January 3, 2023
2022 is over and a new, gloomily anticipated year awaits supply chains. Our predictions for 2023 call for lots of change, some challenge, but more opportunity than threat. Supply chain leaders can get ready to adapt and win by thinking differently about digitization, sustainability, and how we can reinvent supply networks for a zero carbon, 100% digital future.
Reshoring Speeds Up – In 2019 China’s share of worldwide manufacturing was 28.7%. The US share was 16.8%. Germany, France, Italy, and the UK combined for 11.1%. That was the peak moment of China as “factory to the world”. Supply chain leaders have been trying to diversify and de-risk China-dependent manufacturing networks since at least 2010, with only moderate success.
Heading into 2023 however, are all the pieces in place to make the trickle into a flood. China’s problems with COVID, internal unrest, and external adventuring now often outweigh the cost/capability benefits of their spectacular manufacturing base. Production closer to customers saves on transport and inventory which cuts carbon, cost, and risk with shorter supply chains which may finally be a risk adjusted winner for many supply chain strategists.
Meanwhile, automation, robotics, and other technologies for reinventing manufacturing are rising to solve labor cost problems in high wage countries. Even legislation, especially the Inflation Reduction Act in the US, is adding incentive to swallow high start-up costs and get going. Time to transition has always been a hurdle, but with China still struggling with COVID and a short-sharp recession on the doorstep, 2023 will be the year for many to take the reshoring plunge.
Big Tech Slows Down – Tech took a hit in ’22 with the original four mega-tech names down between a quarter and two thirds of their total enterprise value. The long run of history for these bellwethers looks like we’ve seen the end of an era. Apple, Amazon, Meta, and Alphabet each have compelling stories of future growth and plenty of analysts offering “buy” recommendations right now, but what kind of growth lies ahead?
We think it will be solid…respectable…even stately, but probably never again as fast as we’ve known since the original internet bubble burst twenty years ago. Why? Because the world has caught up and everyone from regulators (EU, USA), to competitors (TikTok, ChatGPT), to workers (Amazon strikers, Google employee protests) no longer look upon big tech in awe. The historic moment feels a lot like 1905 when Teddy Roosevelt was leading a US-wide push back against the power of industrial trusts in steel, railroads, and beef among others. It is definitely not the end for big tech, but it could be the end of the beginning.
The good news for supply chain leaders is that these tech giants are throwing off talent in waves. Often have we heard how hard it is to find data scientists, software developers and other specialty tech talent. Lure them into your relatively secure companies and see what you can build around these folks with your own, in-house people. You might find building your own tech is easier than you think.
Automation Engineering Is the Hottest Talent Ticket in Supply Chain – Reinventing manufacturing by moving to regional supply chains is underway. Everyone from Apple to Zara is rethinking global manufacturing footprints, which means dealing with totally different labor pools, materials suppliers, regulatory frameworks, and customer tastes across geographies. Plus, turnkey outsourced manufacturing keeps losing its appeal as the biggest brands create more intellectual property in product and process design and want to keep that learning in-house.
The key to this reinvention adventure will be automation engineers who understand not only robotics, but also systems engineering, materials science, ergonomics, and even a dash of anthropology. Working with fast-evolving AI-assisted programming tools, these folks will be the must-have talent in 2023.
Maximizing the value from these scarce resources will drive many supply chain leaders to “grow their own” citizen technologists with top-tier automation engineers at the core of work teams that comprise concentric circles of semi-technical people working together to build and scale new manufacturing systems suited to the specific challenges of each situation.
TikTok Supply Chain Redefines Demand Creation – TikTok is a feature story on the Today show this week as the US Congress votes to prohibit members having the app on their work phones. Talk of banning the super popular app is widespread as national security concerns mix with nationalistic jealousy over the amazingly successful social media app.
Its unique power is using algorithms and AI to help information find people, rather than the reverse (ie., what Google does with search to help people find information). Its ultra-simple user interface is a tornado of personalized preference data collection. Its massive user base and hefty average of 45.8 minutes viewed per day mean it may know what you like better than you know yourself. “Creepy”, says one Gen-Z user of this near mystical power.
And yet, it is also an extraordinary opportunity for brands to engage with their customers in any kind of demand creation, shaping, or collaboration. This is certainly interesting for marketing folks who are using influencers to drive sales, but possibly also important for brands trying to find and serve customers who care about sustainable product offerings.
Surveys regularly report that younger consumers say they prefer sustainable brands, but little if any proof is available to show that they buy accordingly. Maybe this is because the bluntness of a generic word like “sustainable” fails to click with peoples’ highly personalized sense of self. People, especially those raised on iPhones, have been trained to think of themselves as a brand and so want to lean into whatever makes them special. Sustainability may very well be the neighborhood for many, but the exact address is probably something much more precise. TikTok is the perfect tool for getting that precise.
It doesn’t matter whether TikTok is banned either. The cat is out of the bag on what tech is involved, how the business model works, and at least some of the power that this can confer on businesses looking to match demand and supply ever more perfectly and personally.
ChatGPT Breaks Trust – AI is exploding and reinventing everything about supply chains from forecasting to field service, but ChatGPT could take it all to the next level. Just one month old, ChatGPT picked up 1 million users in its first five days live and has already caused full-scale freakouts at Google and among universities because of how easily, quickly, and credibly it answers natural language questions with an AI powered chatbot. It is so good at sounding legit that academics are already making policies about using oral pop-quizzes to combat cheating in their classes.
For supply chain leaders, the prediction is that you’ll see a ChatGPT “answer” to a question you ask sometime before summer. If you can’t spot the difference between what the chatbot says and what your best people would say, you are in trouble. At first, it will seem innocuous or even helpful, especially if the ChatGPT answer is 80-90% correct. In time, however the lack of human perspective bridging information sucked from hundreds of websites to the context of your question, will fail you, and perhaps spectacularly.
This is especially true if ChatGPT is used to answer fuzzy, but vital questions about supply chain risks. The tool will do a great job grabbing nuggets about supply chain vulnerabilities that sound good assembled as a narrative, but it may create a sense of authority that is out of line with your team’s experience or judgment. Ultimately, your teams’ ability to innovate could drown in reasonable sounding best practice nonsense patched together from the buzzword pap of the masses. Be suspicious and learn to spot a fake.
True Carbon Accounting Is Born – Next year, expect industry coalitions to crystallize around the accounting and reporting standards that make sense for their specific supply and demand chains.
Carbon (and other GHG) emissions have been a supply chain topic for at least 20 years, but they are still “accounted” for with a mishmash of proxies, promises, and pilots. Sustainability reporting has become a huge industry, which may be a good start, but true measurement is still defined by non-profit NGOs who don’t control or even fully understand the energy and material mechanics of various industry value chains. Kaya Axelsson, a research fellow at Oxford University focused on net-zero commitments says of the current state of carbon accounting, “What we’re often getting is a sense of how well [a company] answers a questionnaire, not whether they are truly taking decarbonization activities”.
The Scope 3 problem is partly a matter of visibility since the question is how much carbon is released by, for instance, plastics production, or animal protein industries, or glass bottle manufacturing, which may be many tiers back from the brand-owner trying to do the math. It is also a matter of accounting, as in allocating responsibility for carbon from any given facility upstream, sort of like value stream mapping that could handle value added taxing systems as in the UK. The same problem applies downstream in product use where measuring carbon impacts of, for instance cold water laundry detergent, is a sticky accounting exercise that should comprehend washing machine vintage, local power generation fuels, and wash load variances, among other esoteric details.
Small groups of big companies in any given industry are far better positioned to detangle these issues than any NGO or even government entity. The example of barcode standard setting with GS1 in the consumer goods and retail sector is closer to what will work here than the Carbon Disclosure Project. Industry level cooperation has helped solve product safety in chemicals (Responsible Care) and fair labor standards in electronics (Electronics Industry Code of Conduct), for example.
