Companies with global footprints are now defining their strategic plans for the next three to five years. For many companies the first long-term planning since the pandemic put us in perpetual react mode.
Read also: Supply Chain: Challenges and Key Solutions
From February 2020 to December 2022, the pandemic created disruption, delays, additional costs, and uncertainty.
From December 2022 until the spring of 2023, the state of global trade, supply chain and logistics very rapidly reverted to pre-pandemic scenarios.
The rebound happened very fast, was unexpected and moved so quickly that it caught every person in business and government by surprise.
The only area where change did not occur was “uncertainty.”
The big 2024 question is this: Is uncertainty going to continue, subside, grow, or morph into a new scenario that we will have to learn how to deal with, as we had with COVID?
As that dilemma continues, we in global supply chain, operations, manufacturing, procurement, distribution, and management must plan ahead.
Our experience in managing disruption and change over 40 years has brought us to certain conclusions that can guide us in planning when uncertainty is looming.
Each of the following areas offer us a blueprint for strategically thinking through our options and devising our strategy for what many refer to as … “The New Norm.”
This two-part article offers insight and guidance for the 3- to 5-year strategic planning process. “The Management Structure” follows the critical tops-down senior-management driven planning process, then in “Additional Considerations and Challenges,” I discuss macro areas of uncertainty that must be incorporated into your planning—from geo-politics to the global economy.
THE MANAGEMENT STRUCTURE
The five cornerstones of top-down strategic planning, engaging senior management are:
- Understand the long-term goals of senior management.
- Collaborate with senior management in how to best achieve those goals.
- Turn those collaborative processes into tactical concepts.
- Establish a committee of stakeholders.
- Create the plan and execute, once senior management “buys in.”
These cornerstones are very straight forward and easily executed. Four to six weeks should be allocated for that process. Once the strategic plan has been agreed to, the tactics need to be organized, as follows:
- Logistics
- Distribution
- Demand Planning
- Customer Service
- Manufacturing
- Technology
The strategic plan and follow-on tactical plan should take in the following considerations:
LOGISTICS: You need to conduct a review and possibly issue an RFP to determine what service providers and carriers with whom you can:
Depend upon consistently.
- Develop a “partnership” relationship.
- Obtain the balance between price, service and value-added.
- Develop solutions as challenges arise in freight, transportation, and international shipping.
- Employ comprehensive and integrated technology solutions.
DISTRIBUTION: The cost of distribution skyrocketed through the pandemic and continues to be an expensive area of supply chain. We expect that as demand dissipates, distribution—which combines warehousing, inventory management and shipping—will once again have competitively priced offerings.
Other factors:
- A study on the demographics of your customer base
- The number, size, functionality, and location of your distribution locations
- Should the locations be turned into Bonded or Foreign Trade Zones, where additional financial and operating benefits can be achieved?
- Can the distribution process be improved with technology and/or business process enhancements?
- Should we control distribution or outsource and utilize a 3PL that specializes in distribution?
DEMAND PLANNING: At best a “best guess” of future inventory needs, demand planning does have a parameter or “sweet spot” that can be established with an acceptable range for accuracy. We like +/- 5%, but each industry and business model will establish its own forecast threshold.
Demand planning simplified includes two driving factors: historical data and anticipated need. Historical data can typically be obtained easily, and it generally is reasonably accurate. It is around the area of anticipated need which requires outreach by sales and customer service to existing accounts and key prospects to develop that anticipated need. That need is usually more subjective and prone to higher degree of inaccuracy due to multiple factors, which can include a lack of seriousness, diligence and persistence of customer service and sales personnel interfacing with their client priorities or in other words, “Don’t push the client too hard.”
The art and science of demand planning, through the utilization of technology, predictive analysis techniques along with artificial intelligence (AI) can minimize the discrepancies and bring along more accurate predictions.
Holding customer service and sales personnel accountable to obtain quality, accurate and dependable demand data from the clients, however, requires no investment in technology or AI and is often the most accurate—and as such is a necessary component of demand planning.
CUSTOMER SERVICE: Managers of customer service must raise the bar of providing customer care, differentiation and value add into the service portfolio.
Many companies are moving to technology to reduce cost, which has been successful in reducing cost but more likely at the expense of frustrated customers.
Leaders must consciously discern between where technology can be utilized as an advantage in client relationships and where human interaction provides a better option.
Personalization in customer service is making a comeback and companies that emphasize this methodology may see some additional cost, but that is ultimately outweighed by higher margins and more sustainable client relations.
MANUFACTURING: Companies are assessing their manufacturing options and, in some cases, diversifying manufacturing as a risk management strategy, including seeking alternative sources such as nearshoring and friend-shoring.
Reducing manpower needs in manufacturing is a good example of a strong strategic plan as blue collar American-based manufacturer workers are few and far between.
Technology can be utilized successfully in manufacturing as a business process enhancement, reducing manpower needs and providing cost effective efficiencies.
AI also has been utilized in manufacturing to streamline process and reduce manual labor including in-person oversight and supervision.
Automating Quality Control (QC) is also another option in reducing labor costs and simultaneously eliminating human errors.
Manufacturing conducted in Foreign Trade Zones is another option that can provide significant benefit in lowering landed costs, reducing import charges, deferring duty obligations, and affording tariff inversions.
TECHNOLOGY: Technology is moving at the speed of light and AI is becoming a huge contributor to technology’s growth and value-add in its applications in global supply chain management.
In every area we outlined above technology plays a role in process, communication, assessment, planning and in execution.
We must create a balanced approach in recognizing where technology can provide benefit and where it may not, drawing the conclusion that we need to not overuse technology where it ends up having a negative impact on our business model.
