As we gradually emerge from the surreal narrative of 2020 and question whether it already is the new normal and, if not, what the new normal will look like, we realize we need to rethink just about everything. The COVID-19 pandemic brought societies and economies to their knees, exposing major fault lines and fragilities in current systems. Global supply chains are no exception. In fact, when it comes to resilience, they pose the greatest risk, but at the same time, are the largest lever of opportunity for helping business keep pace with the rapid changes taking place in an economic landscape fundamentally altered by the pandemic.
As pressures around sustainability and transparency grow stronger we need a deep, strategic rethink of how we approach, value, build and optimize entire value chains. Below are four key factors impacting your business that emerged or accelerated over the course of the past 18 months and approaches supply chain practitioners are taking to thrive in the new reality.
#1 Rethink Supply Chain Strategy. What are we optimizing for?
For too many years, supply chains have been regarded as a cost and risk to manage. They have been optimized for efficiency, with tactics like cost reduction and lowering inventories as the main drivers of procurement strategy.
But the pandemic has taught us the hard way that entire health systems and even economies could stop due to supply chain failures. As a result, supply chain resilience has advanced from a technical topic to a strategic differentiator discussed in corporate boardrooms and presidential briefings. The U.S. President, Joe Biden introduced an Executive Order on America’s Supply Chain within the first couple of weeks after his inauguration, stressing the need for resilience, diversity and national security.
Clearly, it is time to move beyond the tactical just-in-time approach, to a just-in-case perspective. It is time to reimagine the supply chain as a network for building value and bolstering innovation. And this will help respond faster to changing business conditions and seize opportunities. To accelerate this shift, procurement must partner with value chain partner even more closely on sustainability than ever before, have common metrics, and focus on sustainability performance and improvement.
How can you rally your team and take action? Here are five ideas to get you started:
#2 Rethink Value Chain Participation
The pandemic has also exacerbated deep-rooted social and racial inequities, opening the door for new conversations on how we can build a more equitable future. The events of 2020 have elevated the importance of ESG’s “social” pillar for companies and their stakeholders. As factories scrambled to ramp up production despite staff shortages and government lockdown measures, supply chains were exposed to even greater risks associated with workers’ rights, child labor and modern slavery.
But the acceleration in inequities is seen not only among individuals and communities, but also among businesses. While some are faring well despite the turmoil, others have suffered immensely and may never recover. We must rethink how we grow inclusively through solidarity in ecosystems.
Fortunately, we are already seeing signs of more solidarity in ecosystems. Some of our customers have been providing financing and immediate payments to cash strapped suppliers. Other companies have been sharing workforce, or repurposing production lines to address health equipment shortages.
Going forward, responsible purchasing practices will be key to resilience of our ecosystems. In addition, by promoting supplier diversity and more diversity in the workforce of our trading partners we can strengthen our communities.
#3 Rethink Finance: From Constraint to Opportunity
Financial constraints have for years been more of a bottleneck than an enabler of sustainability projects and action. Sustainability champions often had projects held up, for example, because the CFO was wary of “too long a time-to-ROI”.
But, the pandemic has changed this mentality and brought a shift “from constraint to opportunity” and things are changing fast. In fact, experts say that sustainability is the biggest economic opportunity of our times.
In the public markets, ESG / Sustainable Finance seems to be the number one priority for banks and CFOs alike. Over the past 18 months, $288 billion was channeled into sustainable assets during the year by mutual funds and exchange traded funds (ETFs), a 96% increase from 2019. Almost every “earning call” has ESG on the agenda.
But this is just the tip of the iceberg - ESG funds only address the top 10,000 listed companies. There remains an enormous opportunity to bring financial incentives to the estimated five million businesses in global supply chains - many of which are not listed, and/or small- to medium sized businesses. As a recent McKinsey study states that already $7 trillion of the $17 Trillion in global supply chain commerce are being addressed by supply chain finance solutions. Imagine if you could apply a sustainability element to this opportunity? Major financial institutions like JP Morgan, ING, and FinTechs like Taulia are already working with large buyers and customers to integrate sustainability ratings into their lending and financing offers - particularly to unlisted and small and medium sized companies.
How will you transform your portion of this $17 Trillion, to leverage Finance as a positive incentive for sustainable growth for your supply base? The most efficient programs align the ESG tools and measurements with sustainable procurement programs. This way, you can create incentives, like reduced financing rates -- for suppliers that have good sustainability performance. This is a recipe for a powerful business case to mobilize your peers across procurement, finance, and your corporate branding and marketing teams to rally support to launch or rebuild your sustainable procurement program for major impact.
#4 Rethink Monitoring: From Analog and On-Site to Digital and Remote
The COVID reality has also accelerated the shift “from analog and onsite to digital and remote.” We have all seen in and been part of it, with international flights suspended and offices switching to remote working virtually overnight. When it comes to responsible purchasing, the widespread cancellations of audits has pushed businesses to expand and explore digital options, which - among many advantages -- are scalable and can drive transparency in an exponential way.
In a May 2020 McKinsey survey 79 percent of respondents said they are planning investments in digital supply chains. The push to accelerate digital transformation was also noted as a key factor that can guarantee resilience in KPMG’s Building Supply Chain Resilience Through Digital Transformation paper. The study ascertained this approach would not only future-proof supply chain but also bring “new-found agility”.
So this is our mandate to rethink: Digital speed and scale can drive transparency in an exponential way, emerging innovations to enrich the quality of data, and have the characteristics to achieve ‘global scale’, and transmit alerts and intelligence at light-speed of digital.
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