A World in Flux: Global Supply Chain Predictions for 2021
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Mary Vasile: Hi, everyone, welcome back to the Be Ready for Anything podcast. I’m your host, Mary Vasile, and I’m joined today by Bob Ferrari of the Ferrari Consulting and Research Group. Bob is an expert in global supply chain management with over 30 years of experience in all aspects of supply chain processes. Bob, thank you so much for joining me today.
Bob Ferrari: Thank you, Mary. It’s a pleasure to join you.
Mary Vasile: Pleasure to have you! So your firm recently released a report of 2021 predictions and there’s a lot of great information in there. So let’s start with some of the basics. What are one or two challenges in particular that you’re advising companies and their supply chain management teams to focus on in 2021?
Bob Ferrari: Good. I think that’s a good start. Before we get into that, let me just do a quick introduction to our predictions because I think it sets an important context, and that is that, you know, throughout 2020, the COVID-19 pandemic really tested the resiliency, ingenuity and resourcefulness of supply chain management teams, basically when it counted most. And now, as we all look back, there was a remarkable performance by all industry global supply chain teams. And they all should be commended for that. And I—definitely we do that as well.
But also, there was a lot of learning and, you know, a lot of people talk about this. You know, essentially it comes down to, COVID laid bare the cracks and fissures in supply chain business processes, capabilities and decision-making. And because of that, when we- and we do predictions, we’ve done this since our inception in 2008 and we’ve had a traditional format for how we do our predictions. It’s generally ten, and we go into various areas that we think are going to be most important. But this year, we took a whole different approach. Just like COVID, you know, everything’s changed. There is a new normal and we went into a different normal about predictions.
So our overall theme for 2021 predictions is a year of renewal. And what we mean by that is now that we’ve gotten through 2020, what we’ve been hearing from a lot of industry supply chain management teams, a lot of other people who support them, and even in conversations we’ve had one-on-one with a lot of people in the area right now is that this is a period where there’s got to be some new thinking, new directions, new alignment in terms of where do we go from here, what do we need to do? And that’s basically the theme.
So to respond to your question, you know, what are the two most significant? Actually, for us, there’s probably three. And the way we describe it in our predictions is the first is that there’s going to be clearly more focus on end-to-end supply chain visibility and continuous supply network risk mitigation. It was the primary fault line for many and also an advantage for those who were able to pivot as quickly as they did. So going into this new year, clearly, everything—all the data, all the survey data, everything—aligns to the fact that there’s going to be a lot of emphasis in this area. The one unique difference that we point out here is that it should not, it should only- not only should it be end-to-end supply chain visibility, but also continuous supply network risk mitigation and monitoring. And the two have to go hand in hand.
And the reason that we pointed out that difference is that as we monitor the supply chain technology landscape, there’s a tendency right now for supply chain risk mitigation to be purely focused on the procurement side and on the procurement technology side. And while that’s a natural evolution and expected to occur, we think going into this new year, there’s got to be some renewed emphasis to look at this, not just as procurement, but across the board and include planning in that–supply chain planning—in that information and in that visibility. So very much a more concerted approach here. So that’s one area.
In an augmented area to this is naturally supply chain digital transformation and, you know, basically boosting those efforts. Now in 2020, a lot of companies got into this by default. They had no- they had no option but to do this. So they had to get into supply chain transformation in any way they could. And if that meant slapping things together, if that meant putting tools and processes in place that were kind of on the fly, they did it and they did it well. Now in 2021, the emphasis is on—all right, let’s take the step back. Now let’s do a concerted effort here in digital supply chain transformation and end-to-end visibility.
But the key difference that we point out here is that this can’t be purely functionally driven, supply chain functional driven. This has got to have a lot of line of business alignment here. In other words, let the business focus on: what are the areas that are most important for us in these areas of increased end-to-end visibility, supply chain risk mitigation and, you know, the overall supply chain digital transformation efforts that need to be made in this area. So that’s clearly one area.
And then the second area obviously is omni-channel and omni-channel focusing customer fulfillment capabilities. Any business that has an online presence or was forced to have an online or online retail presence, this is an area, clearly, that has to get focused in the coming year. And it has to be, you know. There’s little choice in the ability to do that. And there are key decisions, again, that need to be made in this area, particularly when you take a step back now, and you look at the notions of, let’s say, an Amazon and the prolific presence that Amazon has today in the online retail area. Business has to have some really challenging decisions to make here. If they’re selling on Amazon, well, what does Amazon do? Amazon controls all their customer information. There’s some consternation in that. In some cases, Amazon does their inventory management and their actual customer fulfillment. So there’s a lot of dependency. There’s almost an outsourcing decision here that’s made whether, you know, you continue to outsource that to Amazon, or do you have concerns about that? And are there other options that the business would like to pursue? And other platforms? So that’s certainly a consideration here, as well as the area of logistics and, you know, again, the end-to-end visibility that logistics provides. Are you going to get that from the actual online platform provider, or are you going to do that on your own? And how are you going to augment the two? So those are the two primary areas that, you know, proliferate you know, our predictions in terms of priority.
