What Is the Future of Supply Chain? Moving Toward Supply Networks
The COVID-19 pandemic and the period of volatility that followed taught some hard lessons to supply chain professionals across the U.S. We've seen:
- Empty store shelves throughout 2020.
- An overcorrection to dangerously high inventory levels and dwindling warehouse capacity in 2021.
- A resulting massive ship backlog at west coast ports into 2022.
- Sky-high spot rates the entire time.
And then, through 2023... a period of remarkable calm. Spot rates plummeted, capacity loosened and shippers everywhere breathed a sigh of relief.
But as we all know, the U.S. truckload market is highly cyclical, and conditions favorable to shippers don't last forever. This quiet period might actually be the perfect time to start preparing your supply chain for the future by rethinking it as a supply network.
Read on to learn what we mean by "supply network" and what you can do to get there.
How Are Supply Networks Different From Supply Chains?
At this point, you’re likely wondering what exactly is a supply network.
Is it really any different from a supply chain?
The distinction might seem like a small one, but it will bring about major changes to the way your organization moves freight, manages inventory and procures raw materials.
Supply chains and supply networks share the overall purpose of aligning the production and distribution of goods to an end buyer or consumer.
In the traditional view, supply chains are seen mainly as components of cost to serve, and businesses have approached them with the primary goal of keeping that cost as low as possible.
Supply networks, conversely, are enablers of business growth. They allow your company to identify and seize fleeting but powerful instances of competitive advantage and eliminate waste both within your own operations and across the broader logistics landscape.
Supply Chains
Supply chains consist of a fixed set of suppliers, production facilities, warehouses and transportation providers that operate in a predetermined order.
Because they are linear, supply chains are susceptible to the sorts of external pressures we saw throughout and immediately following the COVID-19 pandemic.
When disruptions in labor power or raw materials happen, businesses utilizing rigid supply chains have nowhere to turn to fill those gaps.
Supply Networks
Supply networks are expansive sets of suppliers, producers, warehouses and transporters that can be tapped into as necessary.
When a disruption occurs — a paper supplier runs out of stock, a packaging facility is drastically understaffed — businesses with robust supply networks can reach out to alternatives to seamlessly maintain their distribution goals.
In their most powerful form, supply networks will be open and shared between organizations to help multiple participants identify new efficiencies.
Picture how transformative this will be: If your warehousing needs reliably surge from 80% of your available capacity to 120% during Q3, an open supply network provides the visibility to find another business nearby whose storage needs are the inverse of yours.
Aligning capabilities and needs in this manner is a true win-win for both organizations, an unimaginable outcome under the current status quo of closed and proprietary supply chains.
Breaking the Chain: How to Build a Supply Network for the Future
Moving toward a supply network approach will require both concrete, practical steps and a significant shift in organizational philosophy.
The following course of action will help you gain full awareness of your current state and allow you to start planning toward the future.
5-Steps to Transform from Chain to Network
- Digitize all supply chain-related documentation (if you haven’t already). This is the single most important step you can take, a necessary precondition for being able to work as a supply network. Many — perhaps even most — businesses have made great strides toward this goal over the past several years. Even if you're one of them, auditing your tech stack to ensure the right data is being tracked and shared in the right places is still a good idea.
- Create a robust, consolidated data set of your own supply chain with end-to-end visibility. Once all your data is digitized, your next task is to clean it. You want to be able to see how changes to any one component of your supply chain impacts the whole — raw materials, inventory, transportation, labor costs, outsourced logistics spend, all of it.
- Once your data set is digestible, take stock of your current constraints. Where are your current operations most at risk in a tighter market? Are there lanes where the rates you're paying are stretching your budget to the max? Are you racking up unnecessary accessorials due to inventory overflows and slowdowns at your facilities? You can start answering these questions when your data is completely in order.
- Align your labor force with your new data capabilities and priorities. Even the best data is only useful with a team in place that knows how to use it. Roles for data and digital professionals have been rapidly trending up, with artificial intelligence (AI) skills leading the charge with a more than 2000% increase in job listings for logistics roles over a 5 year period according to our original research. If your organization isn't currently adding talent with a computer science, data science or other quantitative background, you probably should be.
- Begin building a durable, adaptable supply network through outreach and data sharing. While the looser market we saw in 2023 may have reduced the urgency for these conversations, shippers and carriers still share an appetite for collaboration in the interest of saving money and eliminating waste. A true supply network mentality means you're open to sharing that data you've meticulously gathered externally to help identify opportunities to become more efficient and cost-effective.
Transformation Takes Time & Organizational Buy-In
For any of this to be possible, you will need to ensure buy-in not only from decision makers at your company, but from the executers who will carry out these steps as well.
Everyone needs to be on the same page that data sharing between organizations can actually help create competitive advantages rather than threaten them.
The most important thing to keep in mind is to start from wherever you are, regardless of how far off you may feel from being able to fully realize the potential of a supply network.
The changes outlined here cannot be completed overnight, and it may be months or even years before your supply network is operating in full swing.
But the payoff for making this transition the right way will be immense, both in terms of your organization’s efficiency and your ability to compete in a marketplace where speed and convenience are vital to your brand’s success. Supply chain resilience is always going to be important in the long term, and a supply network like the ones described here may be the most resilient version of all.
Dive Deeper Into Your Supply Chain Data
Are you collecting and tracking the right data for your supply chain goals? And do you have the right KPIs in place to make it actionable?
Read more about the different kinds of supply chain data out there and start setting a modern and proactive digital strategy for your organization.