As we close in on the end of the year, supply chain professionals are already planning for what 2023 will bring. While it’s imperative to focus on budgets and business initiatives that will take precedence over the next year, it’s just as important to keep an eye on the big-picture trends that are shaping the industry. o9 Solutions’ supply chain experts and leaders are sharing their insights on the trends that could become prevalent in 2023 and beyond.
Supply chains will become the strategic drivers of business
Patrick Van Hull, Senior Director, Product Marketing at o9 Solutions:
During the pandemic, it became clear that the companies who had been investing in their supply chain capabilities were positioned to deal with extreme change more rapidly, because they’d already said, “Look, we’re trying to reinvent, we’re trying to understand how we can do something new or different”. For example, a big-box retailer that started to build out its pickup services, it delivery services, and so on, so that when the world pivoted, and stores were closed, but people still wanted this retailer’s products, it already had all of that investment there.
A big part of what companies need to do when building a future strategy is to look out into the future and say, “These are the things that we think we want to do and be five years from now”. What does that look like? What criteria is key? How would we send indicators on that? This isn’t an end game, it’s a continued investment. It’s trying to get a leading indicator of what you want to be and where you are relative to that, and then knowing that it’s going to change. So try not to lock yourself into any particular thing unless you’re 100% sure that that’s the direction you want to go.
Disruption can become a catalyst for supplier collaboration
Usman Khan, Senior Director of Industry Solutions at o9 Solutions:
One major impact that we’re seeing in the oil and gas industry is a disruption in operations stemming from raw material shortages and delays, and headwinds brought about by inflation boosting up the price of materials. If this continues, some companies are getting to a point where they will not be able to handle additional demand and will cycle through their existing inventories. The other big area of impact is logistics, so even if you get the supply, it’s getting stuck at ports, and due to a shortage of labour, clearance and delivery to the final destination are taking much longer.
However, we’re also seeing increased supplier collaboration, where customers are sharing inventory levels and demand data with their suppliers, which historically has been disconnected. Having a platform where suppliers can see the demand and can update their commits will reduce surprises and improve service levels. In today’s constrained supply market, it’s even more critical to know from your suppliers what they can and cannot support and then how best to allocate to your high-priority demand.
Circularity could change business models
Margaux Herbet-Saada, Product Marketing Manager at o9 Solutions:
Circularity and supply chain transparency will be critical going forward in the fashion industry, especially as EU regulations will mandate companies to provide details about their carbon footprint. As more consumers are becoming aware of sustainability and human rights issues within the industry, purchasing trends may shift towards higher-quality products for those who can afford them or second-hand items. Retailers will also need to start shifting their business models to become more agile, increasing collaboration with their network to produce limited batches but faster to meet the ever-changing demand without compromising the product quality, forcing them to be okay with the idea of selling out of a product, knowing that this will reduce the amount of waste and improve margins. This alone will have a tremendous impact on the industry.
Consumers are looking for more durable products
Stanton Thomas, Senior Vice President, Sustainability Solutions at o9 Solutions:
If you look at the fashion industry as an example, one of the key challenges is a heavy reliance on synthetic fibres. Fabrics made of synthetic materials are cheap and versatile but are difficult to recycle or reuse. And because they are less durable, they most often go to landfill and eventually break down into microplastics.
The industry challenge now is to move to more natural, environmentally sustainable fabrics. An example is clothing products that are composed mainly of sustainably farmed organic merino wool. Wool clothing typically costs a bit more money than synthetic clothing, but merino wool is a much longer-lasting material. Circularity means a product needs to be more durable, as well as recyclable, reusable, recoverable, etc.
In major markets such as Europe, consumers are looking for more durable, long-lasting products, because products that do have these characteristics become waste and go to landfill faster. This shift has important economic implications – higher quality and more durable products will likely mean fewer products sold over time as a result of lower replacement rates. Brand manufacturers will likely need to engineer their business models to accommodate a lower turnover rate of higher-cost, more durable products on a year-over-year basis. These types of economic trade-offs will likely characterise the transition to a sustainable, circular economy.
Product environmental footprinting will become more prevalent
Stanton Thomas, Senior Vice President, Sustainability Solutions at o9 Solutions:
Over the next three to five years, industries will have to incorporate true sustainability – not simply adhere to or comply with sustainability reporting standards. Additionally, companies will have to transparently share metrics related to their decarbonisation efforts or their use of non-sustainable materials in their product lines. For example, brand manufacturers and retailers—are beginning to perform life cycle analysis of their products to ascertain the environmental impacts of the products they sell. Historically, this product ‘footprinting’ exercise was both tedious and expensive.
Typically product life cycle studies included just a handful of products, and results were extrapolated to similar products. At the moment, there’s a lot of effort being devoted to making the product life cycle assessment process more automated and streamlined. The goal is to create templates allowing you to generate product environmental footprints efficiently, thereby increasing the throughput of the process without requiring highly specialised domain expertise. This trend will likely continue, and we’ll begin to see a lot of progress in this particular area of sustainable supply chain transformation.
The lack of social impact goals and corporate responsibility could become non-starters for future employees
Igor Rikalo, President and COO at o9 Solutions:
Companies that are ignoring their social responsibility and not measuring their true progress on decarbonisation of their operations are doing it at their own peril. Most recent surveys show that a top-of-mind concern for new employees is their employer’s “personality”, or the organisational values, behaviours, and other codified and uncodified norms of how people interact with each other both internally and externally.
