A new MLC survey warns that disruption could continue for as long as two years as manufacturers strive to adopt more resilient supply chain strategies.
Manufacturing supply chains may never be the same again.
After more than two years of excessive supply disruption caused by an unprecedented combination of pandemic lockdowns, blocked shipping lanes, container scarcity, material and component shortages, extreme weather events, rising prices, and military conflict, fundamental shifts in supply chain approaches are now underway across the industry as manufacturers desperately seek to improve supply chain resiliency.
And if you were hoping that those debilitating high levels of disruption were only a short-term problem, you may want to reconsider. Over half the manufacturers responding to the MLC’s latest Resilient M4.0 Supply Chain survey don’t expect the situation to improve for at least a year, or maybe two. Some don’t even think high levels of supply chain disruption will ever go away, at least for the foreseeable future.
No wonder then, that managing the impacts of supply chain disruption now tops the action list for manufacturing leadership teams today. Supply chain organizations in every sector are urgently rethinking how manufacturing supply chains can operate more effectively and resiliently by reassessing traditional supply chain strategies, reducing network complexity, integrating key functions, redesigning processes, and harnessing the power of digital tools wherever they can to transform their supply chain ecosystems.
Ultimately, the outcome of such moves may transform the dynamics of global manufacturing supply strategies forever.
Manufacturing supply chains remain a predominantly global undertaking. While some companies are now supporting their operations with regional (15%) or local networks (12%), over half of companies (51%) continue to be dependant on global networks of suppliers to fuel their businesses (Chart 1).
Yet irrespective of geographical strategies, it seems that the last few years of disruption have significantly impacted companies with all types of supply chain structures. A substantial 90% of all respondents to the survey report suffering either significant (52.5%) or partial (39%) disruption over the last two years. A mere half a percent say they have seen no impact at all (Chart 2).
“The disruptive dynamics of the last few years have forced many manufacturing companies to take a long hard look at the vulnerability of their supply chains and reassess their levels of resiliency.”
The most severe aspects of that disruption have been in raw material shortages (36%), excessive cost rises in materials and shipping (34%), and component shortages (33%). But around a quarter of companies also say they’ve had to deal with significant issues in sudden demand surges (25%) and reduced productivity (22%) due to labor shortages and equipment failures too (Chart 3). It’s that debilitating combination of factors that is now driving many companies to reassess the vulnerability of their supply chains and their exposure to sudden global and regional events.
And most companies don’t expect things to improve soon (Chart 4). Only a fifth see improvements by the end of this year in either Q3 (5%) or Q4 (16%). Another 13% think the situation will continue into Q1 2023. But 50% of companies predict that levels of disruption will continue much longer. A third don’t see an end in sight for over a year (36%), while another 14% believe it will take two years or more. The least optimistic, 5%, even suggest that we are entering a period where disruption will become the new norm for the industry, and that high levels of disruption will continue into the foreseeable future.
Those disruptive dynamics of the last few years have forced many manufacturing companies to take a long hard look at the vulnerability of their supply chains and reassess their levels of resiliency. Many have already taken action to improve their exposure, but almost three quarters (73%) of companies admit that their current supply chains are still not yet fully protected and remain only somewhat resilient (Chart 5). A worrying 12% believe their supply chains still don’t have any effective resiliency at all.
Not surprising, then, that 80% of manufacturing companies say they are now urgently increasing their focus on developing more resilient supply chains for the future (Chart 6). Over half (52%) are actively working to increase their adoption of supply chain analytics and digital technologies as a way to increase visibility and predictability across their supply networks to better deal with potential disruptions. Two in five (39%) are now exploring partnerships with more regional and local suppliers to reduce global vulnerability, and almost a quarter are also considering more regional and local production footprints. Only 2% of manufacturers say they not making any changes.
“Over half the manufacturers in the survey expect high levels of disruption to continue for at least a year, maybe two.”
