The Era of Value in Supply Chains

Supply chains are changing and becoming more fragmented. There’s another big change coming: inflation. The maturation of multiple middle class economies across the world has already begun to drive competition for resources. COVID provides a lull before the storm; in a year or two, economies will begin to recover and pent up consumer demand will create a whiplash of order and price increases. This isn’t just a temporary inflation.

The Federal Reserve, Organization for Economic Co-operation and Development (OECD), United Nations, and International Monetary Fund all forecast inflationary pressures are coming.

COVID responses and trade wars have made “supply chain management” part of common lexicon—yet that is only just the beginning. During times of inflationary pressures, companies traditionally increase their focus on value. When money is tight, every dollar counts, and in an era of low interest rates, value becomes the primary tool for generating profit.

Supply chain management is the most important tool for both managing inflation and for creating value. More companies will install leadership with supply chain backgrounds, continuing the trend started by the likes of Mary Barra and Tim Cook. These and other luminaries will develop new techniques that use the new technologies of Industry 4.0 to monitor financial impacts of supply chain activities in real-time.

Traditionally, company size was an important determinant of being able to innovate to thrive during uncertain and tough times. Yet we’re also seeing more large firms go bankrupt or acquired, with the upshot being the dominance of many industries by a few, especially large firms. Two factors are important to determining who survives. First is the value proposition—it’s simple math, you take the value to the customer and subtract the resources required to deliver, and you try to maximize that difference, also called the delta.

The second factor—and the most important determinant of the delta—is the ability to collaborate and coordinate the supply chain. The constellation of suppliers, customers, and horizontal relationships has become undeniably the most important enabler of value creation, especially the ability to innovate and link operations across the constellation, and its management will become the most important challenge for the next generation.

The COVID-19 crisis in the future will be viewed as the defining moment for the rise of supply chain management as the modern business paradigm. Piecemeal and firm-focused solutions will look antiquated compared to the systems-thinking and holistic approach of supply chain management. Technology will serve as the enabler, yet the real leaders will have the vision and a caretaker’s sense of managing the whole supply chain as an ecosystem. They will usher in a new era of social and economic value. Supply chain management’s best days have scarcely begun!

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