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China’s lockdown of Shanghai is just the latest in a series of supply chain crises unfolding in 2022. The Russia-Ukraine war, which has only escalated since February, has cast a new level of uncertainty over global trade relationships.
Companies have been trying to get ahead of the next supply chain disruption for the better part of two years. Investments in technology have skyrocketed as companies improve their ability to respond to external events. A full 93 percent of businesses recently surveyed focused on increasing their agility in 2021.
Source: Cleo, Dimensional Research
“When we talk about agility, we’re talking the ability to respond to external changes, including those from existing business partners,” said Tushar Patel, chief marketing officer of software provider Cleo, which conducted the survey. That means everything from compliance with a partner’s new data protocol or ERP system; onboarding and monitoring new suppliers; to collecting and analyzing actionable data. Seventy-one percent of respondents spent more than $100,000 in new supply chain technologies last year.
Since the onset of the Covid-19 pandemic, it’s become abundantly clear to businesses they have no control over external events. Fifty-four percent of surveyed executives expect the pandemic to remain the top threat to their business in 2022, with cyberthreats (46 percent), inflation (41 percent), and supply chain (41 percent) all close to the top.
It’s also worth noting that less than a quarter (23 percent) of executives anticipated supply chain disruptions caused by geopolitical events in 2022; the survey was conducted prior to Russia’s invasion of Ukraine.
Bad breakups
Supply chain relationships have also suffered over the past few years from missed supplier deliveries, production delays and snarled global logistics. In 2021, an alarming 90 percent of respondents terminated or replaced at least one business partner due to performance failures, the study found. Seamless engagement with new suppliers has increased in importance.
Cleo’s approach is a cloud-based ecosystem integration platform that brings together end-to-end integration visibility across API, EDI, and non-EDI integrations. It accelerates front-end supplier onboarding and collects actionable data at the back end.
Source: Cleo, Dimensional Research
Vetting new suppliers is time-consuming in the electronics industry. In addition to the usual KPIs, compliance to environmental, social and governance (ESG) criteria factor into supply partnerships. Among companies that invested in supply-chain tech in 2021, 59 percent focused on new integration technology. For 53 percent, the focus was on ERP, CRM, TMS, WMS or other back-office solutions.
“Whether you have to replace an existing supplier or engage with a marketplace, business can’t stand still when the supply chain is disrupted,” Patel said. Enterprises also opened new lines of business last year. Forty percent either found new trading partners or established new alliances, according to the study. Slightly less than 40 percent expanded geographically. Other strategies included acquiring new lines of business (39 percent) or engaging in M&A activity (36 percent).
Supply chain digitization has been viewed as “nice to have” rather than critical for many businesses – for example, procurement is considered a cost center. Among surveyed companies that invested in technology last year, 99 percent reported increased revenue tied to improved business agility. Three out of four respondents, or 73 percent, said better agility increased revenue by more than $500,000 in 2021. Fifty percent increased sales by more than $1 million.
Investment in agility is expected to continue in 2022 as 77 percent of respondents budgeted $100,000 or more toward supply chain technologies.
“With technology investment, businesses are either looking to make money or to save money,” Patel said. “What this survey found is when these organizations invested in driving agility they all saw increased revenue. Supply chain partners always talk about decreasing costs. We had a significant number of respondents that were able to increase sales.”
Despite the chaos in 2021, companies re-evaluated their business models, revised strategic assumptions, and took a fresh look at their technology investments, the study found. “It’s all part of an effort to rethink business strategies and take control over disruption and uncertainty,” Patel concluded.
Cleo conducted the survey of more than 100 executives with Dimensional Research.
