and demand, embedding data capture and sharing throughout your supply chain along with analytical platforms to interpret it means you’ll be able to identify the early indications and adapt your operations accordingly.
Also, with better visibility on where items actually are – rather than where you hope they are – you’ll be able to better control and forecast inventory requirements.
Both factors are what is needed to manage an environment of dynamically changing energy prices and where transportation costs and delivery times are similarly unpredictable.
Most of all, however, embedding digital in your supply chain management opens opportunities for more innovative and efficient deployment of your working capital. The link between logistics, transportation and treasury teams needs to be stronger. Data can point to financing opportunities for companies and their suppliers that free up trapped liquidity in ways that all can benefit. There is innovation around Early Payment programs for suppliers, accelerating receivables from customers, and taking inventory off the books for both the buyer and seller. All of this requires a level of data and digitalization, but the rewards can be massive.
Develop Innovative Payment Solutions
Embracing data-enriched supply chain management and the technology that underpins it in turn creates opportunities for innovation in your financial operations.
For example, offering broader early payment options to suppliers will allow them to overcome gaps in their cash flows, make decisions based on predictable settlement dates, have cash on hand should the unexpected occur, and ultimately invest in and grow their businesses.
This would deliver obvious benefits in undergirding a successful working relationship going forwards, but why stop there? Why not link preferred rates for accessing this liquidity to higher scores in the area of ESG or DE&I? Embrace the mantra of doing some good while doing well.
Treasury, procurement, and logistics teams are starting to come together to embrace solutions that will ensure their companies have the flexibility needed to manage and excel in an inflationary environment. It will take teamwork.
Move Fast
Yes, there is a growing range of software available to buyers and suppliers, but the most important thing is culture. I.e. – it’s not the tools, it’s how you use them.
The environment has changed radically in recent years, and change is only likely to accelerate. A mindset that embraces this change is crucial, as well as the ability to recognize that your suppliers’ liquidity and financial health are as important as your own – that we are all stakeholders in an interconnected system, and there are very few zero-sum games in reality.
The key is to create an organizational stance flexible enough to benefit from the current situation by moving fast to embrace change. This is particularly important for businesses at the growth stage of their life cycles, but embracing agility and openness is possible regardless of where your organization is on its journey.
Questions to ask yourself could include: What work should be done locally, regionally, or globally? Do you have flexibility baked into your operation in the form of alternative sources of supply? Are you prepared for the future move to a more circular economy – or do you know how to prepare? How can you redesign your supply chain to take advantage of both short-term and short-term disruptions?
There is no denying the daunting prospect for businesses in today’s economic environment, but for businesses with creative and open-minded leadership, there are clearly some real opportunities out there.
