As we sail through the uncharted waters of 2023, one thing remains certain: disruptions to supply chain operations are here to stay. Whether they stem from ongoing geopolitical conflicts, inflationary pressures, a recessionary environment, the ever-pressing issue of climate change-induced weather events, or unforeseen challenges that loom on the horizon, these disruptions have the power to reshape how goods flow across the globe. They can cause port holdups, shrink container and ocean freight availability, and send prices soaring, among other concerns. In the midst of this evolving landscape of supply chain volatility, it’s essential to recognize that 2023 has brought along a host of key supply chain trends that demand our attention. Successfully managing your organization’s response to these trends can be a pivotal opportunity in the coming year. As per a report by KPMG there are several trends that have emerged in 2023 and will stay on. First, nations are likely to approach cross-border trade cooperation with increased skepticism. Second, the activities of cybercriminals are expected to intensify, posing new threats to supply chain security. Third, access to critical materials may experience turbulence. Fourth, manufacturing footprints will undergo transformation. Fifth, retail and distribution supply chains will continue to evolve rapidly. Sixth, investments in supply chain technology will gain momentum. And finally, on the environmental, social, and governance (ESG) front, scrutiny of scope 3 emissions will intensify, driven not only by environmentally conscious consumers but also by investors and regulators. Before diving into trends lets understand the key challenges end use industries are facing due supply chain volatility and their impact.

Key Challenges

In the face of mounting geopolitical challenges and a surge in global trade protectionism measures, companies find themselves compelled to undergo a comprehensive supply chain overhaul. This transformation necessitates significant investments in establishing new production facilities and adopting cutting-edge technology solutions.

• High raw material costs and feedstock unavailability: High raw material costs are a result of the surge in energy prices and feedstock availability bottlenecks; these issues have affected the supply–demand balance across several end-use sectors
• Labour-related challenges: Several end-use sectors are seeing a massive skilled and semi-skilled labour shortage in the past 2 years, largely due to ripple effects caused by COVID-19 and ongoing geopolitical issues
• Logistics challenges: High ocean freight costs and surging ocean trade bottlenecks, amid the ongoing Russia–Ukraine war and China–Taiwan tensions, have led most companies to look for localisation of their supply chains

Impact on End use sectors

The winds of supply chain volatility continue to strongly impact key end-user industries worldwide. From high energy prices and economic slowdowns to inflationary pressures and supply chain disruptions, the ripple effects are palpable. These challenges underscore the need for adaptability, resilience, and strategic rethinking as businesses navigate a landscape defined by uncertainty and rapid change. Some of the key end-user industries affected by supply chain disruptions are

• Metals and Minerals

The metals and minerals sector has been particularly hard-hit by the confluence of factors contributing to supply chain volatility. High energy prices, economic slowdowns, inflation, and supply chain bottlenecks have cast a shadow over this industry. An illustrative example is the steel industry, where the share of energy costs skyrocketed from 7% to a staggering 27% in just one year. This dramatic increase has forced companies to make tough decisions. In September 2022, steel giant ArcelorMittal announced the indefinite shutdown of one of its blast furnaces at the Bremen plant due to soaring energy costs. This move underscores the severe challenges posed by supply chain disruptions in the metals and minerals production sector.

• Electronics

In the electronics industry, the story unfolds as one of demand imbalances. While automotive chips continue to experience robust demand, memory chips are grappling with subdued demand. This stark contrast has triggered significant fluctuations in the industry’s supply chain. An example is Sony Pictures Studios, which revealed in June 2022 that electric component shortages and manufacturing interruptions were taking a toll on its video game business. Such imbalances create a challenging environment for companies in the electronics sector, navigating the intricate web of supply and demand dynamics.

• Tech Industry

Even tech industry behemoths like Apple are not immune to the impact of supply chain volatility. In a bid to reduce its dependence on China, Apple is diversifying its tech supply chain. Political tensions and lockdowns in China have spurred this move, prompting Apple to set ambitious goals. The company aims to manufacture approximately 25% of its iPhones in India by 2025. Furthermore, Foxconn Technology Group, Apple’s primary assembler, has committed to a substantial $300 million expansion of its production facilities in Vietnam. These strategic shifts underline the profound influence of supply chain disruptions on even the most prominent players in the tech sector.

