Volatility remains the watchword for supply chain operations in 2023. Amid inflation, uncertain consumer demand, labor shortages, disrupted logistics and extreme weather, supply chain managers are restructuring operations and reinforcing digital controls to add flexibility and manage risk, while holding down costs. As they do, trends on the 2023 supply chain horizon range from rethinking supplier relationships to rerouting goods to revising digital strategies.
14 Supply Chain Trends to Know in 2023
Supply chain stress is at its highest level in recent history — far higher, for instance, than during the global financial crisis of 2008, according to KPMG’s new “Supply Chain Stability Index.” At the same time, an S&P Global survey of supply chain professionals concluded that 2022 was “a tumultuous year in review, with no end in sight.”
The outlines of a stronger supply chain model — one that can withstand volatility as a permanent condition — have begun to emerge, and the coming year will see supply chain leaders fill in this framework. Some lists of trends that will be in or out of favor in this pivotal year place globalization and just-in-time operations in the “out” column, while others are not so fast to completely dismiss these long-standing practices. Still, trends filling up the “in” column overwhelmingly favor agility over running lean operations — though certainly not at all costs.
Clearly, volatility has raised the bar on monitoring, analyzing and rebalancing opportunities and risks across the entire supply chain. What else can be expected? Read on for 14 trends for 2023.
Going forward, environmental sustainability issues and extreme weather, such as hurricanes and wildfires, will keep them in the public eye, as people experience more weather-related damage to their communities and disruptions to the supply chains they depend on. Calls from climate experts and policymakers are growing louder, demanding that businesses both reduce supply chain contributions to global warming and adapt supply chains to withstand extreme weather events.
The business case for sustainable supply chains is stronger than ever. Beyond goodwill, companies have tended to cost-justify their steps toward sustainability as brand-burnishing exercises to appeal to customers’ sensibilities, become more desirable employers and meet investors’ environmental, social and governance (ESG) standards. These concerned stakeholders are growing in number and expanding to include business partners and lenders.
The drivers for businesses to be more sustainable are also changing. For instance, companies now face government regulation of supply chain emissions and operational resilience. Global agenda-setting proposals include:
- The Securities and Exchange Commission’s pending rules requiring public companies to disclose greenhouse gas emissions in financial statements.
- The White House’s proposed Federal Supplier Climate Risks and Resilience Rule, which adds operational risk mitigation on top of emissions reporting.
- The European Union’s forthcoming Corporate Sustainability Reporting Directive, for which some companies have already begun reporting and many more will begin as early as 2023.
Two digital mandates arise from supply chain regulation. The reporting data needed for compliance will require ever greater visibility into supply chain sustainability — well beyond Tier 1 supply partners into Tier 2 and beyond. And achieving mandates for greater supply chain resilience in the face of extreme weather events will require advanced analytics to identify variable risk and achieve supply chain agility.
Supply Chain Agility
Nearly all supply chain trends for 2023 align with the uber-trend of agility. Decades of driving toward leaner supply chains to cut costs ultimately ended up catching many companies flat-footed as volatility surged during the pandemic and beyond. Times have changed — so much so that the very reference model for supply chain operations recently underwent its most significant update in over 25 years, with a new emphasis on digitization.
The model — the Association of Supply Chain Management’s Supply Chain Operations Reference Digital Standard (SCOR DS) — covers processes, metrics, skills and practices across industries, aiming to provide the foundation for digital investments through 2030. It emphasizes market drivers, end-to-end visibility and buyer-seller collaboration in supply chain design and operations, replacing linear thinking and lopsided buyer-supplier relationships with a more agile, orchestrated approach to supply chain management.
Agility circa 2023 is embodied in new physical and digital models, especially those that are modular, micro and composable, as in:
- Microsupply chains: To flex with changes in market demands and supply chain stressors, some companies are evolving from heavily integrated to more modular, coordinated operations that address different business streams with self-contained, microsupply chains running in parallel. This modular approach lets businesses customize products, work processes and other aspects of their operations more responsively. For instance, generic and customized products could each have their own supply chains.
- Microwarehousing and fulfillment: Warehousing and fulfillment are also going micro. Smaller warehouse capacities in more locations are being called into service, in everything from conventional logistics companies’ centers to existing retail stores to spaces subleased from ecommerce giants’ overbuilt supply networks. Highly automated and often located closer to dense customer markets, microfulfillment centers can enable faster delivery at lower cost, as well as options including the popular consumer alternative to buy online and pick up in-store (BOPIS).
- Microservices: The rise of microservices is adding agility to digital supply chain strategies. Loosely coupled microservices enable modular changes, linked into larger platforms via application programming interfaces (APIs). They make it possible to fulfill a specific business requirement without all the dependencies and complexities inherent in incorporating new functionality into a complete application. Some refer to this development as composable applications, for adding functions, such as intelligent order management or spend management to enterprise resource planning and customer relationship management systems.
