THE COVID-19 pandemic has laid bare many of the long-standing vulnerabilities and risks lurking in organisations’ supply chains. In some cases, it has caused companies to take a hard look at their processes and their business models. In others, it has opened new opportunities for innovation, growth and competitive advantage in the postpandemic world. Overall, it has demonstrated the power of interconnected, digital supply networks (DSNs) to enable organisations to anticipate, sense and respond to unexpected changes and minimise their impacts.
To be sure, the challenges during the COVID-19 pandemic didn’t reveal the interdependent or global nature of supply chains; rather, they highlighted that most organisations aren’t set up to manage this interconnectivity when adverse impacts occur. In short, the pandemic has shown that if companies want to move forward into a future where they can thrive, they likely need to change.
But beyond the immediate economic and operational challenges created by the COVID-19 pandemic, what might supply networks in the postpandemic world look like? Despite the profound shifts we’ve experienced over the past year, the future of supply chains doesn’t look all that different from how we previously imagined it—we expect to simply get there much faster. To “get there,” however, supply chain leaders seeking to prepare their organisations’ supply chain processes for thriving postpandemic can focus on three key areas:
As part of Deloitte’s Respond, Recover, Thrive supply chain series, this report examines how organisations can revisit their supply chain strategies in light of all they have learnt during the pandemic and prioritise the capabilities they expect to require going forward to thrive in this new normal.
While the pandemic is still unfolding and its long-term effects are still unknown, what is clear is that the crisis seems to have helped accelerate fundamental shifts in what customers value, how customers buy and how businesses need to operate differently to meet customer requirements and earn their trust and loyalty (figure 1).
Post–COVID-19, the expectation for quick and seamless on-demand delivery will likely require companies to collaborate with ecosystem partners in increasingly complex fulfilment networks.1 Furthermore, comprehensive omnichannel approaches—underpinned by customer data to enable a tailored and personalised experience—could increasingly replace more traditional, isolated channel strategies.
Few companies will be immune to these shifts. Indeed, these expectations are likely to extend beyond business-to-consumer companies to include the business-to-business (B2B) world. While there will likely always be some differences between how the two domains operate, research suggests that B2B customers will increasingly expect a superior commercial experience akin to the one they receive in their personal lives.2 Examples include tailored product/service offerings, self-service order portals, seamless order processing and billing, shipment tracking and no-hassle returns.
The values of corporate purpose, trust and sustainability have also become more important.3 Although many companies have historically shied away from commenting on societal issues or reporting sustainability goals, organisations—and their leaders—will likely be increasingly required to demonstrate progress on these topics, especially after the pandemic.
In a recent global survey, both millennials and Gen Z consumers said that they will make a special effort to support businesses—especially smaller local sellers—after the pandemic and they won’t hesitate to avoid companies whose stated and practised values don’t match their own values.4 Further, a 2020 study by the Manufacturer’s Alliance for Productivity and Innovation found that 74% of manufacturers expected that reporting on environmental, social and governance (ESG) goals would become table stakes as early as within a year.5 Organisations’ ability to provide proof of execution against these commitments might become a requirement. This would reshape and reinforce the need for transparency—and redefine what trust and sustainability mean in a supply chain.
Leaders should evaluate their ability to market and sell their products and services in the post–COVID-19 world. Some of the important areas to consider include:
The pandemic has contributed to the replacement of brick and mortar by e-commerce. Yet apart from a few select industries, such as retail, many industries and organisations are not prepared to completely abandon in-person customer interaction. What does this mean for their supply chains? As you look forward, consider the following:
Portfolio optimisation takes on renewed importance during critical junctures in economic and business life cycles. Key questions you can ask include:
With resources increasingly constrained, leaders should prioritise subsets of customers and aligned services, and manage supply chains accordingly by considering the following:
The answers to these questions focus on the intersection of supply chains, new product development, customer strategy, sales, and finance. Organisations should take a renewed end-to-end look at their customers, products, and operations through a “cost-to-serve” lens and make informed choices that balance cost and effort with value, perceived willingness to pay, and sustainable business growth.
We have long explored how traditional linear supply chains optimised for a single business or function are transforming into trusted DSNs.6 When done in isolation (i.e., “random acts of digital”), technology investments often serve to optimise only a component of the value chain, not the whole. In the DSN model, however, functional silos are broken down both within an organisation as well as outwardly to include customers and suppliers (and in some cases, suppliers’ suppliers) to enable end-to-end visibility, collaboration, responsiveness, agility and optimisation.7 In fact, as linear supply chains evolve into DSNs, the companies best positioned for growth may be those that see these networks as core to their business, technology and operational strategies.
Increasingly, DSNs are being designed and built to anticipate disruptions and reconfigure themselves to mitigate impacts across the extended partner ecosystem.8 COVID-19 presented an opportunity to pressure test whether DSNs could deliver on their promise—and highlighted the importance of a fully connected DSN—not just within the organisation but also end to end across the ecosystem.
