Long-standing low and recently falling margins in construction are in danger of becoming an expected norm. But does it really have to be that way?
The pandemic has expedited many of the trends that existed before Covid-19, and businesses need to ensure that their supply chains can meet these prevailing demands. Paul Adams, consulting director, explains the challenges and strategic benefits of building supply chain resilience, and how businesses should look to future proof their supply chain as an enabler of competitive advantage.
1. What has the pandemic taught businesses about the importance of future proofing their supply chains?
The Covid-19 pandemic has had a generational impact on many areas of life, including the way businesses and their supply chains work. Perhaps more importantly, pre-Covid trends such as the shift to digital, rise of online consumerism and growth of some Asian economies, have all been expedited by the pandemic, bringing forward issues that businesses can’t afford to ignore.
Growing pressure from international governments to address the problem of climate change, combined with increasing consumer demand for environmentally-friendly products, have pushed sustainability to the top of the corporate agenda. Many businesses are only just waking up to the realisation that they need to rethink the way their supply chain operates and the technologies employed to make their products.
The turning point has arrived and businesses must face up to the fact that their existing product or operational model could soon become obsolete. Old world products and technologies will need to be offloaded to make room for fast-developing green solutions that can help companies to fulfil their ESG-led (Environmental and Social Governance) KPIs. Doing things differently on the way to the new normal is a must and staying the same won’t be an option for much longer.
2. What can businesses do now to future proof their supply chains?
Businesses need to consider what products and models of consumption will look like in two, five and ten years’ time. The results will vary by industry of course, but the sustainability thread will be apparent in almost every case.
To take an example, in the world of transport manufacturing we can expect to see further evidence of the rise of hydrogen as a power source. This will require new infrastructure for storing and dispensing large quantities of hydrogen fuel. Rather than waiting for this change to happen, businesses need to consider what this infrastructure and its supply chain will look like and seek opportunities to influence its evolution.
There is an opportunity for business leaders to seize game-changing technologies and position their organisations for growth in a more environmentally-aware world.
3. What are the key challenges to overcome when future proofing supply chains?
The main challenge is deciding how far to go and how quickly. For traditional businesses that have revenues rooted in old world technologies, shifting to new products or production methods will be costly and may not be feasible all at once. Many of the most exciting emerging technologies, such as the application of AI and machine learning and advanced 3D printing, are still at proving stage, which adds to the risk factors for traditional manufacturers.
While there are risks, there are also significant gains to be made by grabbing the initiative and making sustainability a core part of corporate strategy now. The COP26 event in Glasgow later this year will further promote global conversations about the importance of sustainability, with the UN’s Race to Zero initiative asking businesses to sign up to a process supporting a resilient zero-carbon recovery. Signing up to support the campaign is an opportunity for businesses that understand the value it can bring for their employer brand and in strengthening stakeholder relationships.
Future proofing supply chains on the way to a greener and more sustainable future will require a level of detail that many businesses won’t have previously considered. They will need to know exactly what’s happening across the whole supply chain and understand the environmental impact of each supplier’s operational activities. This will involve a detailed assessment of everything from power sources to transportation and material waste to production methods, and more.
4. What are the key strategic benefits of future proofing supply chains?
A key strategic benefit of future proofing supply chains is competitive advantage. Most businesses are aware that market disruption of any kind is both a threat and an opportunity – they must evolve or die.
For businesses that are able to move early and seize the initiative, the potential commercial rewards are great. Businesses that can position themselves as sustainability leaders in the broadest sense by constructing green buildings, switching to renewable energy sources, establishing green supply partnerships and introducing zero-carbon processes could gain a significant stake in evolving markets of the future, leaving their competitors behind.
Investing in digital connectivity across the supply chain can also deliver major benefits by helping to maintain material availability and keep production lines moving. A key learning from the pandemic is that businesses that have invested in digital technologies have been better equipped to adapt working practices and minimise downtime.
5. How should businesses go about future proofing their supply chains?
The first step to future proofing the supply chain is to understand it strengths and weaknesses. This will require good visibility across the supply chain and the ability to spot complementary supply chain capability.
It may be necessary for businesses to sever relationships with key suppliers if they lack the capacity or capabilities needed to support the delivery of their strategic goals. Before taking such decisions, however, they should evaluate what type of supply and capability are needed in the future and reconfigure their supply chain to suit.
In some cases, near-shoring supply chains might be worth considering, although few companies are taking this approach at the moment. Instead, more businesses are looking for ways to build in agility, so they can switch capacity up or down, and change locations, when needed. Preparing for recovery, some companies are putting in place local-for-local supply chains, based on proximity to market. These localised supply chains can facilitate product development / customisation strategies and speed the way to market, while mitigating the risk of transport-related disruption.
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