We are all consumers and we live in a world of global supply chains, global production networks with increasingly complex structures as well as cross-border deliveries. Products are manufactured in many countries and travel almost around the globe, before they end up on the shelf. The management of the entire supply chain across multiple supplier tiers is even more sophisticated, if we think about just-in-time or low-cost country sourcing. Over the last years, we have seen two dominating trends upcoming, which are highly relevant for managers of global supply chain networks: geopolitical instability and alignment with sustainability initiatives such as Fridays for Futures.
First, based on the recent political developments with tariffs, embargos and trade wars, companies are facing a much more unsecure and unstable environment. Where in the past, we had long-standing trade-relationships across nations and a stable environment for companies, this situation is completely altered with new tariffs policies in the United States, China, the European Union, or with the upcoming Brexit. Therefore, companies need to be more flexible and agile – not only from a technology perspective with the digital transformation theme, but also from an organizational DNA perspective to react flexibly to upcoming economical and geo-political challenges.
There are two key questions a leader can challenge their organization to ease the impacts of geopolitical instability:
- How flexible can a subcontractor and supplier be changed in a company’s just-in-time manufacturing, if we follow a single sourcing strategy?
- How flexible is our manufacturing network and how fast can we deploy a new site respectively the capacity outside the affected country?
How these questions are addressed through a series of people, process, and technology transformations can go a long way to mitigate geopolitical instability.
The second dominating trend is upcoming with the Friday for Futures movement. Especially as our younger generation is thinking and acting more sustainable and is asking for more responsible, ecological behaviors such as reducing carbon footprint, plastics and climate change. This level of social thinking changes the buying behavior from end-consumers and is disrupting industries.
According to a recent study, 47% of people do not trust that brands are producing goods fairly and sustainably. The same study reveals that 48% of people would be willing to pay more for products from brands that are responsible with their supply chain management. In another study, researchers at the MIT Sloan School of Management found that consumers may be willing to pay 2% to 10% more for products from companies that provide greater supply chain transparency.
The value proposition to consumers is clearly in favor of supply chain transparency. End-consumers want to know where products are manufactured and whether companies comply with a sustainable behavior. From a marketing perspective, we already see companies publishing information such as “Designed in California – Manufactured in China.” The benefit from a company’s perspective is increased brand loyalty, where 65% of consumers surveyed agreed that they would be more loyal to brands adhering to the United Nations’ Sustainable Development Goals.
Not only have scholarsspoken, but consumers also offer up empirical evidence that supply chain transparency and social responsibility can drive market share, margins, and brand loyalty. To truly impact these three metrics, leaders need to perform more than cosmetic changes to their supply chains. They are required to make the transformative adjustments within their organizations and extend such transformations to multiple tiers with their supply and demand chain.
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