We’ve got eight more, you know, in our predictions. But certainly those are the two that clearly are going to be the most prominent.
Mary Vasile: And those are some excellent points. Thank you, Bob. As you also discussed in your report, there’s been a lot of global and economic upheaval. It’s no secret that COVID-19 had a pretty devastating effect on the economy. So what are the expectations in terms of financial recovery and manufacturing activity, and how will those affect the way companies strategize their investment in supply chain management moving forward?
Bob Ferrari: Good question. Very good question. Well, you know, everything we’ve monitored—and, you know, we do a rigorous review of all the economic forecasts. You know, the World Bank, OECD, all of those provisions, Bloomberg, you name it. You know, they’re all there. And, you know, you look for consensus. And basically, what we’ve been able to ascertain is that there’s still a sense of uncertainty in 2021. A lot of people would want to think or a lot of economists believe that the second half of 2021 should be better than the first half. Clearly, as we record this podcast, we’re talking about the first half. There is so much dependency on the global delivery and administration of vaccines here. That is the overall determinate. It’s very clear. And to the point where even, you know, we operate the Supply Chain Matters blog, it’s a global global-wide blog, and we’re dedicating a lot of focus to just vaccine and vaccine supply challenges and administration and all those kinds of things, because it is so dependent on everybody else, on all the other multi-industry supply chains. So there’s a lot of dependency there, a lot of uncertainty.
And basically our advice to supply chain management teams is you’ve got to continue to plan for uncertainty. It’s going to be there. Yes, maybe the latter part of 2021 will be better, but you don’t know. So you’ve got to be constantly vigilant to what’s going on, what’s going to occur and how are you going to respond to that.
The implication on the financial side and particularly the CFO perspectives, which are very, very important to supply chain management teams, is that, you know, CFOs—everything we’ve seen—they don’t expect overall businesses to get back to pre-pandemic levels for at least two years. Some are saying three. So there’s a lot of caution still there in the CFO chair. So, you know, supply chain management teams have to be aware of that. So naturally, there will be some support for you know, investments in supply chain management capability, the same areas I talked about before. End-to-end visibility, digital transformation. Get ready for omni-channel. Enhance that capability. That’s why it’s so important to have an alignment to the business because your ability to support this has to be all the way up to the C-suite, including the CFO. So there’s going to be some rigorous look at this. And the CFO wants to be assured that those investments are going to be meaningful and are going to basically provide the benefit that the business needs. So take the bullet in certain areas, make the investments in supply chain where you need to do it and then let’s move on with it. So that’s kind of the overall theme that we’ve seen.
If you look at all of the operational metrics here, the global PMI data, production and manufacturing activity, which includes supply chain activity, what we’ve seen—and what, you know, anybody can see—there’s been a classic V response on the manufacturing side. There is tremendous amounts of volume inbound to global regions right now. The V curve is just stark. And then we show that on the Supply Chain Matters Blog.
Everybody asks, well, what’s, what’s in there? What is all this material coming inbound? Well, guess what? With everybody now basically working from home, like you and I. So what are people ordering? They’re ordering new office equipment, new computer equipment. Oh, by the way, that Peleton, fitness device. Gee, I’d love to have that. What about this other furniture? What about you know, we have to—I have to put a new home office here. You know, I’m a little uncomfortable with the kids shouting in the background. We talked about that before we started. You know, it’s there, right? You know, the pets in the other room. So that’s what’s in those containers.
And they’re all inbound now and then that’s driven a new challenge here that we’re seeing, and that is, ports are getting congested. And if you look at all of the PMI data and the commentary related to that PMI data, all of a sudden now the supply network has become constrained. Lead times are extending to a big extent. So in your supply chain planning systems right now, you’re seeing the alarm whistles starting to occur. Vendor times, shortages, response times, all starting to erode. So that’s another alarm bell that is going on. So that V shape that we saw since March, probably to the end of December, now we’re seeing the tail start to show up because the constraints are there. And that’s an important consideration in all of this data.
