As a supply chain manager, you must wonder what challenges 2023 holds. Are you equipped to manage the ever-increasing supply chain complexities?
Beyond a looming global recession and increasing market intervention by governments, supply chains in 2023 will operate under close scrutiny by regulators and consumers seeking Environmental, Sustainability, and Governance (ESG) compliance from their suppliers.
Fortunately, new technology allows you to tackle such challenges and rise to the occasion. 2023 is the year to rethink traditional approaches to increasing supply chain productivity and getting the most out of your existing resources.
Whatever strategy you adopt in the new year, supply chain visibility with a unified system for collecting and analyzing data will be the key to your future success.
4 global supply chain trends in 2023
You will need a fresh perspective to tackle the biggest challenges facing the apparel supply chain in 2023. These challenges include:
1. Global economic uncertainty impacting budgets and inventory
The global economic outlook for 2023 is unclear. Many countries are still reeling from the effects of the pandemic, and the effects on global demand and trade are yet to be felt. Budgeting and inventory management may become increasingly difficult as businesses try to anticipate customer needs while containing costs.
The impending recession will likely affect major trading markets including the United States, the United Kingdom, and Europe. And, with the possibility of a new wave of protectionism and tariffs, pricing volatility could become an issue.
Multiple factors influence global supply chains: the economic slowdown, disruptive technologies, increased competition, stricter laws and regulations, and long-lasting post-COVID impacts such as remote work, the need for greater visibility and accountability, and ongoing disruptions.
The COVID pandemic is a reminder that outliers may be rare, but companies need to factor them into long-term supply chain strategies.
2. Increasing exposure to future shocks
The situation in Ukraine has sent ripples through commodity prices, supply availability, logistics routes, and costs. Also, macroeconomic factors like tariff changes between the US and China have impacted global supply chains. These geopolitics will continue to be a major source of disruption for supply chains in 2023.
KPMG analysts believe the top seven key supply chain trends to watch for in 2023 are:
- Nations are skeptical of cross-border trade cooperation and interdependence
- More sophisticated and frequent cyber attacks and threats
- Material scarcity and rising key commodity prices
- A need for re-evaluation of manufacturing footprints
- Retail and distribution complexities due to growing consumption
- Increasing supply chain technology investments
- Greater focus on sustainability, transparency and compliance
3. Visibility becomes essential for risk and compliance management
Many brands and suppliers don’t have visibility into their entire production chain. As long as current standards and quality are met, it’s easy to shrug off validating who is doing what in the chain. However, with heightened scrutiny in recent years, operating without a close understanding of your supply chain is no longer possible.
The most challenging pain to deal with is the unforeseen issues that arise from a lack of visibility. These can include production delays, environmental compliance, safety incidents, product recalls due to substandard quality, etc. With increased transparency, apparel companies can assess and mitigate risks before they manifest in costly, potentially irreversible supply chain disruptions.
Visibility is critical to minimizing exposure to such disruptions. “First, invest in visibility,” advises Dirk Holbach, Chief Supply Chain Officer for Henkel’s Laundry & Home Care, in an interview with McKinsey. “Visibility means understanding at any point in time what’s going on in your extended supply chain. That is a must because you won’t know what to do without it.”
The ability to easily and securely share data is critical for increasing visibility. Supply chain partners need digital solutions to simplify communication and data exchange across global networks. This helps reduce risk, drive efficiency, and ensure compliance.
4. The pressure to prove ESG compliance and ethical sourcing
Tightening regulations and increased pressure for verified ESG metrics for suppliers means companies must disclose and substantiate a complete view of their supply chains.
Nearly one-quarter of respondents to MIT’s 2022 State of Supply Chain Sustainability Report reported increased pressure from investors to improve supply chain sustainability.
In response, many companies will be looking to implement ethical sourcing programs, traceability features, and automated compliance monitoring solutions. This will allow them to identify and audit their suppliers, track their production and monitor quality control processes.
But why is this important?
According to the 2021 Gartner Future of Supply Chain Survey, 53% of customers will do business only with companies that practice environmental and social sustainability. In response to that trend, 67% of organizations are increasing their efforts to create a more sustainable supply chain.
EY teams survey found that eight in 10 supply chain executives are increasing their efforts toward sustainable supply chain operations.
The top three findings from the survey are:
- Despite a long-term vision, organizations struggle with a lack of visibility and ROI-backed sustainability initiatives
- A sustainable supply chain roadmap looks beyond procurement toward end-to-end supply chain transformation
- Companies should play the long game but start their supply chain sustainability initiatives now
Supply chain visibility is essential to ESG efforts. According to research by the US EPA released in February 2022, businesses’ supply chains often account for more than 90% of their greenhouse gas (GHG) emissions when considering overall climate impacts.
Governments worldwide are introducing legislation that would mandate businesses to prove their overall ESG compliance. In the past, this kind of ESG legislation was focused on a specific risk domain, like child/forced labor or the 2020 Uyghur Forced Labor Prevention Act. Today’s ESG legislation is more all-encompassing. The Germany Supply Chain Due Diligence Act will come into effect at the start of 2023, followed shortly by similar laws currently in progress within the European Union.
Investor concerns about material risks from climate change have created new reporting frameworks, such as those by the Sustainability Accounting Standards Board (SASB) and the Taskforce on Climate-related Financial Disclosures (TCFD).