The key to automated, predictive and prescriptive operations in the post–COVID-19 world lies in the interconnectivity of digital tools, physical infrastructure and their underlying data streams. Tools such as the Internet of Things, cloud computing and 5G make it possible to create new sources of data from the physical attributes of a supply chain (e.g., machine vibration tolerance, lorry route deviations, carbon emission yield increases) and interpret, curate and visualise that data in meaningful ways to make business decisions. Artificial intelligence (AI), machine learning and robotics can augment and enhance the human workforce to improve efficiency, productivity and safety in factories, warehouses, call centres and transit. Finally, data lakes or control towers can bring cross-functional tools and processes together and apply advanced applications to ensure DSNs are optimised to thrive—and trusted to continue to operate and adjust amid unexpected disruptions.
Some of the topics that supply chain leaders should consider to better prepare for future contingencies include:
Moving into thrive requires supply chains to leverage connection points in the network to sense and respond to sudden changes in demand and supply and optimise operations. Key questions supply chain leaders should consider in this area include:
Given the rapid advancements in automation technologies, leaders can find it difficult to select the applications that are most suited for their purpose and trust the results.9 Some common considerations for process automation, AI, and machine learning include:
As the COVID-19 crisis continues to evolve, end-to-end visibility and collaboration across the supply chain can be critical to ensuring that the network will continue to function as intended. Otherwise, in its absence, manual interventions could be needed to adjust to disruptions—typically an inefficient and costly approach.
Even as business and commerce have grown ever more globalised, supply chains have generally moved in the opposite direction, growing more regionalised to meet local demand. This approach, known as near-shoring, taps into production capacity closer to prime markets. The COVID-19 pandemic further reinforced the value of being closer to the end customer, enabling a higher degree of control.
At the same time, however, it also exposed the need for companies to diversify their supply sources beyond a single country or region and to gain a deeper understanding of their extended ecosystem, including their suppliers’ suppliers. Supplier diversification had already been gaining traction in recent years, as rising costs and geopolitical risk from trade wars have prompted organisations to supplement their traditional supply networks with infrastructure in a second, typically lower-cost country. However, COVID-19 highlighted how those strategies might have been superficial at best, since many production locations still rely heavily on the same suppliers. The result was the illusion of resilience, rather than true diversification.
Leading organisations can apply advanced technologies to fundamentally rethink their supply chains, enhance their real-time understanding of activity in complex supply networks, and leverage continuous scenario planning to optimise the balance of cost against risk and agility of their production capacity footprint.
Designing a supply chain that is both resilient and efficient while addressing increasingly complex and nuanced markets is challenging. Organisations will have to consider multiple dimensions: proximity to customer markets, diverse customer service requirements (including aftersales service and reverse logistics), sources of raw materials, proximity to key suppliers and ecosystem partners, availability of skilled labour (and overall talent availability), infrastructure (energy, logistics, education), business disruption risk, laws and regulations (including intellectual property protection, customs, duties and taxes) and ESG considerations—to name just a few. But the payoff can be a more resilient supply chain, better prepared to weather future disruptions with fewer impacts to cost and service.
COVID-19 has highlighted both the importance of supply chain resilience as well as the challenge of associated costs, whether for minimising cost or ensuring business continuity. Recognising the importance of both ends of this spectrum is important when evaluating how the supply chain should be structured in the longer term.
Analysing your plant and distribution network can yield significant resilience improvements (not to mention cost savings). Some questions to consider include:
While leaders’ immediate reactions to the pandemic may have been to rein in global supply networks, the following questions might help provide perspective in balancing risks and costs:
Your stock strategy should support and complement your commercial strategy—balancing both customer- and product-level considerations (e.g., make-to-order vs. make-to-stock, lead time commitments, stocking locations and pooling strategy, minimum order quantities, desired service levels). Some questions include:
Organisations should assess risk throughout their value chains and establish assurance plans to meet an appropriate risk-adjusted, optimised outcome for each area—one that balances disruption costs with the value of assurance and service.
The workplace, workforce and the nature of work itself will perhaps undergo some of the most dramatic changes in the wake of COVID-19.
The pandemic proved to many of us that remote work is not only possible but effective. The notion of where work can be done (i.e., the workplace) will likely continue its shift from an in-person environment to a more distributed model as organisations increasingly adopt tools for remote working. In a Deloitte June 2020 study, CEOs said that they expect a third of their workforce to be working in a full-time remote capacity by 2022 and even earlier in some cases.11
These trends are not just limited to traditional office work; they extend to the shop floor and throughout the supply network. In fact, many manufacturers are likely to spend more on data management capabilities aimed at facilitating remote operations and improving operational efficiency. For example, Norsk Hydro, a Norway-based aluminium manufacturer that experienced limited access to plant infrastructure during the pandemic, plans to expand its data capabilities to remotely run and monitor plant equipment for improved resilience.12
In addition to the evolving landscape of where work can be done, the workforce itself is also changing as companies augment their traditional full-time employment models with contract workers and gig workers.13 With the growing share of alternative workers, companies should think creatively about how to train and leverage them effectively. Flexible talent mobility policies—which can be leveraged both internally as well as within the overall ecosystem of suppliers—enable organisations to quickly adjust their workforce as the need for talent evolves.