Mary Vasile: So let’s delve into manufacturing a little bit more. In the wake of COVID, the term global supply chain has come up a lot and we can’t talk about global supply chain without talking about China. China is the world’s manufacturing powerhouse, especially in regard to technological innovation and component production. What do you think the geopolitical landscape will look like 2021, specifically in regard to China? And how do you think that landscape will affect supply chain and manufacturing moving forward?
Bob Ferrari: Another very good question, Mary, because this is indeed an area that many global supply chain management teams are focused on and rightfully so. If you take a step back, you know, let’s look at 2020 going into 2021. In 2020, before the pandemic even hit, the political and the geopolitical tensions around China, particularly between the US and China were at an all-time high. You know, we had basically a global trade war occurring and the tariff levels and everything.
Then COVID came along and China was the epicenter of that. And regardless of what you think, what our listeners may think you know, China just did an extraordinary job of just dealing with the pandemic and managing to mitigate the concentration of that to the point that by March and April, they were starting to bounce back. And they haven’t looked back since that time. And now when you look at, again, all the global economists and all the global forecasts here, regardless of all of the uncertainty that is incorporated in those forecasts, the one certainty that global economists are pointing to is the fact that China is the best-positioned right now to bounce back. They are already going great guns and they continue to do that as we speak here in the first quarter of 2021.
Now, that’s the quandary for a lot of global supply chain management teams, particularly those based in the US. And particularly maybe even Europe as well, in the Eurozone, because now that situation is one that—they’ve got to look at this from the notion of, OK, what is my exposure in China today? And this is very—going to, in our view—this is going to be very industry-specific and industry-unique. Let me give you a couple of examples.
If you’re in the high tech and consumer electronics sector and you’re looking at all the geopolitical dimensions of what’s going on in China, one of the really strong signals that are going on here is that there is movement to a decoupling of high tech supply networks. And what we mean by that is that the concerns about where China is going, or where potentially China may go in this area and their ability to develop their own capabilities—in advanced semiconductor manufacturing and design and in, you know, continuing to dominate supply networks and some of the key areas of components, in display components and memory and all of those aspects. If you’re looking at that and you’re seeing these signs of decoupling, the question is what side of the decoupling do you want to be on in terms of your sense?
Because on the one hand, some companies want to continue to have access in China’s market because it’s a huge market, tremendously huge market. So you want to continue to have access on that.
But what does that imply in terms of supply? And do you have risk in terms of your intellectual property, in terms of all that goes with that? So you’ve got to balance that risk.
Then you’ve got to balance the risk, the fact that there’s already discussions and there already starts seeing movements here where we’re talking about added sourcing of semiconductor fab capability in the United States. Just this week, as we’re doing this recording, I’ve seen a report where now Europe is investigating the possibility of investing more in semiconductor fab capability in Europe now that the US may do that.
Now, where this all goes, we just got to continue to monitor that. But the sum total of that is that if you’re in the high tech consumer electronics area you’ve got to pay attention to this, because this is a predicate of how you’re going to lay out your global supply chain sourcing strategies for China in the next two to three years. That’s the window.
Let’s take another example. If you’re in a medical or health care delivery supply chain—personal medical PPE equipment, certain medications, other areas that relate to vaccine delivery, vaccine administration, vaccine capability. Boy, this is on your radar screen. Very much.
And let’s say- let’s focus on the US, for an example. The Biden administration is now taking charge. And one of the first things that we’ve already seen, they’re already communicating the fact that in certain areas—like PPE, medical equipment, certain other areas that support the need for surgical masks, the need for some administrative materials, gloves, surgical gloves, in that area—they’re already communicating very clearly that they are looking into domestic U.S. supply and manufacturing capability in these areas. That’s one side.
The EU, the European Union is looking at this. They have a little bit more challenges on vaccine right now in vaccine supply, but I believe eventually they’re going to get to these other aspects. Again, these are implications about different supply networks, more domestic, because these products may and are going to be deemed in the national interest. A different capability, a different definition of risk. And because of that, that’s an implication.
So the sum total, Mary, here is that you’ve got to look at China from the notion of your particular industry and of your particular risk tolerance in terms of supply, continuity of supply, and what that means from this whole geopolitical notion. What we tend to say in our predictions and we did that in our prior three years of predictions, there was a tendency for some supply chain management teams to put their head in the sand about this and say, well, it’s all going to work out. And, you know, there is so much extraordinary capability in China. We’ve got to stay there. Why would we ignore this? I think now, you know, the focus has got to be much more risk-aware. So that’s kind of how we look at China.
Mary Vasile: Right, right. So remaining on the geopolitical spectrum here, but shifting our focus a little bit. Let’s talk about Brexit, now that Great Britain and the European Union have signed their trade agreement. How have you seen COVID compound existing issues and how do you think it might raise new problems? Do you foresee the flows between these two regions stabilizing in the current year?
