Written by Victor Chartier
In recent years, supply chains have faced increased pressure due to major global events. The logistics industry has been affected by consecutive crises such as COVID-19, semiconductor shortages, the Ukraine-Russia conflict, and a container ship blocking in the Suez Canal. This led to significant disruptions in production and consequently logistics.
All the above significantly affected the logistics industry, leading to a doubling of costs and a shift in transportation capacity from appearing limitless to facing constraints.
However, these disruptions taught us some critical lessons:
Real Discontinuity Risk: Supply chains were once less vulnerable to discontinuity, allowing for distant sourcing with longer delivery lead times, but this strategy's weaknesses are now being exposed by geopolitical and natural events. Disruptions are becoming more recurrent and impactful.
Rising Logistics Costs: Logistics costs have always remained low, primarily due to affordable fuel and labor. This led to insufficient focus on the element of logistics within procurement teams. However, geopolitical events and new regulations (such as the EU Mobility Package) are bringing an end to this period of artificially sustained low cost.
Amplifying Effect of Climate Change: Climate change is contributing to geopolitical tensions and natural disasters, increasing the risk of disruption for global supply chains. Additionally, ambitious regulatory packages, such as the EU CSRD, are compelling all industries to act and putting additional pressure on costs.
How can collaboration break this ongoing cycle of disruption?
The logistics industry is predominantly market-driven, with customers shaping their requirements through tenders. However, there is a need for a shift in ideology towards a more collaborative approach.
The traditional focus has been on cost reduction and shorter lead times. Yet, in the current landscape, these criteria alone seem insufficient.
To future-proof supply chains, a long-term strategy and broader decision-making factors become essential. For example, reducing distances and enhancing service flexibility can bring rationality and manageability to the network.
Additionally, recognizing that suppliers possess market knowledge beyond their specific industry can be leveraged as a competitive advantage, leading to innovative concepts derived from different industries.
The goal should be to create a balanced, long-term network. This involves establishing enduring relationships based on transparency and trust to ensure stability. Proactively challenging customer requirements, using internal expertise to address the industry’s long-term constraints in addition to customer needs, is crucial.
Take, for instance, a leading Japanese car manufacturer that fosters long-term partnerships with a significant portion of its suppliers. This approach ensures business continuity and sustainable development for suppliers. Cooperative investments in new technologies further support the industry’s growth and generate momentum.
While rationalization efforts are already underway as professionals seek synergies, the future lies in long-term planning, genuine trust, and mutual understanding. To tackle complex challenges, procurement should pay attention to the insights of the logistics industry, which can capitalize on its expertise while also incorporating a fundamental sustainable development approach:
Need help to future-proof your supply chain? Do you want to know more? Don't hesitate to reach out to our expert Victor Chartier!
References:
Impact of Suez Canal congestion on global economy: https://www.bbc.com/news/business-56559073
Rising logistics costs in 2022: https://www.wsj.com/articles/shipping-and-logistics-costs-are-expected-to-keep-rising-in-2022-11639918804
Rising logistics costs: https://market-insights.upply.com/en/europe-general-decline-in-road-transport-prices