Adoption of digital technologies such as advanced analytics for better visibility and flexibility leads the list of top priorities for supply chain professionals in 2024. Generative AI is also coming, but only in some use cases.
Sustainability and reshoring are not as high on the priority list, according to a report from the Association for Supply Chain Management (ASCM).
Supply chains continue to face disruptions and other market conditions that rose to prominence during the COVID-19 pandemic, said Abe Eshkenazi, CEO at ASCM, a 70-year-old independent organization based in Chicago. This has resulted in three main gaps in supply chains -- lack of visibility, transparency and traceability -- that explain the top supply chain trends.
Abe EshkenaziCEO, Association for Supply Chain Management
"The top three are all technology-related: digital supply chain, big data and analytics, and AI and machine learning," he said. "Organizations are taking a significant interest in the adoption of these technologies to close the gaps that were identified as part of the pandemic."
ASCM, a global organization made up of 50,000 individual and corporate members, puts together the top supply chain trends report using input from subject matter experts in a variety of industries around the issues they face in day-to-day activities.
More visibility into supply chains needed
Supply chains are becoming more digitalized because organizations are facing increasing pressure to be responsible and accountable for the actions of their partners and suppliers, such as carbon reduction, Eshkenazi said.
However, while digital technologies have provided visibility into what makes up a supply chain, organizations also understand now that many of these suppliers, particularly tier 2 and below, are not capable of meeting requirements to make data accessible, he said. Most of the pandemic disruption affected the tier 2 and tier 3 suppliers, making adoption of digital technologies a top priority.
"The focus is on enabling these extended supply chain partners to be capable of participating in a high-technology environment," Eshkenazi said. "The areas where technology implementation or upgrading are primarily focused on [include] planning, visibility and transportation management."
The consensus around supply chains is that people expect that disruption will be continuous and hard to predict, agreed Simon Ellis, practice director at IDC. This means that companies will need to have the ability to respond quickly to the disruptions.
"Speed, agility and nimbleness are the real capabilities that companies need to cultivate, whether it's through visibility back through multiple tiers of suppliers or it's better collaboration with key suppliers," Ellis said.
To do this, companies will look into different strategies such as investing in multienterprise supply chain networks such as SAP Business Network, E2open's E2net or Infor Nexus, he said.
Generative AI could start to play more of a role in supply chain processes, given its focus on interrogating systems and getting answers back in intuitive ways, Ellis said, but only when the data used to help decision-making is trusted.
"If you can have generative AI capabilities that tell you the reason it's saying this is because of these things, and if you know these things are fundamentally flawed, you can redo or reject [the recommended actions]," he said. "If you know those things are not flawed, then you'll say, 'That makes sense, let's go with that.'"
Generative AI is likely to become more embedded into supply chains; the big question is where, Ellis said.
"The debate is whether generative AI becomes embedded in applications at an edge level or centralized, or a mixture of both," he said.
Sustainability a lower priority in 2024
Some supply chain issues that gained ground in 2023 have dropped on ASCM's annual priority list. A combined trend encompassing sustainability and the circular supply chain, which aims to minimize the use of raw materials and reduce waste by repurposing discarded waste, was listed seventh in 2022, but ninth this year.
Awareness of sustainability is high, but real movement on the issue hasn't kept pace, according to Eshkenazi.
"All organizations tell you that it's among their top initiatives," he said. "However, the investment, unfortunately, does not match the rhetoric. Investment is much lower now than it is for other technologies."
There are several reasons why sustainability is receiving less investment, but it's due primarily to the lack of metrics standards on which organizations should report. Although there is an increasing number of regulatory regimes for reporting requirements, they are not yet having a widespread effect, Eshkenazi said.
"We're seeing significantly more attention paid in the EU toward where materials are coming from and the impact of those raw materials," he said. "Unfortunately, we're seeing now that the awareness is high, but the impact is low."
Sustainability is on the minds of manufacturers, but real progress is still likely years away, said Paul Miller, an analyst at Forrester Research.
For example, BMW Group's I Vision Circular is a prototype electric car unveiled in 2021 that will be made from 100% recycled materials and will be fully recyclable, but it won't enter production until 2040, Miller said.
"It's a worthwhile vision," he said. "But it's a long way off, because they need to modify their own processes and engage their suppliers and supply chain so material can be cost-effectively recycled at the point of need."
However, if the reliability and cost of energy become a concern, it could lead to sustainability improvements as companies look to reduce energy consumption, according to Miller. For example, energy prices rose by up to 10 times in Germany at the start of the Russian invasion of Ukraine in 2022, making it an operational issue to reduce energy bills.
"We're seeing the shift in IoT investment on the plant floor away from things like predictive maintenance toward energy tracking," Miller said. "Specifically, trying to find the energy-intensive machines and make sure that when they're consuming power, they're doing something useful."
"It can pinpoint -- with a fair degree of accuracy -- which machines, parts and processes are consuming the most energy," Miller said. "For example, it can tell you that machine is sucking down lots of power, but it's not making anything right now, so you should send someone to switch it off."
Reshoring is a long-term strategy
Reshoring or nearshoring of suppliers has also garnered attention over the past few years -- particularly due to COVID-19 and disruptions with manufacturing in China -- but this has also been a lower priority, according to the ASCM report. The deglobalization of supply chains ranked as the 10th priority on the list for 2024, although it did not appear at all in the list for 2023.
One of the benefits of nearshoring (bringing manufacturing closer to the U.S.) or reshoring (returning manufacturing to the U.S.) is reducing logistics costs because of shorter distance and greater speed to market, Eshkenazi said. And there have been incentives such as the Chips Act that make bringing manufacturing back to the U.S. more attractive.
But there are challenges to overcome, such as labor shortages in both manufacturing and logistics, as well as the lack of facilities such as warehouses, he said. Nearshoring and reshoring will happen, but not overnight.
"There needs to be a long-term investment and long-term strategy in place," Eshkenazi said. "It's going to take some time to redirect the raw material supply from the other locations into the new manufacturing facilities."
Forrester's Miller agreed that reshoring or nearshoring is a priority, but one that will need to be a long-term strategy. For now, companies are looking at a "Goldilocks" strategy, which attempts to find the right supply chain balance, he said.
"We will not abandon low-cost manufacturing in Southeast Asia or bring everything back to expensive markets, but we are rebalancing where work gets done," Miller said. "Things like automation, machine learning and robotics play a role in lowering the cost of bringing back manufacturing to those expensive markets, but it will always be a balance."
Having an overreliance on suppliers in China has its own risks, and manufacturers were developing a "China Plus One" diversification strategy even before the COVID-19 disruptions, Miller said. The goal is to spread suppliers to other locations to ameliorate geopolitical risks and take advantage of funding incentives from countries such as India.
"There's also a shift in the [traditional] supply chain, which is long and brittle and a single point of failure, toward a more adaptive and resilient supply network that's better able to cope with these shocks," he said. "Manufacturers have to think about how they route material differently."
Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.