Every organization (except those that exclusively sell services, offering no physical or digital products whatsoever) deals to some extent with the challenges of reverse logistics. And like the rest of the supply chain, reverse logistics experienced disruptions during the pandemic. Most agree that the current supply chain lacks adequate resilience, but there are diverse opinions on how to correct that.
Supply chains in the post-pandemic world will differ dramatically from supply chains before March 2020. To get a feel for the changes coming our way, we can look at factors that will influence the supply chain's evolution in the next year.
ESG (environmental, social and governance) makes its mark
As consumers express an increasing preference to do business with brands that embrace environmental and social concerns, companies are taking note. ESG is becoming a strong focus of the C-suite, with benefits felt in the workplace and the marketplace. For example, more diverse workforces provide improved results, and investors are rewarding ESG-focused companies on the open market. The supply chain will feel the influence of the rising ESG importance, and we turn now to one of the core ways that impact will manifest itself.
The rise of circular supply chain
With the rise of sustainability awareness, companies seek to update and improve their supply chains with attention to reverse logistics functionality and a circular supply chain model. This activity is creating a significant shift in supply chain priorities toward placing a premium on reducing pressure on the environment in a financially responsible way. Developing an authentic circular supply chain requires substantial development and planning from a wide array of stakeholders. But companies that demonstrate leadership in reverse logistics and a circular supply chain will have a competitive advantage.
Chip shortages and reverse logistics
To underscore the importance of the circular supply chain, we need to look no further than the microprocessor industry. The global chip shortage has led to significant government manufacturing investments, focusing on green manufacturing, clean sourcing, and material reuse. Since consumers continuously demand better and faster chips, manufacturers are incentivized to establish processes to reclaim, recycle, and reuse previous-generation chips. These and other factors will lead the microchip industry down the path of reverse logistics and circular supply chains.
Addressing logistical risks
If the pandemic disruptions did not make the issue abundantly clear, the chip shortage showed incontrovertibly that heavy reliance on a small set of key suppliers creates potentially catastrophic risk. Companies must mitigate this risk by diversifying their supplier base. Effectively managing suppliers requires maintaining segmented supplier data, performing supplier pricing analyses, and keeping open lines of communication. The goal is to establish an interconnected supply chain that incorporates freight claims management and TMS capabilities. In combination with best practices (such as proper documentation), ensuring technology safety procedures (such as tamper-proof seals) and satellite tracking will be effective in the long run.
Pricing risk and labor shortages
Rising prices in the U.S. due to ongoing labor shortages and global price pressures due to raw material shortages will have an inflationary effect for the near future. But as the expanded federal unemployment benefits wrap up, the labor market will likely see many lower-skilled resources return to the workforce. At the same time, the continued roll-out of vaccines in the U.S. will enable societal normalization, reducing other concerns such as the scarcity of available childcare.
One business trend is outsourcing portions of your business to a network of third-party vendors, suppliers, software developers, etc. This trend extends the business's supply chain. While leveraging third parties can deliver various benefits, it exponentially increases the amount of risk that companies are taking on. This risk was spotlighted during the pandemic, with companies almost universally facing elevated third-party risk. Vendors commonly claimed force majeure, were victims of cybersecurity attacks, struggled with counterfeit goods and pirated components, and faced numerous other issues. Embedding third-party risk management practices across the organization will reduce overall risk for companies.
The pandemic brought the effects of supply chain disruptions directly to consumers' attention, who in turn expressed to businesses their displeasure at the results of supply chain weakness. This activity has led companies to reevaluate their supply chain risk, steering them towards supply chain resilience strategies such as digitalization. The path ahead for supply chains must follow the mantra of agility over fragility.
This article is a condensed version of an article posted on the Reverse Logistics Magazine (members-only site).
Post Date: 2/14/2022