How Irish organisations can rethink their supply chain models

Supply chains need to shift from linear models to multi-dimensional agile designs to meet the challenges presented by a disruptive world.

In brief

• Supply chains of the future will need to support efforts to reduce material consumption and carbon footprint and also increase circularity.
• To improve quality and speed of decision-making it is imperative to use automation and cognitive decision support capabilities.
• It is critical to involve other members of the value chain at the design stage itself and focus more on outcomes not transactions.

Many of today’s supply chains have become too long, brittle and opaque to adapt to an increasingly disrupted world. If the byword for the past 20 years or so was scale and low cost, then the next decade will be characterised by resilience, sustainability and a broader definition of value.

Today’s supply chain models were created during a period of increasingly open cross-border trade in a relatively stable world. They were also designed to take advantage of an abundant supply of raw materials.

However, they must now be rethought and reshaped in the face of global disruptions arising from the COVID-19 pandemic, the war in Ukraine, increasing China-US tensions, shipping delays, and environmental, social and governance (ESG) pressures. Not to mention international trade policy changes and global tax reforms.

This requires Irish organisations to transform their supply chains to prioritise security, decarbonisation, talent availability, increased agility, and above all, increased resilience.

In future, their supply chains will need to support efforts to reduce material consumption and carbon footprint and increase circularity. They will also need to be resilient enough to withstand environmental and geopolitical shocks and adapt to changing legislative and tax measures.

Portfolio rationalisation

The first step on the transformation journey is portfolio rationalisation. Organisations will need to undertake radical reviews of their portfolios to establish which products are no longer profitable to make and sell or cannot be produced sustainably. These include cheap, single use plastic goods and fast-fashion products, as well as those that use large amounts of raw materials and those manufactured thousands of miles from their destination market.

Organisations should question whether such items can withstand the pressures of ESG reporting requirements, increasing carbon taxes, and consumer demand for products that meet high ESG standards.

Embedding sustainability

In the rapidly evolving circular economy, products will need to be designed to last, be capable of constant repair and upgrading, with any redundant parts recyclable. The production process will need to avoid overuse of scarce mineral resources, be energy efficient and net zero, and minimise waste and pollution.

This will determine the kinds of products an organisation makes, and the materials, ingredients and processes used to make them. It may be possible to re-engineer existing products to become more circular, but others may have to be discontinued.

It may also open up opportunities to simplify sourcing by reducing the range and volume of materials used for production and packaging. Fewer suppliers and components will reduce exposure to disruption. Furthermore, using less raw materials and more recycled content may reduce the total cost of manufacture.

Segmented supply chain models

Up until now, manufacturers have enjoyed the huge scale efficiencies associated with large manufacturing centres in low-cost countries. However, there is a now a pronounced shift to get closer to the end customer, to ensure a faster response to changing consumer demands, while avoiding tariffs, cutting logistics costs and reducing carbon footprint.

There are already clear signs of a move to more localised manufacturing. According to the EY European Attractiveness Survey 2022 of global investors, 53% of respondents are considering “nearshoring” to bring operations closer to customers — more than double the previous year’s figure. A further 43% are thinking of “reshoring” to take activity back to their domestic market compared to 20% in 2021. More specifically, 79% plan to establish or expand operations in Europe.

Bringing technology on board

With supply chains becoming ever more complex, there is a growing need for automation and cognitive decision support capabilities to increase visibility and control, and improve the quality and speed of decision-making. The ability to map and track suppliers, facilities and products down to raw materials will improve traceability, and allow greater scrutiny of supplier compliance, ESG credentials, and supply chain risks.

It will also give procurement leaders the ability to spot problems sooner and change sourcing at short notice to avoid delays or shortages. In addition, it can help build brand trust by enabling consumers track where an organisation sources products from and what the environmental impact is.

Building collaborative relationships

Tomorrow’s supply chains will be less linear with sourcing decisions based more on resilience, rather than merely minimising costs. This will see manufacturers reduce their overall supplier base, focusing more on outcomes rather than transactions to foster collaborative partnerships where other members of the value chain are incentivised to innovate.

Building the supply chain of the future

Manufacturers need to focus on five key priorities as they seek to transform their supply chains in order to remain competitive in a fundamentally changed future: