Kamonrutm | Dreamstime
Global Supply Chains 5fea4fb08902c

TrendWatch 2021: Global Supply Chains

Dec. 28, 2020
Ensuring the financial resilience of the supply chain will be paramount in 2021.

As the curtain falls on a year of unprecedented disruption, here are our views on the key issues that will shape decision-making across global supply chains in 2021. These five predictions look at the challenges organizations will need to address as they look to reshape supply chains and build long-term business resilience.

1: Saying goodbye to paper unlocks fresh opportunities.

Lockdown restrictions revealed the challenges and inefficiencies which come from the antiquated, paper-based processes most buyer and supplier relationships relied on pre-COVID-19. Organizations that have not already digitized these processes will be placing this transition high on the priority list for 2021.

Digitizing the connection between buyers and sellers will play a key role in helping businesses build resilience to future shocks, enabling more effective risk mapping, and giving organizations greater flexibility to identify and onboard alternative suppliers should a key link in the chain come under pressure.

Coming out of the pandemic, businesses of all sizes will face pressure to commit to greater transparency across value chains by publicly disclosing sustainability data that allows stakeholders to hold them accountable for performance. The only way to gain sufficient visibility over supply chains to meet these obligations is through digitization.—Raphael Bres, chief product officer

2: Diversified supply chains will help build resilience but at a cost.

Even before COVID-19, businesses were realizing they needed optionality in their supply chains to weather different storms, be it the trade war, or broader geopolitical and environmental threats. The pandemic simply crystallized these challenges and gave them more urgency.

Businesses that typically relied on single-source suppliers for key components will be looking to spread the risk over multiple suppliers in different locations. That adds a certain amount of cost to the product since you’re transforming business models away from simple bulk purchasing.

There’s also a knock-on effect in terms of how products are designed and built. For example, companies may need to be able to accommodate variations in terms of the sub-components they are using from a variety of suppliers, which adds an element of complexity.

Organizations will need to consider whether they absorb the cost of resilience, pass it on to the customer, or look for other ways to increase efficiency, such as through the use of automation and other technologies including 3D printing.—Mikkel Hippe Brun, co-founder and senior vice president, APAC

3: Businesses will seek new ways to build financial resilience into the supply chain.

Ensuring the financial resilience of the supply chain will be paramount in 2021. While COVID-19 vaccines are emerging, they will not lead to a full re-opening of the economy until sometime in the second half of 2021, and the effects of 2020 will be felt for a long time.

Companies have increasingly extended payment terms, and sources of credit for companies have become more scarce and expensive. As we saw in the financial crisis of 2008, this will lead to defaults in the supply chain and cause supply chain disruptions. The most important practical measure that companies can take in 2021 is to ensure the financial resilience of their supply chain.

This means regaining control over credit lines for themselves, and to offer the same to their suppliers. Companies that are part of digital supply chains in 2021 have access to new generations of early payment solutions that are far superior to traditional supply chain finance, dynamic discounting and factoring in terms of availability, scope and cost.

For example, traditional supply chain finance only targets the largest and most resilient suppliers in the supply chain. Dynamic discounting requires a cash surplus that few companies want to afford in these times. Factoring fails below certain credit ratings and have high costs associated due to low transparency of non-digital supply chains.

With next-gen early payment approaches for digital supply chains, buyers can protect their full supply chain, switch between their own and external funds, pay sellers on day 2, and offer sellers credit at a much lower cost than factoring.

Few companies take these aspects into account when investing in digitization of their supply chains. This affects both their business case, misses out on financial resilience gains, and leaves them stuck in long digitization projects with low supplier adoption rates because of poor incentive structures.—Gert Sylvest, co-founder and general manager of Tradeshift Frontiers

4: Supply chains will come under scrutiny from regulators - for good and for ill.

COVID-19 put a pretty damning spotlight on how a sudden spike in demand for certain goods can lead to unfair practice and abuse. The scramble for personal protective equipment (PPE) is a good example. Governments must shoulder some of the blame for running down stocks of equipment. Just as shocking however was the rampant profiteering taking place on everything from masks to hand sanitizer.

Expect regulators to take a tougher stance to protect against this kind of ‘price gouging,’ and more formalized restrictions to prevent suppliers breaching existing commercial agreements in order to sell vital equipment to the highest bidder.—Raphael Bres

Regulators are already stepping in more frequently, either to restrict the supply of critical components, or to ring-fence access to vital products. Whether or not this is a good thing remains up for debate.

Few would argue that regulation doesn’t have a role to play in ensuring a fair and level playing field. But restrictions over the free flow of goods rarely solve the issues they were designed to address. On the contrary they tend to pour gasoline on the problem.

Back in March, when the world really needed a coordinated approach, we saw governments rushing to pass export restrictions on everything from masks to sanitizer.

Shortening supply chains might bring about some short-term gains in terms of jobs coming back on shore. But we have so much more to lose from the wholesale retrenchment of globalization some are arguing for. Governments know this. Just look at Brexit.—Mikkel Hippe Brun

5. China will decouple more and more from the “western world.”

We have a tendency in the West to talk about a decoupling with China, but we forget that China is also decoupling with us. That means an increased focus on the domestic economy and local trading partners, while the West becomes less relevant as a trading partner.

There’s a lot of grandstanding in the West, and unfortunately I don’t think we will see a significant shift, even if it’s the West that could end up losing the most. Just look at what’s happening in terms of the restrictions on semiconductor chips entering the Chinese market. The only thing that’s going to do is make sure the Chinese have their own silicon stack in the next 18 months.

Rather than looking to blame China, the West should really be paying attention to its own loss of manufacturing and technology, which could well prevent us from competing in the future.—Christian Lanng, CEO and chairman

China will work closely and be more coupled with other countries and regions. The stronger coupling will be on technology and infrastructure as well as from an economic standpoint. Many ‘western’ companies cannot ignore the Chinese market and will have to follow and accept Chinese standards. Companies and countries will have to accept dual sets of standards: Chinese influenced standards and “western” standards.

There is a good chance that China will emerge as the winner in the decoupling, simply because the Chinese economy is now an unstoppable force. China has too much momentum and enough “friends” that want to do business with them. We will see an acceleration of economic and technological independence.—Mikkel Hippe Brun

Christian Lanng is CEO and chairman; Mikkel Hippe Brun is co-founder and senior vice president, APAC; Gert Sylvest is co-founder and general manager of Tradeshift Frontiers; and Raphael Bres is chief product officer with TradeShift, a provider of supply chain payments and marketplaces.

About the Author

Christian Lanng

Christian Lanng is CEO and chairman of TradeShift, a provider of supply chain payments and marketplaces.