This post is part of G2's 2021 digital trends series. Read more about G2’s perspective on digital transformation trends in an introduction from Michael Fauscette, G2's chief research officer and Tom Pringle, VP, market research, and additional coverage on trends identified by G2’s analysts.
Tech giants, major retailers, and global manufacturers have spent countless years building intricate supply chains that span across the world.
In many ways, the global supply chain has been built just as much for the consumer as it has been for the seller. While these supply chains are complex and oftentimes span several continents, it has not only allowed consumers to get their products more efficiently but has also slashed major labor costs for businesses.
Over the years this has led global supply chains to heavily rely on outsourcing production to other countries and has even resulted in China controlling over one third of the global trade market. While this has worked well under normal circumstances, 2020 has taught businesses that global supply chain disruptions can occur in the blink of an eye, and have major repercussions for years to come.
This article highlights how the COVID-19 pandemic has been a catalyst for new supply chain trends in which businesses can mitigate risk and plan more efficiently in the wake of constant disruption and increased consumer demand.
In 2021—and beyond—businesses will spend more money on supply chain risk management.
This prediction should come as absolutely no surprise to anyone but it’s still important to address from the get go. 2020 has taught supply chain executives a few major lessons when it comes to effective supply chain management, but nothing has been more apparent than managing supply chain risk.
Businesses were completely unprepared for the impact that COVID-19 would have on their supply chains. Businesses’ main suppliers were shut down overseas and they scrambled to figure out ways to reduce supply chain and delivery delays while customers were left out to dry.
So how did businesses respond? Instead of relying on one major supplier, companies are now diversifying into two or three suppliers across two or three different countries. This allows them to fall back on other suppliers in the case that another disruption like the coronavirus pandemic occurs. In fact, according to a survey of nearly 150 manufacturing executives, 30% of respondents plan to diversify their supply chains among multiple geographies in the upcoming year.
When businesses have additional suppliers already in place managing supply chain risk becomes more proactive rather than reactive.
For example, Honda auto parts maker F-TECH made up for the lack of brake pedal production in Wuhan by increasing production in its plant in the Philippines. Honda was prepared with a tier 2 supplier, and the effects of the coronavirus pandemic on their supply chain were managed more effectively because of it.
Lastly, businesses that indicated that they proactively manage supply chain risk spend 50% less to manage supplier disruptions than companies that stated that they aren’t proactive. Using this knowledge and data, we expect proactive risk management to be the first core reason we will see businesses spend more money on managing supply chain risk in 2021.
| Related: The Impact of the Coronavirus on Tech Supply Chains → |
The second core reason we expect businesses to spend more money on supply chain risk in 2021 is that they are increasingly investing in technology to help mitigate supply chain risk. In fact, in a survey of nearly 150 manufacturing executives, 47% of respondents are considering new technologies, such as tools to improve supply chain visibility and tracking.
For proof of this, we saw Coupa Software purchase supply chain tech firm Llamasoft this past year for $1.5 billion. Rob Bernshteyn, chairman and CEO at Coupa stated, “We are witnessing an unprecedented shift in what businesses are demanding to effectively manage their supply chains. They need instant visibility, agile planning capabilities, and timely risk mitigation support.”
An example of software that businesses are focusing more on is supplier risk management software. Supplier risk management software helps vendors evaluate and monitor suppliers in the APAC region (most common region for tier 1 suppliers), assisting them with risk identification and risk mitigation. Whether it’s a geopolitical cause or natural disaster, supplier risk management will allow companies to minimize the risk of financial, geographical, and political disruptions. The traffic we are receiving to the Supplier Risk Management software category on G2 is evidence of its growing popularity.
Equally as important as monitoring suppliers is having instant visibility into the supply chain. Supply chain visibility software allows companies to track raw materials, parts, components, and finished goods from suppliers to manufacturers, retailers, distributors, and finally to the customer.
Jim Hull, senior industry strategies director for Blue Yonder, a provider of AI-driven supply chain management services, elaborates on the importance of good supply chain visibility during this time in APAC:
“I suspect the biggest area that shippers (and their customers) need to be really solid on right now is inventory visibility across the supply chain. As the outbreak continues to develop, companies that source from affected areas will have to make hard decisions on where to position the inventory that they already have. The first step in this is knowing what you have and where it is.”
The year 2020 is all the proof that businesses need to understand that technology can drastically improve supply chain risk management. As a result, we expect businesses in 2021 to continue to invest more in technology to mitigate potential global supply chain disruptions.
Demand planning software adoption will increase by 20% in 2021.
Aside from managing supply chain risk, demand planning was one of the most challenging obstacles for businesses in 2020.
Machine learning and predictive analytics have improved over the last few years which has led demand forecasting to become increasingly accurate. This allowed supply chain managers to develop models that are able to predict demand by combining purchasing trends, promotions, and seasonal buying patterns. However, during a global pandemic, these models don’t work as well. Consumer demand is now shifting constantly as a way to respond to the pandemic’s current situation.