Leading companies in many industries including consumer packaged goods, apparel and footwear and industrial equipment not only understand this, but now, especially as governments look ready to drop the ball, are begging to get it started. 2023 is the year.
Fall River Rises as Secondary Cities Emerge – Fall River is an old industrial city, 45 minutes from Boston. It became poor when mills closed years ago, but still has attractive Victorian housing stock, decent urban character and is about to get a massive facelift when an old highway is removed uniting the city’s downtown with its historic waterfront. Is this the hot new place for young families to start out?
A popular forecast among futurists five years ago was accelerating urbanization. Megacities were supposed to hold the power going forward as concentrations of talent, money, and infrastructure spun a flywheel drawing people irresistibly into places like Shanghai, Mumbai, and Lagos as well as New York, London, and San Francisco. Now, post COVID, with Zoom meetings the norm, and spiking rents in many big cities, it looks like the opposite is happening: the rise of secondary cities offering better lifestyles, lower costs of living, and a chance to write your own story in a new place.
For supply chain strategists, the best news is that hubs of specialty tech and operations talent can be assembled with more nuanced in-office vs. WFH policies. Assembling teams that have hybridized work access to secondary city satellites as well as HQ locations and of course, online, creates huge flexibility, especially if contractors and gig-work is included.
Migration Hits a Breaking Point – The migrant crisis which first rocked our sanguine, northern world in 2015 with a photo of a child, prostrate and face down on a Turkish beach, is still a slow-motion train wreck today. In 2023 a shaky economy will add just enough fear to nudge political leaders in the US and Europe to start systematically tackling northward migration. Bi-partisan agreement is possible if lawmakers frame migration as an opportunity rather than a humanitarian duty. These are the ingredients for a solution that includes border integrity, transparent admissions criteria, and a process to handle rejections. It won’t happen fast, and it won’t be airtight, but it will start this year.
For supply chain leaders there are two things to consider. First is to design your network with this talent pool in mind. This includes facilities locations, orientation and training tactics, and maybe even company-operated living quarters that are family friendly. Second, is to measure the wellbeing impacts of your operations in geographies that migrants are coming from. If your supply chain can make life better, rather than worse, in regions where we source materials then perhaps the urgency to flee northward will cool off.
Economic ambition alone won’t drive most people to risk their lives and leave everything behind, but lack of faith in the future at home will. Supply chain management can lessen suffering on both ends of the migrant trail by paying attention to the human impact of our work. It is a lot to ask, but not beyond the scope of global brands like Unilever, Nike, and IKEA, all of whom are publicly committed to supply chain responsibility.
Wellbeing Economics Takes Off – Finland, New Zealand, Scotland, Iceland, and Wales are members of a group called the Wellbeing Economy Governments partnership which is devising alternatives to GDP growth as the ultimate goal of economic policy. The idea broadly aligns with circular economy, renewable energy, and sustainable living. It is also a perfect way to think about measuring the effectiveness of a supply chain that flows through the demand chain past point of sale, through customer use, and finally back into sourcing with a regenerative approach to materials, money, and trust.
In 2023, with CNBC talking heads blaring at us about a recession that doesn’t look “like a traditional recession”, the time will be perfect to debate the whole point of economics. Wellbeing measurement, like that produced by New Zealand’s Treasury department in its first ever report, includes obvious things like health, education, and housing, but also knowledge, play, culture, and engagement.
The transformation of supply chains from their linear past to a closed loop, digitally empowered zero-carbon future suits Wellbeing Economics and feels right for the zeitgeist. The partnership also looks set to grow beyond the initial group of five to potentially include Canada, Australia, and Costa Rica.
The audience is ready, the old paradigm is on the ropes, and everyone wants to hang out with the cool kids, so maybe now is the time.