Traditional supply chain strategies are also coming under close scrutiny. Over half of the companies in the survey (53%) are now questioning whether Just-In-Time approaches are still viable in today’s world and are now rethinking inventory levels so they have a better buffer that will help them deal with sudden shortages (Chart 7). Three quarters (76%) are also making specific efforts to reduce the overall complexity of their supply chains to increase their speed of responsiveness to disruption (Chart 8). And a third say they are moving away from the traditional SCOR supply chain model (Chart 9) and are now either moving towards more of an end-to-end value model approach (30%) or have already done so (4%).
Integrated Supply Chains
Moves to overcome the legacy of siloed functions within supply chains are also set to accelerate over the next two years as companies seek to create more integrated and collaborative supply chain organizations that can more easily share key information and act faster and in a more coordinated way to resolve disruptive issues. While only 19% of companies say their supply chain structures are fully integrated today, this proportion is set to more than double to 47% within the next two years (Chart 10). The number of companies still depending on largely siloed operations, meanwhile, is set to fall from 14% to just 4% over the same period.
Both internal and external supply chain functions are also becoming increasingly digitized (Chart 11). While over 70% of manufacturers have already partially digitized some of their supply chain functions, according to the survey, only 11% have so far digitized all their internal supply chain functions (plan, source, make, deliver), and only 6% have achieved this same level of digital maturity across their external supply chain functions (external suppliers, partners).
Nevertheless, the race to fully digitize ever more supply chain operations is accelerating rapidly. In almost every supply chain function, companies are now planning significant increases in digital adoption over the next two years to help streamline and improve their supply chain organizations (Chart 12). This is especially the case in supply planning and demand forecasting where around a third of companies now expect to have fully digitized operations by 2025. Similar increased adoption rates are also underway in S&OP, sourcing and procurement, manufacturing operations, and customer fulfilment and service.
And while companies expect to maintain similar levels of dependence on more established technologies such as cloud systems and traditional supply chain management software to support their supply chain operations over the next two years, the use of other advanced technologies is predicted to almost double as companies explore new kinds of applications and use cases (Chart 13). These include more predictive AI and Machine Learning (up from 28% of companies to 53% in 2 years), collaborative robots (up from 18% to 35%), AR/VR technologies (up from 14% to 27%), wearables (up from 13% to 26%), and blockchain (up from 10% to 21%).
“In almost every supply chain function, companies are now planning significant increases in digital adoption over the next two years to help streamline and improve their supply chain organizations.”
But it’s not just the technologies themselves that are key elements in this digital transformation. It’s the opportunity to use those new digital tools and approaches to support an extensive rethinking of basic supply chain processes at the same time.
Almost 72% of respondents in the survey say that, as they continue to adopt more digital technologies across their supply chains, they are also taking the opportunity to redesign their supply chain processes too (Chart 14). The implications of such widespread digital transformation of both supply chain structures and processes for the future are enormous.
Obstacles to Progress
The road ahead is not simple, though. Transforming a supply chain is not entirely under the control of any single manufacturing company. It takes a whole network of partners to work together effectively to create end-to-end resiliency. That’s where some of the key obstacles to future supply chain development now lie for the industry.
Significant differences in the levels of digital maturity across various partners in a supply chain network are cited by over half the survey respondents (54%) as their most difficult challenge as they strive to implement a more resilient end-to-end digital strategy that successfully shares the key information they need to act swiftly in the face of sudden disruption (Chart 15). Over half the respondents (53%) also highlight the lack of common data platforms across their supply networks as one of the primary barriers to exchanging such key information in a crisis. Many also face problems in simply transforming traditional supply chain processes (29%), upgrading legacy equipment (26%), and dealing with a lack of skilled employees (22%) as hindrances to progress.
“Almost 72% of respondents in the survey say that as they continue to adopt more digital technologies across their supply chains, they are also taking the opportunity to redesign their supply chain processes too.”
Yet despite the primary problems of disparate levels of digital maturity and incompatible data platforms across partner networks, only around one in five manufacturers (19%) have so far adopted specific policies to actively help accelerate digital maturity across their supply chain partners to overcome these key obstacles (Chart 16). Over 60% have no such network-wide policies in place. Perhaps this is one area that many more manufacturers will need to address as they seek to expand their digital supply chain strategies across their partner ecosystems in the future.