More generally, advancements in process automation tools such as AI, machine learning, robotics, natural language processing and generation, autonomous driving and computer visioning can augment workers, creating more value.14 In another recent Deloitte study, 79% of manufacturers reported that expecting their AI investment to increase over the next year, while 76% expect AI to be integrated into all enterprise applications within three years.15
Finally, the definition of work itself is shifting. Advanced connectivity and optimisation techniques have presented unique opportunities and challenges for plant managers and technicians: running and monitoring entire plant operations remotely, automatically balancing sudden spikes and troughs in demand-supply patterns across multiple plants and others. While these efforts were already underway for some companies before the pandemic, COVID-19 pushed others to follow suit quickly and made these elements an integral characteristic of tomorrow’s supply chains. Supply chain managers should view their operations with a critical lens, challenging the status quo of where and how work is performed and who performs it—enabling greater benefit to the organisation and its stakeholders.
As we head into the postpandemic world, it will not be enough to merely think about plexiglass dividers and temperature checks; those considerations, while important, only achieve the near-term goal of returning to work. Instead, organisations will likely need to rearchitect how they think about work, how they unleash their workforce’s potential, and how they adapt the workplace to accommodate both physical and virtual environments.
Challenge the assumption that work can remain largely the same as it was before. Doing so would overlook an opportunity to reevaluate and rearchitect work to accelerate productivity and growth. Some questions for leaders to consider include:
Organisations can unleash the full potential of their workforce by enabling people, teams, and intelligent machines to work together to solve problems, gain insights, and deliver more value while creating more meaningful work. To assess whether your organisation is prepared, leaders should ask themselves:
The workplace of the future is a dynamic place where employees, customers, and partners come together, and technology helps people communicate, collaborate, and interact, whether physically or virtually. Leaders should ask themselves:
Ultimately, the future of work is much more than a shift from a physical to virtual environment. To recruit, empower, and retain the best talent, and to build an organisation that is truly adaptable, leaders should embrace all the changing elements in the future of work.
It’s difficult to predict the extent and duration of COVID-19’s impact on global economies, businesses, and lives. Adapting to these four shifts takes hard work, honest assessments, and a long-term lens on investment. So, what sort of capabilities should supply chain executives consider deploying now as they continue to build out their DSNs in a thrive environment?
We expect the answer to evolve alongside the technology curve. Leaders can consider multiple actions now to adapt their supply chains to these shifts (figure 2), so they can thrive in the postpandemic world: An age where humans and robots share the factory floor as well as the corporate office; where algorithms predict demand patterns and determine scheduling sequence; where global value chains can be viewed from a centralised control tower using AI or machine learning to assess operations, manage performance across networks, trigger alerts and initiate mitigating action; where the trade-off of cost vs. service is weighted to consider multitiered risk and resiliency; and where supply chains are fully synchronised and dynamically optimised from source supplier to end customer.
Make the supply chain an integral part of the corporate strategy. For companies competing on a global scale, things can change quickly—and not just from unexpected breaks in the supply chain caused by a pandemic, but disruptive technologies or abrupt market shifts as well. All too often, supply chain strategy and business strategy have been kept separate. Driven by greater global complexity and the enormous stress that has been placed on networks—from higher customer expectations to dynamic delivery solutions—companies should challenge the long-held orthodoxy that supply chains exist simply to meet the commercial needs of the business. Instead, supply chain considerations should become central to business strategy.
Lay the digital foundations to enable the corporate strategy. Ten years ago, having a standard enterprise resource planning, transportation, and stock solution was typically adequate to meet the needs of the market. However, technical advancements have transformed the supply chain landscape. Data has become the new currency upon which success or failure can be measured. It is, therefore, essential to determine how data and technology will enable business and supply chain objectives, and where it is critical to lease vs. buy these capabilities. Technology solutions have historically been expensive, housed on site, and difficult to replace without major capital outlay. Given the rise of cloud-based solutions, supply chain executives have access to lower-cost products from a range of innovative providers.16 Supply chain leaders can thus rethink their company’s technology strategy as a means of driving increased innovation and nimbleness at lower cost and faster speed to market.
Identify what (and who) you’ll need to get it done. While there will be some return to prepandemic work arrangements, many of the new practises and trends are likely to stay.17 Therefore, supply chain leaders should take an active role in planning and designing for their organisation’s future of work— particularly with respect to identifying areas for automation within the supply chain, and determining where and how to redeploy (and upskill) the workforce, and what skills and capabilities they’ll need to set themselves up for growth.18
While COVID-19 certainly caught the world unprepared, the fundamentals of what it will take to compete in the postpandemic world shouldn’t. In many cases, the seeds for change were sewn long before “social distancing” and “Zooming” became household terms. And while there is undoubtedly a steep road ahead for many, those supply chain organisations that can embrace the new normal, invest in the future, and embrace interconnectivity and transparency could be best positioned to thrive.
Traditional supply chains are evolving into sets of dynamic digital supply networks. Deloitte Consulting LLP’s Supply Chain and Network Operations practise helps companies build supply network strategies and platforms, align processes with new technologies, develop persona-driven user experiences, and explore opportunities to grow and innovate.