Localizing supplies can reduce a company’s exposure to today’s geopolitical risks, transportation costs and delays. The 2020s’ much heralded switchover from global to local suppliers will gain ground in 2023, if not entirely as expected. While 92% of executives express positive sentiments toward onshoring and near-shoring supply chains in the industry’s latest “Reshoring Index,” experts say the change will be gradual and only partial.
Many companies are expanding single-source, single-region strategies with a reliance on two or more sources from as many regions to avoid single points of failure. As part of this development, and especially with Asian suppliers setting up manufacturing in Mexico, some American companies are buying components closer to home and doing final assembly in the U.S.
2023 should clarify how far and how fast companies will rebalance their onshore, near-shore and offshore sourcing. Localizing a supply chain can give companies pause, though, if they require a big upfront investment, higher labor costs or the creation of a new supply network from scratch. Meanwhile, some of the immediate pressure to localize may be off, with transportation congestion largely expected to clear up in the coming year and ocean freight rates declining from record highs. And notably, even if a company and its suppliers are not global, there’s often residual global risk to manage from suppliers’ suppliers on distant shores.
“We are only at the beginning of finding a best-practice maturity model for global supply chains,” according to the S&P Global survey. In the midst of this rebalancing act and the tumultuous market forces that catalyzed it, supply chain agility is becoming more important than ever.
Increased Inventory Reserves
Much like the trend to localize supplies, recent supply chain stressors led to inventory stockpiling. Going into 2023, though, economic forecasts show that markets, such as retail, may face a surplus of inventory combined with a potential decrease in consumer purchases due to inflation. So companies will be paying close attention to their inventory reserves as a key financial mechanism for estimating the percent of inventory that ultimately won’t be sold.
Whether for raw materials or finished products, inventory reserves are forward-looking and fluid expenses allocated to the cost of goods on a balance sheet (compared to write-offs, which are only taken after the fact). The better managers can factor in historical inventory patterns and current market conditions to project the percent of goods that’ll never move, the more accurately they can calculate inventory reserves and roll them up into their net inventory — all of which is essential to understanding a company’s net worth and future revenue opportunities.
Volatility will mean calculating inventory reserves more often, but it will also place other aspects of inventory management under continual scrutiny this coming year. For instance, while stockpiling inventory can provide a hedge against inflation, that’s only true if rising storage costs and the cost of financing that inventory don’t cancel out the potential benefits of buying low today and selling higher tomorrow.
Among other inventory balancing acts, some experts advise against the recently popular view that supply chain managers should dispense with years of just-in-time operational experience for “just-in-case” overstocks. Instead, they recommend refining just-in-time inventory systems with limited, strategic stockpiles, backorder planning and even the identification of substitutable products.
These and other inventory considerations make inventory management software an increasingly valuable tool for companies to keep up to date and agile.
Flexible Contract Integrations
Volatility is the bane of supply chains that rely on big, long-term fixed-price contracts for volume savings on cost. New-model contracts aim to support the success of both supplier and buyer in more fluid relationships, with flexible contracts that let buyers split orders into smaller blocks with the option of changing orders if the market shifts. Buyers and suppliers, who face many of the same volatility issues, are also incorporating new contingencies into contracts, such as clauses for inflation.
It’s certainly not easy for companies to achieve this flexibility while at the same time widening their range of suppliers to avoid single points of supply chain failure. That’s what makes contract management more critical than ever in 2023, relying on digital supply chain techniques that draw data from IT and operational technology systems to deliver greater visibility for managing growing complexity.
B2C ecommerce continued to grow in the runup to 2023, following an unprecedented surge in online shopping early in the pandemic. Now the question is, which will win out in the coming year: consumers’ newly ingrained online habits or their rediscovered yen for “real life” in-store shopping, travel and entertainment? Or will inflation tamp down consumer spending across the board?
Uncertainty about consumer behavior will keep supply chain managers on their toes. Question marks hover over sales volume, to be sure, but also over preferences including in-store shopping, ecommerce marketplaces, direct-to-consumer (D2C) sales and subscriptions, speedy delivery of online purchases, BOPIS and online/in-store returns. For instance, customer expectations for hassle-free returns puts pressure on retailers’ ability to manage reverse logistics in the supply chain.
Meanwhile, as sales on B2B marketplaces soared in the early 2020s, B2B is primed to become a larger ecommerce market. This sea change is not just about buying office supplies and other essentials for running a business, but will also increasingly include B2B marketplace purchasing of the actual raw goods and components that go into final products. Both suppliers and buyers stand to benefit, but they’ll also need to manage significant transitions in their digital supply chains.