In fact, when the pandemic hit the U.S. back in April 2020, e-commerce spending in the U.S. went up more than 30% as compared with the same period last year, according to market research firm Rakuten Intelligence. While customer demand certainly went up, businesses were not prepared for the rapid rise in demand for certain products while other products fell to the wayside. Consumers wanted the necessities such as toiletries, home fitness items, and office products, while superfluous spending took a hit in which products such as smartphones saw less demand.
Additionally, as the pandemic continued into the summer months, the number of COVID-19 cases went down (which of course was only temporary), and as a result, demand went down for certain industries. Restaurants were open so fewer people bought groceries, and the weather was nice so sporting goods saw an increase in demand.
Now, the number of coronavirus cases is going back up and the winter months are ahead of us, but will consumers respond the same way they did back in April this year? These constant fluctuations make it difficult for traditional demand planning models to keep up with consumer demand.
The volatility has even led supply chain executives to state that the lack of demand clarity has been the biggest supply chain challenge in the past year.
So how can businesses mitigate demand planning challenges? The key to responding to demand planning volatility is to remain agile and flexible with the stock.
One thing businesses have been doing to remain agile is implementing demand planning software into their supply chain tech stack. Demand planning software provides businesses with forecasting solutions that help them prepare for future customer demand. It mostly performs this function by collecting all consumer data and compiling key insights and models based on that data.
| Related: Tech Giants Improving Supply Chains in the Wake of COVID-19 → |
As stated, demand planning models have been more accurate in the past as they have been able to use past historical data to develop accurate demand forecasts. But how can businesses utilize this software to forecast demand when demand is so volatile? One of the ways is through auto-adjusted forecasting alert features.
Auto-adjusted forecasting alert immediately recognizes when demand exceeds the forecast, and creates an auto forecast adjustment. Then if there are any items that now have surplus or excess inventory, and there are open purchase order lines, an alert will be created allowing the business the opportunity to contact their vendors to cancel or reschedule delivery of these now unnecessary items. This is a key feature in demand planning software that can help businesses remain agile during the COVID-19 pandemic.
In fact, the increasing need for demand planning software during 2020 is heavily reflected in the traffic we are receiving to our Demand Planning category on G2.
While this increased adoption has been heavily instigated by the impact of COVID-19, the reality is that we expect this increased adoption to be sustained for years to come. This is mainly because when businesses begin to implement demand planning software into their supply chain planning strategy they will quickly realize the benefits and return on investment (ROI) that it brings.
G2 review data above illustrates that 40% of demand planning software users saw an ROI within a year and over 60% saw an ROI within two years. These are strong numbers and indicate that demand planning software is worth the investment.
As a result of the market sentiment and growing attention on demand planning, we expect that demand planning software adoption will increase by 20% in 2021.
The digital twin market will grow 25% in 2021.
To reiterate an earlier point, one of the biggest challenges facing businesses during COVID-19 has been recurring supply chain disruptions. From tier 1 suppliers being shut down to constant fluctuations in demand planning, businesses have had to constantly adapt in order to fulfill orders and remain on schedule.
While this has caused massive headaches for both consumers and sellers, it’s also served as a catalyst for better supply chain risk management, as well as supply chain planning. One of the ways companies are planning more effectively is by using supply chain digital twins.
Supply chain digital twins allow businesses to build a digital replica of their entire supply chain. This digital replica includes all of the assets, warehouses, logistics, and inventory positions that exist in the particular business supply chain. Once the digital twin is built, businesses can then simulate the performance of the supply chain, as well as various supply chain disruption scenarios.
Digital twin technology uses artificial intelligence (AI) and machine learning features to simulate more effective and efficient ways to structure the supply chain. This may be restructuring which manufacturers the business sources its supplies from, or relocating distribution centers to improve fulfillment times and operate with better warehouse management. These simulations can dramatically improve efficiency by identifying smarter ways to balance inventory costs, availability, and lead times across supply chain networks.
Digital twin technology can also simulate having secondary or tertiary suppliers on hand in case tier 1 suppliers shut down, or even changing distribution centers in order to meet rising demand in certain locations. When businesses simulate these scenarios they will be significantly more prepared when supply chain disruptions occur.
The market sentiment surrounding the adoption of digital twin technology in supply chain and logistics is strong. Industry researchers expect the digital twins market to grow at an annual rate of more than 38 percent over the next few years, passing the USD $26 billion point by 2025.
The positive market sentiment surrounding digital twin technology is certainly matched in the exponential traffic growth G2 is receiving to the Digital Twin software category. Over the last 10 months, G2 has seen over a 50% increase in traffic to the category and we only expect this traffic to grow.
In response to the overall market sentiment as well as the increased demand for digital twin software on G2, we predict that the digital twin market will grow 25% in 2021.
2020 was a wild year for global supply chains. From constant supplier disruptions to demand planning fluctuations, businesses were constantly on their toes trying to make sure their supply chains ran as smoothly as possible. These supply chain challenges that businesses experienced in 2020 will heavily influence the way they construct their supply chains in 2021.
While we expect supply chain overhauls as a way to mitigate risk, we are confident that technology and software will help lead the way.
Edited by Sinchana Mistry