The chief technology officer, often a new seat in the C-Suite, can manage the technology strategy and provide informed guidance on where, how, and when specific areas of the global supply chain can move forward with technology enhancements that offer “enterprise solutions.”
Technology in the global supply chain includes the following:
- Total integration with all parties in a global transaction.
- Provides 100% transparency to information and data.
- Provides the platform for analysis, tied into AI … can provide extraordinary data that help in making better, more informed decisions.
- Ties into one platform … sourcing, purchasing, vendor management, supply chain, demand planning, manufacturing, inventory, warehousing, distribution, customer service and accounting.
- Provides robust information flows, management reports and utilizes AI for analysis.
ADDITIONAL CONSIDERATIONS AND CHALLENGES
Moving beyond the top-down strategic planning process, in this section we explore the other key considerations and challenges that we face in doing business in 2024 and beyond, all of which must be factored into our long-term planning.
THE ECONOMY AND A RECESSION: We are experiencing an uncertain economic picture:
- Recession still a possibility
- Tightening of the money supply
- Significant discourse in Washington, with the two dominate political parties rarely being able to create “bridges and compromises.”
- A major downturn in import volumes, consumer purchasing and unused inventories.
All these factors must be weighed into any strategic decision that management in global supply chain will make.
Additionally, global demand has fallen off a cliff, creating a rise in transport capacity.
Carriers, service providers and all aspects of the global supply chain are likely to slide. In fact, most international carriers in air and ocean freight along with domestic trucking have all been diminished, creating a pull back on asset placement, development and utilization.
Transportation in general is “pulling back.” Large trucking companies like Yellow Freight fell into bankruptcy, causing further disruption and a loss of capacity.
The shift in transportation services and capacity must be considered in establishing an informed strategy and business plan.
TRADE COMPLIANCE MANAGEMENT: Sanctions are still increasing—in number and severity. This is causing political discourse with retaliatory actions from our trading partners, particularly China, Russia and Iran.
Customs & Border Protection (CBP) has brought social compliance into its purview and is now further threatening some of our trading partners—such as China once again—with respect to “forced labor” practices.
CBP is still practicing enforced compliance and focused assessments, making the lives of import managers much more challenging.
And as the importance of corporate trade compliance management grows, its value in managing growth, spend, profits, and sustainability is evident in all supply chain business models.
As a result, having point personnel who manage trade compliance is even more a full-time job with any company developing a formidable global reach.
THE RUSSIAN-UKRAINE CONFLICT: The United States and most of the West are providing billions of dollars of support to Ukraine and sanctioning Russia intensely. The U.S. and certain western allies are providing other levels of military and economic support to Ukraine, both directly and indirectly.
The region has witnessed great impact and even if the war ended today, the damage and upheaval in Ukraine will take decades to reverse.
Global trade has seen a residual impact in certain areas of agriculture, manufacturing, raw materials, precious metals and several other products and commodities.
Russia has paid a huge price in their image and place in the world geopolitically and may never recover to its international standing again.
The cost to the West is high and the outlay of all the military and economic aid is beginning to stress numerous politicians, governments, and the will of the masses in many countries. The U.S. support of Ukraine will no doubt play into November’s presidential election.
In the face of a constantly changing sanctions landscape, once again we emphasize the need for dedicated, well-trained personnel who manage trade compliance at the corporate level.
RISK MANAGEMENT MINDSET: Supply chain managers are quickly developing a “risk management” mindset in their operational and planning responsibilities.
A risk management mindset includes:
- Assessing and evaluating where risk exists in every nook and cranny in the global supply chain.
- Collaboratively working with senior management in understanding the “degree and taste for risk” in their company’s culture and business model.
- Measuring the risks and their impact to the organization and more specifically the supply chain.
- Creating and implementing solutions, where possible, to mitigate risk, accept risk or transfer risk.
- Adapting supply chain policies where reducing risk and spend take high priority in the decision-making process.
While cost will always be an important factor in our supply chain decision-making, risk control and mitigation now carry much more weight.
SUPPLY CHAIN MANAGEMENT IN THE C-SUITE
The pandemic has elevated the relevance and importance of supply chains in every business vertical, every company and country in the world.
Today, the supply chain manager is likely to have “a seat at the table” in the running of an organization, become part of the senior management team; witness the chief supply chain officer position.
We believe this to be a positive consequence of the supply chain disruption from the pandemic. It now affords supply chain managers a greater and more important role in designing overall business models, operations, resilient and sustainable practices.
CREATIVE JUICES FLOWING
To survive the pandemic-driven consequences of cost increases, delays and uncertainty, supply chain managers met those challenges by:
- Being diligent, working harder and smarter.
- Developing creative solutions and trying techniques never-before utilized.
- Taking better, well-thought-out risks to make things happen.
- Collaborating intensively up to senior management, internally to other stakeholders, with vendors and suppliers, and with customers.
- Making the significant effort to influence the behavior of others in the above collaborations.
- Developing successful communication skills.
- Finding and exploiting additional and robust resources.
- Leading subordinates, colleagues, stakeholders in directions not yet travelled, and doing it timely and comprehensively.
The supply chain managers who rose to the occasion and did well were, in most cases, shown appreciation by their senior management and their profile and significance in the organization was raised.
It is likely that from now on, supply chain management is clearly identified as a critical aspect of any company’s business model.
Creating and executing a strategic plan in the global supply chain will greatly assist a company at meeting both its short-term and long-term planning objectives. Additionally, being prepared for disruption and bringing forward ideas to mitigate risk and spend is a “Best Practice” to be followed, managed, and cherished by all prudent and successful business managers.
Our “Best Practices in Global Trade” columnist Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232.