Bob Ferrari: You know, that’s a very, that’s another very timely question. You know, we constantly wrote about this brinkmanship. And it was, as you well know, this was just brinkmanship to the end. You know, getting the deal, how are we going to get the deal?
And while all that was happening, you know, all of the—you know, particularly the EU-focused and the U.K.-focused supply chain management teams were just trying to deal with: What are we going to do here? How are we going to plan for this? What should we plan for? What is the basis of the assumptions? And there were very little in a sense of what happened, what was going to happen.
So the good news is they came to agreement. The not-so-good news is they didn’t allow for a lot of planning in terms of how do we administer this?
So that’s the phase we are in now, right now. We’re talking, you know, in the early part of February, and you know, all of the notions of the 10-mile queues at the ports. Well, thankfully, we’re not seeing that right now, at least everything that we’re hearing and sensing. But there are clear signs here that there is a tremendous amount of work that needs to be done on the administration of cross-border, the information technology capabilities of the ability to make this more electronic-based. And who knows when that’s all going to come into play, right now.
Right now, you know, carriers, so the U.K.—I’m sorry, the EU-based carriers are very reluctant to send their trucks into the U.K. because they know that in that load there’s going to be origin documentation that probably doesn’t meet the requirements, which means the trucks are going to sit in queue for a very, very long time. And trucks in queue don’t make per revenue.
In the same token, on the U.K. side, we sense that there’s a lot of pressure on carriers, U.K.-based carriers to—hey, you’ve got to, you know, you’ve got to move our freight regardless of what it is and the implications of that. So all of this is going to have to sort out. All right. So I think from a predictions perspective, I think it’s a sensing that this is going to be a work in progress for a lot of 2021.
And there’s going to be a lot of stops and starts. Maybe there’s going to be a lot more discussions between the U.K. and the EU on this. I saw a report last night about the fact that, you know, the U.K. now wants to push back on the Northern Ireland provisions of this. They wanted to postpone those provisions out to 2023. And the EU has responded very quickly to say no. We’re not going to allow that. You know, the deal is what the deal is. We got to make it work. You have to make it work.
So, you know, it’s a work in progress, I guess is the best definition of that.
And for supply chain management teams, they’ve got to do the best they can to try to mitigate how this is all occurring, make sure that they have a lot of emphasis now on documenting rules of origin and to make it electronics-based and to work with both administrations in both government bodies to get tuned into how to make this best happen on an electronic basis. Because if it’s not electronic, it’s just going to be more queues and more delays.
Mary Vasile: Now, Bob, I know that you have so much more detail in the report and I encourage our viewers and listeners to check it out. I appreciate your kind of giving us kind of a cursory overview. But in terms of big takeaways, what do you think is the most important thing for companies to bear in mind? And how can they turn 2021 into, as you said, a year of renewal?
Bob Ferrari: I think there’s two basic areas that I would emphasize in closing on this. The first one is alignment. Really focus on everything that is implied by alignment. And that means align capabilities, supply chain capabilities to business strategy. Everything you do this year in terms of all the things that I talked about and others that are in the report align them to business strategy. What the business wants to do, what it needs to do. What are those priorities? And line them up to that.
Alignment is also across the supply chain function itself. We can no longer afford to be in stovepipe approaches in supply chain management. Whether it’s planning, whether it’s operations, whether it’s procurement, whether it’s all three. Everybody has to align outside in. Outside in is—What is happening in the external dimensions of products of product demand and supply networks and risk and logistics and customer fulfillment?
And how do we align to that? Alignment is basically how we align to the capabilities and the people skills that we need. And that’s the second part of that. Investment in people and skills capabilities.
Empathy for people and all that they’ve done and especially empathy for frontline workers. What would we have not done without the commitment of frontline workers?
The inequalities that COVID has brought out and how that manifests itself now in global sourcing going forward. And the fact that there are some populations that may not see vaccine administration for quite some time. Empathy in health and safety and those protocols that were done. Equity in the workforce.
And finally, a greater emphasis on what we call skill-based development versus purely functional. And what we mean very briefly in that. Skills-based is the notion of what skills are required in supply chain. And a sense of the big picture and a sense of soft-based skills. Team-based collaboration, being analytics aware, being- the notion of understanding the international components of that. All of that are part of this. So those are really the two primary themes that really should be bearing in mind going forward.
Mary Vasile: Well, Bob, it was so great having you. Thank you so much for taking the time, and thank you for sharing your insights with us.
Bob Ferrari: Thank you, Mary, for having me. I really appreciated the opportunity.