• Semiconductor

Supply chain volatility has penetrated deep into the heart of the semiconductor industry, impacting even the gases essential for chip production. Industrial gases, usually characterized by localized supply chains, have faced disruptions, especially rare gases like neon and helium. Neon, crucial in semiconductor manufacturing, has witnessed prices surging to ten times their previous levels. Semiconductor manufacturer SK Hynix, based in South Korea, is adapting to these challenges by sourcing domestically-produced neon gas for chip manufacturing. The company is on a path to increase the portion of neon gas processed within Korea to 100% by 2024, up from the current 40%. This strategic shift exemplifies the lengths to which industries must go to secure critical components amidst supply chain disruptions.

Key Supply chain trends of 2023

• Geopolitical Skepticism

As geopolitical tensions cast a shadow of uncertainty over global cooperation and trade, industries and governments are adopting proactive strategies to safeguard their supply chains. In this climate of caution, the need for comprehensive scenario modeling becomes paramount. Understanding the potential impacts of geopolitical tensions on supply chains is the first critical step.

To mitigate risks, organizations are exploring two key avenues: friendshoring and nearshoring. Friendshoring entails forging trade links with like-minded and geographically proximate nations, fostering greater supply chain security. These relationships not only enhance the reliability of material supply but also cultivate a sense of trust and interdependence among nations.

Moreover, it’s imperative for businesses to prepare for contingencies in case they can’t access essential materials or components due to geopolitical disruptions. This necessitates a clear understanding of the potential need for product reformulation, coupled with assessments of regulatory and customer approval implications. Additionally, there’s a need to evaluate the cost implications of sourcing from new suppliers or markets.

Incorporating friendshoring and nearshoring into supply chain strategies also demands an assessment of their impact on lead times and speed to market. By becoming more responsive and agile, organizations can potentially reduce working capital while fortifying their supply networks.

In 2023, as geopolitical tensions continue to loom large, businesses that adopt these proactive measures will not only enhance supply chain resilience but also position themselves as adaptable and forward-thinking leaders in an unpredictable world

As we step into 2023, the specter of cyber threats looms larger and more menacing than ever, especially when it comes to infiltrating supply chains. Cybercriminals, ever-evolving in sophistication, are poised to exploit vulnerabilities within supply networks, seeking to disrupt, damage, or pilfer from businesses. One particularly enticing entry point for these nefarious actors is the supplier network, offering a pathway to breach an organization’s systems.

• Cybersecurity

The scope of potential vulnerabilities is vast, from basic warehouse equipment like barcode readers to Internet of Things (IoT) devices embedded within manufacturing and operational sites. In this landscape of evolving risks, the decision to rethink supplier networks or invest in new technologies can potentially compound cyber risks.

To fortify against this looming threat, there are critical steps to undertake in 2023. First and foremost, recognizing that cybersecurity strategies often terminate at the borders of one’s own enterprise is essential. Collaboration with partners becomes paramount to collectively mitigate cyber risk throughout the supply chain. This involves identifying robust strategies and ensuring comprehensive risk governance across third-party contracts.

Moreover, meticulous cyber risk assessments must become standard for all new third parties entering the supply chain ecosystem. The adoption of artificial intelligence (AI) or machine learning (ML) during supplier onboarding can significantly enhance threat detection, particularly regarding spam and phishing emails. Recognizing the pivotal role of human error in cyber breaches, organizations must strategize the integration of technology and automation to minimize this vulnerability. A cyber assessment encompassing all functions and activities within the supply chain that employ IoT devices should be conducted, particularly those with direct access to sensitive information or providing gateways to broader system access.

In 2023, as cyber threats continue to evolve, proactive measures in cybersecurity will be pivotal in securing supply chains against unseen dangers and ensuring the resilience of business operations.

• Material Access Issues

In the coming year, a second wave of unforeseen supply chain risks is poised to sweep across industries. Limited access to critical manufacturing inputs, spare parts, and essential maintenance items looms large. Concurrently, key commodity prices and availability may experience unsettling fluctuations, affecting essentials like fuel, timber, steel, resin, and packaging materials. In this challenging landscape, the foundation of resilient supply chains will be paramount in addressing disruptions and adapting swiftly to evolving circumstances.

To protect against material access issues, businesses should proactively streamline operations by focusing on core offerings and eliminating the time spent managing low-demand items. Redundancies in the supply chain can be resolved by transitioning from a Just-In-Time to a Just-In-Case approach, bolstered by maintaining extra inventory for critical items and engaging multiple suppliers. The key lies in not merely professing the intent to seek alternative suppliers during disruptions but having well-defined plans in place, complete with cost and operational impact assessments.

