Patrick van Hull
In 2022, a supply chain will suffer a cyber attack so significant that a business will go bankrupt. It won’t come from a direct attack on supply chain systems and tools, but rather it will start from being linked to an unsecured data source. The moment of exposure will come about because companies are desperate for data and blindly confident in acquiring it. When cost sensitivity amplifies the pressure, an industrious individual will find a way to cobble together a homegrown solution that connects to the information they think they need.
The approach is so common that many organizations have more than one hundred such solutions, often Excel-based, bridging more traditional systems. However, with each solution and each linkage, additional exposure points are created, unsuspectingly multiplying the risk of a cyber-attack. By emphasizing what data is accessed over how securely it is accessed, more data will be brought in than needed. Somewhere in that excess will be the malicious code that will spread throughout its enterprise.
That’s where bankruptcy comes into play. With that much data to search, it takes time to find the source of the breach. During that search, the supply chain is at risk of slowing down further, at a time when every misstep is amplified. The slowdown degrades the customer experience to the point that revenue no longer outpaces costs.
Whatever the public explanation, the real reason will come back to the fact that not linking to the right data in the right way can bring a business down.
Social Media Data
Unstructured social media data, like collecting Netflix streaming consumption, likes on TikTok pages for product influencers, views of specific recipes on Facebook, sales of products from online retailers, and other data sources are a treasure trove of intent data that directly connects to customer intent.
These social media and cultural trends impact consumer demand across multiple verticals, but few companies know how to capture this fast-moving data. Even fewer can take that data and use it to respond quickly to time-bounded demand. Within the next two years, companies that haven’t embraced technologies that connect to this data and can run predictive scenarios to redirect operations to make the most optimal financial decisions will lose significant market share to competitors that embrace a digital supply chain.
The entry point to turning data into knowledge and knowledge into insights is an AI/ML-enabled supply chain planning platform. Companies across all verticals will benefit from technologies like the o9 Digital Brain and its Enterprise Knowledge Graph that can collect, integrate and analyze internal and external data to enable more accurate, and profitable decision-making across a global enterprise.
Elevating the Importance of Sustainability
The pandemic has coincided with an unprecedented increase in the focus on sustainability. Lockdowns exposed critical global supply chain vulnerabilities and made real the possibility of improving the health of ecosystems by reducing carbon emissions and pollution as a result of a temporary suspension of high demand for fossil fuels. Broad-based public health and safety actions in response to the pandemic by government and industry also appear to have affected the relevance and significance of environmental and social sustainability as a long-term imperative.
Industry surveys show that consumer demand for environmentally and socially sustainable practices and products has increased over the course of the pandemic. Similar results can be seen in capital markets and the investor community. It is not yet clear whether this trend is in itself sustainable, but the personal sacrifices people have made in response to restrictions imposed by the pandemic appear to translate to the sacrifices required for living more sustainable lives.
What is clear is that sustainability is now top of the agenda for CEOs across industry sectors. More companies are taking substantive action without firm government regulatory mandates. As the pandemic continues to linger into the coming year, we can expect the upward trend in the importance of environmental and social sustainability among consumers, investors, and corporations to continue.
The Future of Planning 2022 and Beyond
Change happens when the pain of not doing anything starts to exceed the pain of doing things differently. For businesses, the vision of next-generation planning capability has never been more sharply in focus, with supply chains being headline news weekly. What planning changes should we prepare for?
On-premise ERP systems and ‘black box’ planning solutions will phase out as cloud providers offer social media style applications that are intuitive and enjoyable to use. Cloud-based systems will become more open as outside-in capability replaces the isolationism of traditional enterprise solution vendors. These next-generation cloud providers will be easier to engage with and their solutions will encourage more automation and outsourcing. Subscription models will turn implementation projects into plug-and-plan exercises.
The exponential rise in data will continue unabated, and applications will evolve to this massive pool of information, sometimes lagging slightly behind and sometimes encouraging increased data creation. Digital solutions will offer greater granularity with flexibility and enable dramatic reductions in planning cycles and improved reaction times to events.
Graphical User Interfaces were the big application leap forward when the personal computer and mouse transformed rudimentary terminal screens into flexible windows. These windows have since been refined by smartphone usage, but voice-activated metaverse applications visible in 3D are going to consign our current views of processes, problems, and solutions, as well as many computer peripherals, to the dustbin.
SKU Consolidation in the Near-Future
Two significant trends support our prediction of SKU consolidation starting in 2022: the need to improve supply chain efficiencies and retailers focusing on enhancing the in-store experience for customers, including the need to create more space for more socially distanced shopping.