Supply Chain Predix – Quick hits
Traditional supply chain topics remain top of mind going into 2023 and here are a few projections for how they could play out this year:
End-to-end Visibility – Despite years of talking, trying, and investing 2023, will see almost zero progress toward the chimera of “end-to-end” visibility. Why? Because the supply chains we need better visibility on are changing too fast this year for the tech to keep up, and also because our definition of “visibility’ is still too squishy to settle on a decent spec against which to build.
Attribute-based Sourcing – Doesn’t exist yet but should. As sourcing leaders diversify suppliers to de-risk operations, many will find that detailed specs are too constraining to take full advantage of their partners’ flexibility. Systematically finding and using acceptable substitutes for needed parts or materials is a job that calls for a much smarter bill-of-materials. The key will be better early collaboration between R&D and supply management to find more flexible definitions of direct material inputs needed to keep factories running.
AI in Planning – This is the year IBP really gets a handle on AI as an enhancement to better, faster, more agile decision making. AI as an element in forecasting processes was pretty well baked by the likes of Amazon before COVID. Unfortunately, the mega-disruptions of demand and supply over the past three years have blown many of the historical data sets used for training, so we’ve had to do a reboot. That’s great, because now most planners are ready and willing to learn exactly where and how to use AI for better prediction as an assist to better decision making. Expect a rush of new interest, and read Power and Prediction by Agrawal, Gans, and Goldfarb to get smart fast.
Last Mile – Expect explosive innovation. The best customers could expect in the early days of ecommerce was reliable parcel delivery from UPS or DHL, Now everyone from traditional grocery to convenience stores, to appliance installation and service is into the last mile game. It is a revolution in the making and increasingly relies on retail storefronts as well as warehouses and delivery stations to hold, stage and take back stuff. The value of super-precise tracking tech, powerful handheld app support, and ever richer customer-facing order management apps are combining to make last mile delivery an incredibly rich area for logistics invention. DTC isn’t dead – it’s morphing into something much bigger and better.
EV Adoption – Electrification of driving will slow down in 2023, and yet more money and progress will be made toward post-petrol transportation than ever before. The industry is not mature, but the idea is. Consumers, and even more so, businesses want to cut over to electric, but infrastructure gaps, material shortfalls and serviceability challenges will become prominent as news stories pivot to the “struggles” of the EV industry. The good news is that an entire ecosystem of businesses from mining to charging stations will grow into the need.
2023’s Word of the Year: Adapt
On our recent end-of-year podcast Maersk Board Member Marc Engel chose the word “abnormalization” as word of the year for 2022. I chose “chaos monkey”. The theme was clearly all about turmoil. That was last year.
Current scans of business and tech predictions for 2023 are running about 3-to-1 grim-to-positive. Maybe we’re overdoing the pessimism. Recession is all but guaranteed as far as economists are concerned, mainly because the Fed seems bent on forcing at least a bit of unemployment in a weirdly robust and resilient jobs market. And yet, with so many pundits biying in to the “irresistible” power of high interest rates perhaps the story has gotten ahead of itself.
Supply chain tangles left over from COVID are mostly gone. Meanwhile, despite Russia’s continued belligerence, gasoline prices in the US are down to an un-newsworthy $3.13/gallon, and Germany looks ready to handle winter just fine. And although traditional economic growth is under siege with China and the US in divorce proceedings, consumer spending is still strong and increasingly focused on experiences rather than products which means product shortages are not likely to hurt as much.
Maybe 2023 won’t be all misery, all the time. If that’s the case then supply chain leaders will look bad if they’ve girded for disaster at the expense of opportunistically grabbing orders whenever possible. Of course, the opposite is also true – a disaster is likely to be part of your near future and you’ll be sorry if you don’t have a backup plan.
The question people will ask a year from now is how well your supply chain adapted to the situation. It’s more than just resilience because survival is not good enough. It is about being quick to win when fate turns your way, as much being hard to kill when things go wrong. It also means being able to evolve quickly into structures and capabilities that you may not even imagine yet.
“Adapt or die” may never be truer than in 2023.