And as 89% of all survey respondents believe that digital technologies will ultimately be either a game-changer (44%) or at least significant (45%) to the future of manufacturing supply chains (Chart 17), it’s clear that as manufacturers continue to rethink their supply chain strategies in search of greater resiliency, digital supply chains will be one of their most important weapons in combatting future disruption. M
Part 1: SUPPLY CHAIN DISRUPTION
1. Global Supply Chains Dominate Manufacturing
Q: Geographically, how is your supply chain network structured?
2 Over Half Suffered Significant Supply Chain Disruption in Last 2 Years
Q: Over the last two years, how would you describe the level of disruption in your supply chain?
3 Materials/Component Shortages and Excessive Cost Rises Caused Most Severe Impacts
Q: Over the last two years, what have been the most impactful types of supply chain disruption you have encountered?
(Scale 1-5, where 1 is most severe)
4 More Than Half Expect High Levels of Disruption to Continue for at Least a Year
Q: When do you expect the current high levels of supply chain disruption to subside?
Part 2: IMPROVING RESILIENCY
5 Majority of Manufacturers Admit Their Supply Chains Lack Full Resiliency
Q: How would you rate the level of resiliency in your current supply chain?
6 80% Say Improving Resiliency Is Now a Top Priority; Over Half Adopting Digital Tools to Help
Q: What strategies are you now adopting to help mitigate future supply chain disruption? (All that apply)
7 Over Half Moving from JIT Approach to Rethinking Inventory Levels for More Resiliency
Q: Is the Just-In-Time approach still viable for your company or are you rethinking that model to provide more inventory buffer?
8 Three Quarters Making Specific Efforts to Reduce Supply Chain Complexity
Q: Are you making specific efforts to reduce supply chain complexity in order to simply your supply chains and help increase responsiveness and resiliency to disruption?
9 A Third Now Replacing SCOR With End-to-End Value Supply Chain Model
Q: Are you still using SCOR as the basic supply chain model or are you rethinking this in favor of a more end-to-end value model?
10 Major Shift to Fully Integrated Supply Chains Over Next 2 Years
Q: To what extent are your supply chain functions integrated today, and how integrated will they be in two years’ time?
11 Yet Most Internal and External Supply Chain Functions Still Only Partially Digitized
Q: Which description best characterizes the digital maturity of your internal supply chain functions (plan, source, make, deliver) and your external supply chain functions (external suppliers, partners)?
Part 3: DIGITAL SUPPLY CHAINS
12 Significant Digitization Planned Across Multiple Supply Chain Functions Over Next 2 Years
Q: Which supply chain functions are all digital today and which do you plan to be all digital in 2 years’ time?
13 Adoption of AI, Cobots, AR/VR, Wearables, and Blockchain Predicted to Almost Double Over Next 2 Years
Q: Which digital technologies are you using in your supply chain today and which do you plan to use in 2 years’ time?
14 Digital Adoption Driving Extensive Redesign of Supply Chain Processes
Q: As you adopt more digital technologies across your supply chain, are you also taking the opportunity to redesign your supply chain processes?
Part 4: CHALLENGES AND OPPORTUNITIES
15 Digital Maturity of Partners, Disparate Data Platforms, Legacy Processes Are Main Roadblocks to Implementing End-to-End Digital Supply Chain Strategies
Q: What are your company’s primary challenges in implementing an end-to-end digital supply chain strategy? (Top 3)
16 Yet Only One in Five Have Specific Policies to Help Accelerate Digital Maturity Across Supply Chain Partners
Q: Do you have a specific policy to help support your supply chain partners in accelerating the maturity of their digitization efforts to ensure a more effective end-to-end digital supply network?
17 44% See Digital Technologies as a Game Changer in Creating More Resilient Manufacturing Supply Chains in the Future
Q: Ultimately, how significant an impact will digital technologies have on creating more resilient manufacturing supply chains in the years ahead?
About the author:
Paul Tate is Co-founding Executive Editor and Senior Content Director of the NAM’s. Manufacturing Leadership Council.
Survey development was led by Paul Tate, with input from the MLC editorial team and the MLC’s Board of Governors.