With the help of AI technologies, most companies are becoming knowledge-based organisations that are tapping into a highly constrained pool of knowledge workers. This war for talent will be won by organisations that have a clear purpose and positive impact, not only as for-profit businesses but also as organisations truly vested in building better communities and having a positive impact on the environment.
At o9, Social Impact is a fundamental company value, extending beyond product functionality to improve our customer’s sustainability metrics and to inspire and enable our employees to take actions that will enhance their communities, both locally and globally. We believe that is going to be a blueprint for other organisations in the years to come.
The proliferation of data will change the scope and role of demand forecasting
Simon Joiner, Product Management Director at o9 Solutions:
The Internet of Things and the many streams of data that are available will continue to proliferate. From the things you buy and use to the things that you say and do – all of this is going to become data. It’s going to get bigger and bigger. Traditionally, companies had one stream of data, which was their sales, shipment, or invoice history. That single stream of history was used to indicate what you’re likely to do next month and next year. Now you have access to 1,000 to 3,000 streams of [external data]. In five years’ time, that’ll be 50,000 to 100,000.
The impact on planners is huge because it’s happening right now, and it’s growing all the time. The number of inquiries that we have about machine learning, and the capabilities of platform solutions has grown. Businesses know if they don’t start [incorporating AI/ML] now, they’re going to lose because they know that their competitors are doing it. It’s become an essential activity. From a role standpoint, companies should have a demand analyst or a data scientist, some kind of analytical resource who can work with the data and make the machine run.
But I think it’s pretty common for people to lose sight of the fact that getting that data is a job in itself. Finding somebody who has the skills and experience about what to look for and where to get quality data is a separate role. Right now, we lump that into a data scientist, a demand analyst, or a data analyst, but it’s more of a data procurement role.
Companies can say, “We’ll just buy it from Nielsen”. but obviously, it’s very expensive, and it may not be the data you need. Companies have to understand what internal and external data drivers they need, where they come from, and, once you’ve got the information, how to manage it so that it makes sense within the platform. So it’s a vast topic, but you can’t get machine learning to work without obtaining that data.
Supply sensing capabilities can help businesses navigate supply chain uncertainties
Dr. Stijn-Pieter van Houten, VP Global Industry Solutions at o9 Solutions and Nikolas Coffrin, VP Industry Solutions at o9 Solutions:
The CPG industry has experienced unprecedented disruptions since the beginning of Covid-19. While disruption is not new for CPG companies, the level and degree of disruption the industry is experiencing is unique.
Companies have been facing inflation (i.e., the Food Price Index rose 20% since 2020-21; source: BCG research), capacity constraints in logistics resulting in significant price increases (i.e., 61% cost increase for flatbed trucks since 2020-21; source: BCG research), changing consumer behaviour (i.e., online shopping increased 40%; source: NPD ), and raw material shortages never experienced before (futures prices for commodities such as wheat have reached the highest levels ever in March 2022, source: WSJ September 8th, 2022).
One such example is the shortage in production of AdBlue, a diesel fuel additive used in delivery trucks and lorries. An AdBlue producer halted production due to sharply increasing fuel prices in Q3 ‘22. While production has restarted, the ramifications of the shortage could have wide-ranging implications across the CPG sector in terms of fulfilment of truck capacity. Most companies have not anticipated shortages for commodities such as AdBlue and are unprepared for the potential ramifications of trucking shortages within the EU market.
These challenges are not expected to improve in 2023 and beyond, and companies are facing a new normal of operating in a world of constant disruption. As a result, there is a continued need for companies to invest in new processes, organisational models, and new technologies to help manage supply chain complexities and costs, and potentially sense disruptors before they impact the supply chain.
While no one can determine what the next major disruptor might look like, companies that incorporate supply sensing as a mechanism for anticipating market changes will be able to better identify the upcoming risks, run scenarios to understand how they may impact their business, and supply chains and develop mitigating actions for minimising impacts. Organisations that anticipate and manage through disruptions will set themselves up as industry leaders.
AI will continue to shape the workplace of the future
Igor Rikalo, President and COO at o9 Solutions
A key aspect of any technology, including AI, is that it should augment human capabilities by providing computational models, powered by relevant data, to enable fact-based and unbiased decision-making. We are seeing increasing levels of automation permeate many jobs today, both in factories as well in the headquarters offices of many companies. The outcome of this automation is that companies will have access to very granular data about employees, their productivity, and the ratio between value-added vs. non-value-added activities in their work patterns.
We can imagine that this transparency will allow employers to find ways to improve productivity either through upskilling/reskilling initiatives or through adding additional automation. However, issues related to trust between employers and employees on how this data is collected and used will have to be overcome. Solving issues around being “left behind” because increasing levels of automation will require continuous upskilling of the workforce and will become a key focus area for management teams in all industries. Both employees and companies will need to partner to create lifelong learning journeys to keep pace with technological change.
At o9, we believe that creating a new technology-enabled management system is required to achieve high-performing organisations in any industry. For example, our Digital Brain platform allows enterprises not only to model their operational decision-making processes but also to model the organisation and work processes necessary to run their business.