The past two years have highlighted the vulnerability of retail supply chains, and there is a movement among retail supply chain leaders from “Just-in-time” to “Just-in-case” inventory strategies. Retailers will plan to hold more inventory to buffer against disruptions; however, it’s not possible to do that with every SKU they’ve held for the last several years. As a result, tough decisions about which products to assort will have to be made; in many instances, in coordination with suppliers because they’re dealing with similar challenges. Many suppliers have had products on allocation over the past two years, and rationalizing the number of SKUs offered will help them drive greater efficiencies across their operations.
Annual reports of some of the largest retailers like Target, CVS, and Walgreens highlight the importance of the customer experience. Target is going so far as to announce the number of stores they remodeled in 2020. If the customer’s experience isn’t pleasant with dimly lit, crowded, unclean stores, consumers are pushed to the convenience of shopping from the couch. A pleasurable in-store experience is key to bringing customers into the store. Over the past several years, there’s been a proliferation of ‘if you want it, we’ve got it on the shelves!” Companies will invest in optimizing their product portfolios and cutting out ‘zombie’ products that are not moving as quickly.
As a final point, SKU rationalization won’t just be felt in stores. This trend will likely be felt in e-commerce as well. Just because retailers can provide multiple pages of pasta choices doesn’t mean retailers should. If most consumers only look at the first two pages while shopping online, it doesn’t make sense to have pages four to seven in stasis and stocked in a warehouse.
The Bullwhip Effect Will Persist
Thought the bullwhip effect was a somewhat outdated concept? The pandemic started a textbook bullwhip effect in supply and demand. The truth is that this chaotic imbalance will continue to disrupt into next year and beyond into several quarters. Like in 2021, many will think of just getting through the early part of the year, and then all will be normal. However, that way of thinking isn’t going to fly going forward. The trend of wide-scale unpredictability will linger, impacting procurement and holding up products making it into the consumer’s hands.
People stopped producing when everything shut down, and consumer appetites were reduced across many industries. As things started to open back up, there was this bullwhip panic of supply surprises and demand disasters. This has now been exasperated in the supply chain. In the forest industry in Canada, lumber pricing went up 10x and then fell by 60% last year. We could see an M&A crash coming on the horizon.
In terms of developing resiliency, the idea of setting an annual operating plan or long-range forecast, even a monthly forecast, is archaic. The ‘set it and forget it’ approach? Forget it. A new normal will persist in supply and demand dislocations where a consistent real-time balancing act will have to be ensured as new variants continue to arise.
Many companies and governments have implemented the fiscal stimulus that has provided important protection for people. However, we will see the result of this on economies next year. As COVID winds down, inflation will rise due to the money released that had been saved during the shutdowns and lockdowns. Prices will be modified across markets, and companies will have to be on their toes armed with the power of next-generation technology. It’s the only way to stay afloat in the chaos.
Going Digital to Tackle the Talent Gap
In 2022, a significant supply chain challenge will be recruiting and filling roles within supply chain organizations as potential employees are rethinking what is important to them and their career growth. Hiring planners was a challenge before COVID, and in the wake of the Great Attrition, the inference is clear. Employees aren’t willing to settle when it comes to job satisfaction and the ability to do “meaningful” work. Companies that haven’t adapted their business models to provide that work-life experience will struggle to hire and retain top talent.
This trend is apparent in supply chain organizations. Despite more graduates receiving supply chain degrees, many hiring organizations have not aligned with their new way of thinking and working of the next generation of employees, and they struggle to fill openings. Low level, non-value-add work such as reconciling forecast numbers between siloed functions, which has been a core task for decades, does not provide opportunities for meaningful, interesting work, and graduates are shunning these legacy roles in favor of more knowledge-based opportunities.
Employers, particularly those in Western markets, will need to rethink their planning function and invest in technologies that automate these low-level tasks, giving new employees the ability to focus their day to day on making strategic, impactful decisions based on automated data analysis and recommendations done through machine learning and artificial intelligence. This will give them greater visibility and engagement within the business, rather than being pigeonholed into obscurity with no deep understanding of how their contribution affects company performance.
The Great Attrition is an opportunity for great transformation. We have hit an inflection point, meaning that this period of tremendous uncertainty and separation has given everyone, people and businesses, a chance to re-evaluate what is important and start taking steps towards what will fulfill them. Companies have the opportunity to evolve, just as their employees are, and organizations that embrace this new world will attract and retain top talent.