Leveraging real-time data analytics and technologies like Blockchain for enhanced transparency, product traceability, and workflow automation will prove instrumental in mitigating risks. Furthermore, prioritizing end-to-end visibility and transparency across supply modes, transport nodes, and links will solidify supply chain resilience. As the unpredictability of the supply chain landscape persists, these proactive measures will be indispensable in navigating the complexities of 2023.

• Manufacturing Footprint

In 2023, the landscape of manufacturing and supply chains is undergoing a seismic shift. Rising energy costs and soaring input prices are compelling global corporations to reassess their manufacturing strategies. Friendshoring and nearshoring are being reconsidered, prompting deeper contemplation on whether manufacturing can be entirely onshore. While this transformation won’t happen overnight, the wheels are in motion.

Online retail is wielding greater influence over product manufacturing, as platforms seek differentiation through customization. This necessitates partnerships with manufacturers capable of meeting these unique demands. In the realm of life sciences, precision medicine is gaining regulatory acceptance, prompting a shift towards patient-specific production over mass manufacturing and global distribution.

This evolving manufacturing landscape raises a critical question: Should organizations establish new supply chains or redirect production to markets with existing capacity? The answers will shape the future of manufacturing and supply chain dynamics in 2023 and beyond.

• Retail & Distribution Supply chains

In 2023, while it might seem easier to deliver goods to consumers compared to the early days of the pandemic, the reality remains far from simple or cost-effective. An abundance of consumption mechanisms and channels has emerged, driving up costs. These challenges are not only tied to intricate manufacturing processes but are also exacerbated by increasingly demanding consumers. Last-mile delivery hurdles persist, compounded by supplier difficulties. To thrive in this environment, global and local retailers must reconsider their inventory distribution networks and cultivate a seamless unified commerce approach.

Effective strategies for navigating the complexities of retail and distribution in 2023 include rethinking the location of distribution and micro-fulfillment centers, elevating e-commerce and omni-channel operations into truly unified commerce processes, reassessing sourcing and supplier strategies to mitigate risks, and embracing predictive visibility through AI and ML-powered control towers. These steps are vital for staying ahead in the ever-evolving landscape of supply chain management.

• Focus on Scope 3 Emissions

In 2023, supply chain sustainability strategies are no longer optional; they’re the cornerstone of corporate ESG (Environmental, Social, and Governance) initiatives. Regulatory bodies, customers, and the financial community are increasingly demanding a focus on controlling scope 3 emissions. Greenwashing won’t cut it – stakeholders want informed, tangible actions.

Investors are also shifting their attention to organizations with low scope 3 emissions, driving a new era of sustainable finance. To truly operationalize your ESG strategy, every facet of your business, from Finance to HR, IT, Operations, and Commercial, must align their objectives. Internal collaboration is key, with each function accessing and tracking the same ESG data.

For a comprehensive approach, capture real-time operational data along your supply chain to measure and report on ESG matters. Build end-to-end supply chain visibility to understand the movement of your goods, the sustainability credentials of your partners, and actively make decisions to reduce your scope 3 emissions. In 2023, sustainability is not just a choice; it’s a strategic imperative.

To navigate these shifting currents successfully, it’s imperative to have three pillars in place: capability, agility, and end-to-end forward-looking visibility. A mature supply chain planning capability allows organizations to stay ahead of the curve, ready to address both risks and opportunities. Agility ensures your supply chain can adapt swiftly and effectively to unexpected challenges. Finally, establishing real-time visibility and collaboration across your supply chain ecosystem, driven by digital capabilities, is vital.

Road ahead

As we navigate the road ahead in the face of supply chain volatility, adaptability and resilience will remain paramount. Category managers must continue their vigilant monitoring of the ever-changing landscape and be prepared to adjust their strategies as needed. This may entail further strengthening relationships with critical suppliers, accelerating digitalization efforts for enhanced visibility and inventory management, and exploring diversified sourcing options for competitive pricing. Flexible contracts will continue to be a valuable tool in this dynamic environment, allowing businesses to pivot swiftly when necessary. Collaboration between category managers and suppliers will be pivotal, with the development of price mechanisms to mitigate the impact of price fluctuations.

In this uncertain journey ahead, the key will be agility and cooperation, as businesses strive to not only weather disruptions but also to emerge stronger and more resilient in the face of supply chain challenges.