Adopting digital technologies like advanced analytics for better visibility and flexibility tops the list of top priorities for supply chain professionals in 2024. Generative AI is also coming, but only in some cases of use.
Sustainability and reshoring are not as high on the priority list, according to a report from the Association for Supply Chain Management (ASCM).
Supply chains continue to deal with disruptions and other market conditions that have gained importance during the COVID-19 pandemic, said Abe Eshkenazi, CEO of ASCM, a 70-year-old independent organization based in Chicago. This has led to three main gaps in supply chains: lack of visibility, transparency and traceability, which explain the main supply chain trends.
Abe EshkenaziCEO, Association for Supply Chain Management
“The first three are all technology-related: digital supply chain, big data and analytics, and AI and machine learning,” he said. “Organizations are particularly interested in adoption of these technologies to fill the gaps identified during the pandemic.
ASCM, a global organization comprised of 50,000 individual and corporate members, brings together the report on key supply chain trends drawing on input from subject matter experts in a variety of industries around problems they face in their daily activities.
More visibility into supply chains is needed
Supply chains are becoming increasingly digitalized because organizations face increasing pressure to be accountable for the actions of their partners and suppliers, such as reducing carbon emissions, Eshkenazi said.
However, even if digital technologies have made it possible visibility In what constitutes a supply chain, organizations also now understand that many of these suppliers, especially Tier 2 and below, are not able to meet the requirements of making data accessible, he said . Most of the pandemic-related disruptions have impacted Tier 2 and Tier 3 suppliers, making the adoption of digital technologies a top priority.
“The goal is to enable these extended supply chain partners to be able to participate in a high-tech environment,” Eshkenazi said. “Areas where technology implementation or upgrade is primarily focused on (include) transportation planning, visibility, and management.”
The consensus around supply chains is that people expect disruptions to be ongoing and difficult to predict, agreed Simon Ellis, practice director at IDC. This means that businesses will need to have the ability to respond quickly to disruptions.
“Speed, agility and nimbleness are the real capabilities companies need to cultivate, whether through visibility across multiple tiers of suppliers or better collaboration with key suppliers,” Ellis said.
To do this, companies will look at different strategies such as investing in multi-business supply chain networks such as SAP Business Network, E2open’s E2net or Infor Nexus, he said.
Generative AI could begin to play a larger role in supply chain processes, given its focus on querying systems and getting answers intuitively, Ellis said, but only when the data used to support decision-making is reliable.
“If you can have generative AI capabilities that tell you why it’s saying that, it’s because of these things, and if you know these things are fundamentally flawed, you can redo or reject (the actions recommended),” he said. “If you know these things aren’t wrong, then you’ll say, ‘That makes sense, let’s do it.'”
Generative AI is likely to become more integrated into supply chains; the big question is where, Ellis said.
“The debate is whether generative AI will be integrated into applications at a peripheral or centralized level, or a mix of the two,” he said.
Sustainability, a lower priority in 2024
Some supply chain issues that gained traction in 2023 have been removed from ASCM’s annual priority list. A combined trend encompassing sustainability and circular supply chainwhich aims to minimize the use of raw materials and reduce waste by recovering discarded waste, was ranked seventh in 2022, but ninth this year.
Awareness of sustainability is high, but real progress on this issue has not kept pace, according to Eshkenazi.
“All organizations tell you that it is among their priorities main initiatives“, he said. “However, the investment unfortunately does not match the rhetoric. Investments today are much lower than those for other technologies. »
There are several reasons why sustainability receives less investment, but this is primarily due to the lack of measurement standards that organizations should report on. Although there are a growing number of regulatory regimes for reporting requirements, they have not yet had widespread effect, Eshkenazi said.
“We are seeing much greater attention in the EU to the origin of materials and the impact of these raw materials,” he said. “Unfortunately, we now see that awareness is high, but the the impact is low“.
Sustainability is a concern among manufacturers, but real progress is likely several years away, said Paul Miller, an analyst at Forrester Research.
For example, BMW Group’s I Vision Circular is a prototype electric car unveiled in 2021, which will be made from 100% recycled materials and will be fully recyclable, but it won’t go into production until 2040, Miller said.
“It’s a vision worth seeing,” he said. “But this is still a long way off, as they need to change their own processes and involve their suppliers and supply chain so that materials can be cost-effectively recycled to where they are needed.”
However, if reliability and cost of energy become a concern, it could lead to improvements in sustainability as businesses seek to reduce their energy use, according to Miller. For example, energy prices increased 10-fold in Germany at the start of Russia’s invasion of Ukraine in 2022, making reducing energy bills an operational issue.
“We’re seeing a shift in IoT investments in factories from things like predictive maintenance to energy tracking,” Miller said. “Specifically, it’s about detecting energy-intensive machines and ensuring that when they consume energy, they are doing something useful.”
A growing number of software publishers are stepping in to offer energy monitoring tools, he said. For example, C3 AI has durability tool which tracks the energy consumption of machines and processes.
“It can identify – with a fairly high degree of accuracy – which machines, parts and processes consume the most energy,” Miller said. “For example, it might tell you that the machine is using a lot of power, but it’s not producing anything at the moment, so you should send someone to turn it off.”
Relocation is a long-term strategy
Reshoring or offshoring suppliers has also received attention in recent years – particularly due to COVID-19 and manufacturing disruptions in China – but it has also been a lower priority, according to the report from the ASCM. Deglobalization of supply chains is the 10th priority on the list for 2024, while it does not appear on the list at all for 2023.
One of the advantages of nearshoring (bringing manufacturing closer to the United States) or reshoring (returning manufacturing to the United States) is the reduction in logistics costs thanks to a shorter distance and greater speed of access to the market, Eshkenazi said. And there were incentives such as Chips Law making the return of manufacturing to the United States more attractive.
But there are still challenges to overcome, such as labor shortages in the manufacturing and logistics sectors, as well as lack of facilities such as warehouses, he said. Relocation and relocation will happen, but not overnight.
“There needs to be a long-term investment and strategy in place,” Eshkenazi said. “It will take some time to redirect the supply of raw materials from other sites to the new manufacturing facilities.”
Forrester’s Miller agrees that reshoring or near-shoring is a priority, but will need to be a long-term strategy. For now, companies are considering a “Goldilocks” strategy, which tries to find the right balance in the supply chain, he said.
“We won’t abandon low-cost manufacturing in Southeast Asia or move everything back to expensive markets, but we will rebalance the areas in which work is done,” Miller said. “Things like automation, machine learning and robotics play a role in reducing the costs of bringing manufacturing back into these expensive markets, but it will always be a balance.”
Overreliance on Chinese suppliers carries its own risks, and manufacturers were developing a “China plus one” diversification strategy even before the COVID-19 disruptions, Miller said. The aim is to spread suppliers across other locations to mitigate geopolitical risks and take advantage of financial incentives from countries like India.
“There is also a shift in the (traditional) supply chain, which is long and fragile and has a single point of failure, towards a more adaptive and resilient supply network, better able to cope with these shocks,” he said. “Manufacturers need to think about how they move materials differently.”
Jim O’Donnell is a senior news editor covering ERP and other enterprise applications for TechTarget Editorial.