Leverage Technology in Industrial Manufacturing
The industrial manufacturing industry learned a lot from 2021 as there were shortages across the board in semiconductors, labor, truck drivers, containers, and port capacity. Untangling these supply chain issues will continue into 2022. Agility was the word of last year and it will continue to be a make-or-break factor for supply chains. Therefore, companies must strive towards end-to-end planning and sensing disruptions in supply and demand. COVID reduced production massively, and in the process of trying to recoup to pre-pandemic levels, there is now an imbalance between supply and demand as inventory was getting stuck in ports and gathering dust on shelves. The extent of the stasis was evident in how President Biden had the go-ahead to open the port of Los Angeles on a 24/7 basis to unclog the blockage before the holidays. Logistics issues like a shortage of truck drivers meant parts came to warehouses in dribs and drabs, and companies making bulk products, particularly those in automotive, struggled to keep the conveyor belt chugging away.
Looking into next year, there will be further shortages and disruptions. How can companies prepare and avoid repeating supply chain mismanagement of the past?
From an industrial manufacturing perspective, there are crucial solutions provided by o9 that can be leveraged to deal with uncertainty and instill end-to-end supply chain planning, from multi-tier suppliers all the way up to the customer. A shift from transactional relationships to collaborative ones is made possible by o9 supplier collaboration, for example, in automotive collaborative planning with suppliers instead of simply pushing orders. IBP backed by the o9 Enterprise Knowledge Graph allows shorter planning cycles, transitioning from monthly to weekly cadence, for example. Shorter planning horizons are particularly important to keep raw materials to heavy products continuously moving and avoid bottlenecks at all costs. The EKG-enabled Control Towers maximize results based on shortage through product mix decisions and demand shaping.
Digital Transformation will continue to be vital to companies wanting to revolutionize their processes. It is at the heart of the supply chain strategy to thrive rather than merely survive. Stop viewing your supply chain as a means of survival, make the natural selections in technology solutions, stem the tide of disruptions with confidence, and achieve a greater balance between sustainability and profitability.
The digital industrial revolution has been steadily uprooting traditional business models for a long time. However, the pandemic acted as a great accelerator to this trend while also introducing its direct disruptive effects on global markets. 2022 will be the year when the interacting consequences of recent years’ supply, demand, and digital disruptions play out. This ongoing interplay has been the catalyst in the drive towards e-commerce and upheaval in traditional retail channels. CPG companies, for example, are shifting their business models ever more rapidly from B2B distribution towards pure e-commerce plays while still maintaining direct-consumer engagement and strong relationships with legacy customers.
The pandemic shut down consumer demand across certain channels overnight, creating a massive supply chain disturbance. This disorder sparked a secondary demand disruption of abnormal inflationary pressure as demand restarted. Severe inflation hasn’t impacted people and businesses in many developed consumer economies for a generation or more. So, in 2022 if you’re a retailer, consumer goods, or industrial manufacturer, you will have to shift your pricing and promotion strategy to stay on top.
The pandemic has forced the evolution of business models based on the disruption they thought would be temporary and situational but moved industries down new pathways. Nike has done a fantastic job in recent years by making itself a digital-first business and evolving its channel strategy. A digital native structure is now a real competitive advantage. These companies can connect data across multiple internal and external sources to build deep customer and consumer insight at pace, feeding tailoring and personalization of propositions and driving significant brand engagement.
Companies will have to be courageous in their self-disruption with existing relationships and ways of working. For example, meeting the expectations of e-commerce obsessed and eco-conscious consumers is the norm now. The pandemic has reshaped people’s eagerness to try new things and products. There was a massive spike in demand for new product innovation from consumers during lockdowns in the drinks industry; amateur mixologists built up their home bars and expanded their cocktail catalogs. Another example is the consequences of repressed demand in the travel industry. A consumer who might have gone for a more conservative trip to the same beach every year in the past may now decide to go for that big trip of a lifetime to the other side of the world.
This is, in effect, corporate Darwinism. You have to evolve to the new environment as people alter their behavior. The most crucial skill in an organization’s DNA is having a finger on the customer and consumers’ pulse, knowing their move before they do, and being bold in shifting your strategies.
We’ve lived through the black swan moment of disruption and flux. If the pandemic period was the war, then in 2022, we will see the shape of the peace emerge. At this moment, the long-term winners and losers will be defined. Data is the currency here, and a truly connected data and knowledge model will feed internal and external insight to the right people and the right places to drive bold strategic choices. This takes an organizational culture that is forward-looking and ambitious to execute successfully. As an organization, if you’re not embracing digital transformation, you’re likely to find it increasingly difficult to be a credible player in the marketplace.