Supply chains play an increasingly important role in customer experience (CX), as consumers have become more digitally connected to brands. It’s telling that seemingly every consumer and business these days wants to know where their purchase is in the supply chain, at the click of a link.
According to Gartner, more than 60% of supply chain leaders are investing in CX metrics and customer data analytics to improve their supply chain’s ability to sense and respond to what their customers want, need and think. Investing in CX and collaborating across company departments not only help to grow the business, but they also support classic supply chain functions, such as forecasting and optimizing inventory.
One development to watch in 2023 is the D2C model. In the early 2020s, some of the biggest winners in the CX race were D2C brands online. Unlike the B2B move toward more marketplaces, described above, this B2C model tends to circumvent online marketplaces to engage customers more directly, using a hyper-focused, customer-first approach that often relies on subscriptions and social media marketing. D2C brands collect a wealth of customer data. But with ecommerce and social growth slowing, many of these brands are now diversifying channels, even as more conventional brands have looked to add a page from the D2C playbook in their own omnichannel strategies.
Customer demand for greater choice and customized options seems to only grow. But delivering such product variety in 2023 could require new supply chain models and considerable attention to cost and complexity, with supply chains already under significant strain in the current environment.
One model for filling this demand is mass customization, which combines mass production with customization to provide unique products on a relatively large scale, but at low cost. In this case, technology enablers like 3D printing could play a role in adding finishing touches to customize a product toward the end of production.
Another model calls for spinning out microsupply chains, as described earlier, to optimize handling of customized orders without impacting primary supply chain segments. Order processing could likewise be segmented for customized products.
Internet of Things (IoT)
The rapid rollout of new higher speed, lower latency wireless technologies — from ubiquitous 5G cellular to in-building Wi-Fi 6 and 7 — is driving billions of new IoT connections, and the supply chain is a primary benefactor. Working with other wide area wireless networks and in-building networks, 5G will continue to expand cloud-based networks’ capabilities with sensors and edge computing to gather and process data on operations and logistics closer to the source. Gartner predicts that 25% of supply chain decisions will be made across intelligent edge ecosystems by 2025.
Applications range from drones and robots to devices that can track the production of a packaged food product, for instance — from sourcing ingredients, producing the item, shipping it and selling it retail, while monitoring environmental and working conditions along the way.
The cloud is now the standard platform for most supply chain software, according to an annual survey by MHI, a supply chain industry trade association that projects a 40% adoption rate of cloud computing and storage in 2022 to reach 86% in 2027.
Pervasive cloud computing is laying the foundation for several supply chain innovations. For example, so-called mesh technology enables the capture and combination of data from multiple supply chain systems to create a “digital twin,” a virtual replica that can be used to facilitate decision-making and intelligent orchestration of operations. In practical terms, for example, inventory data can be combined with transport schedules and allocated transport vehicles to avoid stockouts.
At another level, the cloud enables supply chain managers to access critical information wherever they, themselves, happen to be — not inconsequential in what is often a 24/7 operation. Companies can also benefit from a growing range of cloud-based software-as-a-service (SaaS), such as packaged solutions that let users compare freight forwarders and manage storage.
In 2022, the recognition has sunk in: The labor shortage is not going away. No wonder nearly 80% of supply chain leaders have accelerated their digital transformation, with the adoption of supply chain robotics and automation expected to nearly triple in the next five years, according to the MHI survey.
Surveys show that supply chain leaders are looking to automate using everything from robots in the warehouse to artificial intelligence (AI) in the back office. The goal is to elevate operations from the automated to the autonomous supply chain, defined by Capgemini as “an integrated, frictionless and customer-centric supply chain function that delivers cognitive, touchless operations and transparent data-driven decision-making.”
Autonomous operations are the opposite of manual processes based on siloed information shared by email — all of which can slow supply chains and limit agility in response to disruptions. For example, an advanced order management application can help aggregate and stage shipments using just-in-time rules and algorithms. And autonomous equipment, such as drones, will augment tasks that were heretofore manually intensive, as they work independently and in networks.
The cloud, IoT and other advanced technologies can together deliver unprecedented supply chain visibility. Two developments to watch in 2023 will involve how digital twins and control towers make the most of this visibility to tame the vicissitudes of today’s environment.
A digital twin, as described above, provides a virtual replica of supply chain assets and their interactions based on data compiled from real-time visibility into the supply chain, other internal departments and external sources. It’s built with multiple technologies, from sensors and cloud computing to AI and visualization tools.
