The Future of the Supply Chain

One of the painful discoveries of the COVID-19 pandemic was how vulnerable U.S. supply chains are, demonstrated most vividly by the shortage of critical medical supplies and equipment. Supply chain experts agree that measures must be taken to ensure the supply chain of the future becomes more resilient and can withstand another national crisis.

"Our healthcare supply chain has been overly reliant on outsourcing, to such an extent that we found ourselves in a dire shortage of PPE that are essential for protecting our frontline physicians and nurses," says Tinglong Dai, an associate professor at Johns Hopkins University Carey Business School. "To some extent, our healthcare supply chain has totally failed our clinicians and patients. It pains me to say this, but our healthcare supply chain has proven criminally inadequate."'

Looking ahead, the common theme for improving the supply chain is that sourcing must be brought back domestically. Even Democratic presidential candidate Joe Biden has made the rebuilding of the U.S. supply chain a plank of his platform, advocating that production of several critical products be shifted back to this country.

This comes as a result of several lessons learned during the height of the pandemic. "A vast majority of supply chain risk warning systems did not consider wide-scale stoppages of production and transportation," nor the fact that "the ability to rapidly get a transparent perspective on supplier capacity and financial health was dependent on manual processes," according to Kevin Keegan, a principal at PwC.

The pandemic accelerated the decade-long trend of reshoring to North American manufacturers, says Tony Uphoff, president and CEO of Thomas Publishing, an industrial sourcing platform provider. "The pandemic has forced most every company to reevaluate their supply chains and shore up vulnerabilities, particularly in areas where you may have a single source, that if it went down, would cripple your business,'' he says.

Thomas's latest survey shows that nearly 69% of companies are actively looking to reshore manufacturing back to North America, Uphoff says. "We're also seeing the acceleration of the related trend of local sourcing,'' he adds.

Technology has and will continue to play a significant role in reshaping supply chains in most industries for greater efficiencies and transparency, experts say. Automation of production facilities has become a key digital transformation initiative for PwC's manufacturing industrial product clients, noted CFO Tim Ryan during a June webinar on CFO priorities.

New technologies, like the industrial Internet of Things (IIoT) and 5G, "are enabling the convergence of the digital and physical supply chains, providing far more visibility and real-time data on each segment of your supply chain," says Uphoff.

These new technologies "will revolutionize supply-chain management, allowing for a full, real-time view of your physical, digital, and financial supply chains,'' he says. This will enable new business models like direct-to-customer, where manufacturers can cut out the middle man (distribution) and go directly to their largest customers, Uphoff says.

"You'll also see MaaS, manufacturing as a service, really take off,'' he says. Manufacturing as a service involves locating smaller, more nimble manufacturing facilities closer to customer groups, offering SaaS-like subscription business models, Uphoff predicts. "You will also see companies put 3D printers into customers' facilities to provide the speed and flexibility that traditional supply-chain management simply can't match."

Wider adoption of 5G and IIoT are happening now. Uphoff predicts they will see greater acceleration in 2021, "with the caveat that economic recovery pacing could impact the speed. Mainstream adoption should hit in 2022-2023."

Dai envisions artificial intelligence (AI), robotics, and automation becoming commonplace parts of the supply chain of the future, playing important but invisible roles. "We will see wider adoption of maturing technologies such as voice AI, facial recognition, 3D printing, wearables, and Internet of Things, as the COVID-19 pandemic has made many of them more palatable to executives, employees, and consumers,'' Uphoff says. "The need for more responsive, personalized supply chains will further prompt more technologies and innovations."

Some manufacturers share the reshoring sentiment, but say it will require significant changes. "One thing that was already a problem in the industry that became magnified [during the pandemic] is there are very few raw materials suppliers in U.S,'' says Calloway Cook, president of Illuminate Labs, which formulates and manufactures herbal supplements.

"All things being equal, if you manufacture supplements, you'd prefer to source materials in the U.S. because there's better quality control,'' Cook says. "I have talked to a lot of supplement and tea companies and think the future of botanical raw material sourcing will be more localized than today. It solves the problem of unnecessary greenhouse emissions, because not as many materials have to travel on freight and as far."

For that to happen, pricing of materials has to be in a similar range, if not equal, he says. Cook acknowledges that is a tall order. "It takes a big loss to change your operations and not a lot of companies are forward-thinking in that regard,'' especially if they have significant profit margins, he says. In the herbal supplements industry, it also costs a lot to switch suppliers because of significant internal testing required for quality assurance, he adds. "It's easy to keep it business as usual."

Nevertheless, Cook says Illuminate has started brainstorming about how to reduce its supply chain risk and try to source domestically.

Like the others, Dai agrees that there will be more near-sourcing and bringing operations close to where customers are, and this will have the happy side-effect of helping to reduce emissions.

Says Dai, we may see changes to the supply chain occur sooner rather than later. "Business leaders can expect to face unprecedented pressure from policymakers, consumers, and shareholders alike to truly harden their global supply chains against shocks as a result of climate change, geopolitical upheavals, and pandemics."

 

Esther Shein is a freelance technology and business writer based in the Boston area.