4 key factors for supply chain success in 2023
Remaining competitive in 2023 requires a clear strategy for success — here are four key factors that apparel supply chain leaders should focus on:
1. Maintain the momentum of digitization
Digital tools have been critical to companies’ efforts to improve the resilience of supply chain planning and execution.
Supply chain leaders have had a lot to deal with in the past few years, and the rate of change is not slowing for them. That’s why data, especially automated collection and analysis, continues to be the elephant in the room. Everyone knows they need to digitize, but they hold back because they are unsure how to manage the risk of new investments and operational platforms.
To achieve success, it’s crucial to have a clear roadmap of which investments are necessary and the added value they will bring. Companies must put data security and effective governance in place.
Several months after adopting the Rise platform for compliance in 2020, cut-and-sew garment manufacturer Purnaa reported seeing a 30% improvement in their overall safety score. Similarly, Liberty Mills in Pakistan used Inspectorio Sight platform for quality to reduce internal inspection failures by 3% and lead time by 28% in just six weeks.
2. Partner optimization
Unprecedented supply chain disruptions in the past two years have created unexpected challenges for manufacturers and retailers. Companies have had to quickly identify new partners and restructure existing relationships to survive. This trend will likely continue in 2023 as markets, and consumer expectations shift.
Self-inspections are becoming increasingly popular as a way to streamline quality evaluation processes. Vera Bradley uses Inspectorio Sight to perform self-inspections of their products. By doing this, the fashion company was able to cut down on its audit time while still maintaining the same high level of quality.
Recent technology has enabled organizations to maintain full visibility and control over self-inspections while benefiting from the analytics and insights they provide. For instance, Inspectorio’s Factory Risk Artificial Intelligence (AI) Algorithm creates a dynamic scorecard that automatically ranks factories using a risk score calculated by real-time and historical data.
Self-inspections have also helped break down silos between suppliers and buyers through data-driven collaboration, transitioning from management with static Excel sheets and emails to real-time data collection. This creates an environment of trust and accountability rather than policing and suspicion.
Vera Bradley, who consistently rewards high-quality suppliers with the ability to perform self-inspections, reports that self-inspections have created better working relationships and end-to-end collaboration. Other major textile manufacturing companies like Yunus Textile Mills find that self-inspections have led to significant cost savings. Interloop claims that enabling self-inspections with Inspectorio Sight has allowed them to become more proactive.
3. Visibility of production and supply tiers and network
McKinsey’s August 2022 supply chain survey showed that only about 20% of companies surveyed in the consumer products and retail sector feel they have sufficient multitier transparency.
Preparing for future hypotheticals has a present-day cost. But those investments pay off over time by minimizing losses and improving digital capabilities, boosting productivity, and strengthening entire industry ecosystems. Rather than a trade-off between resilience and efficiency, this rebalancing act delivers a win-win.
If a recession does hit in 2023, companies need to be ready and have the right tools in place. Visibility of production and supply tiers, as well as their respective networks, is critical to ensure organizations are able to react quickly, accurately and most effectively.
Here are three ways to improve your visibility and ability to predict:
Identify the segments within your supply chain that are most vulnerable to disruption. Have a strategy to mitigate risks by applying digital tools and building a collaborative partner program.
Identify your current digital capabilities and define a strategy to adopt appropriate digital solutions at each stage of your development.
Investigate any data silos that are preventing you from making data-driven decisions. Define the level of data hygiene and the efficiency of data collection within your supply chain system. Identify tools and solutions to address these pain points.
4. Onboarding AI into supply chain operations
In this video for Help Net Security, Diego Pienknagura, VP of Growth & Global Operations at Inspectorio, talks about how AI can be a driving force for the supply chain and helps organizations become data-driven.
The ability to reroute components and flex production dynamically across sites can keep production going in the wake of a shock. This requires robust digital systems and the analytics muscle to run scenarios based on different responses.
According to Harvard Business Review, data-intensive AI/ML can deliver an estimated $230-$650 billion in value for the industry over the next three years.
A McKinsey survey of 71 global supply chain leaders in mid-2021 showed that the success of an organization’s planning was strongly linked to its use of modern digital tools, especially advanced analytics:
Compared with organizations that reported problems, successful companies were 2.5 times more likely to report they had preexisting advanced analytics capabilities.
Of the companies that had difficulties managing their supply chains during the crisis, 71% say they are ramping up their use of advanced analytics.
According to a 2021 Gartner survey on the Future of Supply Chain Technology, by 2024, at least half of supply chain organizations will invest in applications that support advanced AI.
The Deloitte Tech Trends 2023 report states that with cloud vendors increasingly offering pre-built models, any business can access world-class AI functionality with only a few clicks.
Organizations need to be able to identify and respond quickly to disruptions in the supply chain, including those caused by global economic downturns or changing customer demands. To do this, you must adopt advanced analytics and AI tools to become more agile and resilient in your supply chain operations.
Prioritize technology investment in supply chain planning capabilities and end-to-end visibility enabled by real-time analytics, as these can help maintain operational stability.
Fast-track your data management policies and capabilities and upskill your teams. This helps you make the most of technical capabilities for insights-led decision-making.
Invest in automation to replace redundant manual supply chain activities, drive productivity gains, and protect against margin squeeze and cost increases. Find opportunities to streamline manual activities such as Global Trade documentation, Free Trade Agreement (FTA) compliance, trade tax calculations, reconciliations and settlements, and reporting.
Get in touch to learn more about how Inspectorio can help with automation, analytics, and AI for your supply chain operations.