A supply chain control tower enables cross-functional teams to formulate an orchestrated response to what is observed, increasingly by applying decisions suggested by AI tools applied to this “single source of truth.” It’s enabled by data analytics, collaboration platforms and other digital tools fed with metrics, key performance indicators and controls.
In practical terms, these two models could help answer questions as simple as what to do when a shipment is delayed. But perhaps their ultimate expression is scenario planning. This is where all the moving parts, from buildings to raw materials to finished products to customers, are combined and recombined with a view toward possible events, variables and desired outcomes to produce alternate strategies to meet customer expectations at minimal cost. For instance, a virtual stress test could probe whether facilities and operations are adequate for a holiday season.
But there’s still a big barrier to break before realizing the full promise of digital twins and control towers. Research shows most companies still have progress to make in achieving supply chain visibility, especially beyond Tier 1 suppliers into their suppliers’ suppliers and on down the line to the next tier and the next. And therein lies the source of many supply chain disruptions.
Greater visibility will continue to sharpen companies’ demand forecasting capabilities. Traditional forecasting techniques based on historical sales data can’t sufficiently predict supply and demand in a fast changing world. Each input to supply chain planning is subject to wider, more rapid swings today — from sales to supplier lead times, shipping schedules, warehouse availability and storage costs.
With the combination of greater visibility and advanced analytics, a more advanced demand forecasting model is designed to make predictions over the long, medium and short terms and adjust to continual fluctuations. For instance, if demand is dropping, companies that can monitor internal and external demand signals to make more frequent forecasts can cut production on a timely basis and avoid inventory write-downs. Advanced demand forecasting can even improve responses to incremental factors that might impact demand, such as a slight change in the weather or an extra ad placement.
The upshot is that supply chains employing advanced demand planning provide continually improving accuracy of forecasting and alignment with planning — essential attributes that have become harder in practice in today’s volatile market.
AI and Machine Learning
If agility is the motivational force behind supply chain trends in 2023, AI and machine learning are the accelerators. AI is expected to see the fastest growth in the next five years among all advanced technologies ranked in the MHI annual survey — in use by only 15% of respondents today but rising to 73% over the next five years.
Yet even companies that have already invested in AI have so far failed to realize its full potential, experts say. They’ve largely employed its predictive capabilities to forecast demand for planning purposes, a BCG report found, but coming years will give AI a larger role in supply chain operations, as supply teams come to trust its autonomous decision-making capabilities.
Supply chain managers face a kaleidoscope of potentially concurrent disruptions at various levels of the supply chain, from demand to supply and out to their suppliers’ suppliers, across geographies, channels and climates. Unassisted, no supply chain team can keep on top of all the potential inefficiencies and fault lines, let alone take decisive action fast enough.
AI, on the other hand, can learn from the team’s past decisions, correlate information across departments and recommend actions for similar situations. It can then continually analyze resulting data to make recurring decisions that optimize performance and provide recommendations to enhance the supply chain — much of which gradually takes place more autonomously.
In what Gartner calls “analytics everywhere,” use cases include self-driving vehicles, in which the AI algorithms have been trained to react to unforeseen events in the warehouse to avoid sudden obstacles and accidents on their programmed routes. In another context, AI can identify unfolding weather disasters and how they impact routes, correlating that information with the location of suppliers, warehouses and other assets to activate backup plans.
Get Ahead of Supply Chain Trends With NetSuite
In the end, supply chain agility rises and falls with the visibility of data and ability to analyze and act on it. NetSuite supply chain management solutions support these critical requirements, enabling companies to oversee and optimize the flow of goods from suppliers through manufacturing and into customers’ hands. They’re a key component of NetSuite ERP, an all-in-one cloud business management solution for automating core processes and providing visibility into operational and financial performance.
Supply Chain Optimization Starts with Inventory
2023 will continue to test the mettle of supply chain managers, with continued volatility liable to produce concurrent disruptions at many levels of supply and demand. The agility to respond, recover and remain resilient in this environment will be determined by data and the decisions drawn from it.
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Supply Chain Trends FAQs
What are supply chain trends?
Supply chain trends for 2023 include an effort to more agilely manage challenges, such as inflation, uncertain customer demand and labor shortages. Related trends also include efforts to increase visibility and improve forecasting.
What are future trends in supply chain management?
Artificial intelligence is expected to accelerate supply chain managers’ efforts to achieve agility in an uncertain environment, converging with trends such as cloud computing, the Internet of Things and automation.
How is the supply chain doing in 2022?
Supply chain managers are restructuring operations and reinforcing digital controls to handle volatility from multiple sources, such as inflation and labor shortages.
What are the five biggest supply chain challenges?
Inflation, uncertain consumer demand, labor shortages, disrupted logistics and extreme weather are among the biggest supply chain challenges facing supply chains.