The future of supply chains

Managing change is an integral part of managing supply chains, but the pace of change is now so fast that it’s difficult to decide where to focus the company’s management resources. 

New projects aim to help companies pinpoint and prioritize the changes that will shape future supply chains.

Biggest supply chains issues

Limited visibility across supply chain functions

According to the EY study, visibility in the supply chain is the most significant obstacle for businesses. Widespread disruptions have forced companies to rethink their approaches, moving from rigid and linear systems to agile, networked ecosystems.  AI and advanced analytics, two emerging technologies that enable end-to-end transparency across networks and enable participating organizations to synchronize their operations through joint decision-making, enhance visibility. Strategic partnerships play a crucial role in this transformation, fostering improved communication and collaboration with suppliers and manufacturers.  Integrating autonomous vehicles, advanced robotics and strategic partnerships further boosts resiliency and efficiency, shaping the future of supply chains.

Modernizing the supply chain through tech and digital

According to EY research, a significant portion of companies often rely on rudimentary tools like emails and spreadsheets to communicate internally and with supplier networks.  To transition to the future of supply chains, it is crucial to integrate supply chain functions and establish functional excellence using cloud-based tools and digital analytics.  Collaboration across the entire organization, including finance and commercial functions, is essential to compete in the marketplace.  The future of supply chains involves companies optimizing and automating their internal and external supply chain ecosystems, enabling better responses to demand and supply signals and driving significant improvements in efficiency and performance.

Addressing labor or skills shortages

Executives will face the triple threat of generative AI (GenAI), which will alter job roles, alter consumer expectations, and cause global disruptions in supply chains in the future. Traditional roles are being redefined as AI integration accelerates, necessitating new skill sets focused on adaptability and technological fluency. Upskilling the workforce is crucial to close the growing skills gap and ensure that the benefits of supply chain investments are realized.  Leaders are responsible for directing the workforce of the technologically advanced supply chain, so investing in leadership development is also crucial. Organizations must adopt a human-centered approach to transformation, emphasizing adaptive and leadership skills through personalized learning experiences to stay competitive in the evolving supply chain landscape.

Reducing costs within the supply chain

Continuous cost reduction is essential for promoting resilience and competitiveness in the marketplace.  With 70% of operating costs typically tied to supply chains, effective cost management is crucial for long-term success.  Sourcing, product complexity, network strategy, planning synchronization, and operating model design are important aspects to examine for cutting down on costs in the supply chain. Addressing these areas with process discipline, data reliability and the right technologies like AI and advanced analytics is essential.  For the future of supply chains, sustainable cost reductions, and the transformation of supply chains into agile, networked ecosystems are also essential, as are strategic partnerships and workforce upskilling.

Key forces to change

Adoption of technology, including automation

Supply chain information can now be created and shared in new ways by a wider range of actors thanks to technological advancements, which are accelerating the digitalization of supply chain management and altering the manufacturing and distribution of goods and services. Companies are digitally transforming the management of their supply chains by piloting and applying technologies such as machine learning, blockchain, and augmented reality to traditional supply chain management activities. Supply chains are becoming hyper-transparent as suppliers, workers, and communities access increasingly sophisticated technologies and use them to create and share information about environmental and social performance. 

Automation and advanced manufacturing are already having significant impacts on supply chains and will continue to reshape the labor force and the total costs of sourcing, especially in industries that are suited for automation (e.g. electronics), and in countries that have traditionally been the engines of global supply chains. These shifts are likely to have several implications for procurement leaders: altering the supplier base as some suppliers adopt new technologies while others are left behind, changing the landscape of common labor-related issues in supply chains, creating new challenges related to workforce displacement, and facilitating access to a huge volume of real-time supply chain information that is produced and validated by many supply chain actors.

Global Climate Change and Resource Scarcity

While the exact effects of climate change in supply chains cannot be precisely predicted, supply chains are particularly vulnerable to the impacts of climate change due to their reliance on raw materials and concentration in countries likely to be impacted by climate change.  In BSR’s report on this topic in 2015, we found that companies were already identifying climate impacts to their supply chains—including changes in quality and availability of raw materials, commodity price volatility, severe supply disruptions due to natural disasters, and worker health impacts due to rising temperatures.

These impacts are likely to increase in frequency and severity as global temperatures continue to rise.  For example, according to the WHO, ILO, and UNDP, by 2030, productivity losses related to heat-related workplace disruption and injury could rise above US$2 trillion. Based on BSR’s analysis of supplier information reported to CDP, most suppliers do not have the tools to evaluate or manage the potential impacts of climate change and resource scarcity to their businesses.

Mixed Signals on Trade and Transparency

In the years ahead, the business models that gave rise to global supply chains may be unwound by direct challenges to, or even simply uncertainty about, the durability of global trade agreements and norms.  BSR member companies already report fundamental supply chain changes—such as reshoring, vertical integration, and increased sourcing from new geographies—as a consequence of the mixed signals in our global trade system and planned shifts in economic models, such as China’s pivot from a manufacturing powerhouse to a service economy with expansionist ambitions.  Similar to the uncertainty of supply chain transparency and disclosure regulations, legislation may be strengthened or rolled back in some jurisdictions.

For example, as the U.S. looks to weaken the Dodd-Frank Act, which requires corporate disclosure on tax payments and on conflict minerals due diligence, France adopted the “duty of care” law, requiring French companies to implement due diligence plans to address human rights and environmental risks.  As the U.S. regrettably announced its intent to withdraw from the Paris Agreement, hundreds of university presidents, mayors, and governors in U.S. cities and states redoubled their commitments to the international accord.

The supply chain of the future

Leaders in the supply chain should anticipate how key forces of change will affect their supply chains in order to design a supply chain that will thrive in 2025 and adapt their supply chain management strategies accordingly. This inflection point is an opportunity for forward-thinking supply chain leaders to build future-fit supply chains that both drive progress on top procurement priorities and advance the sustainable business agenda.

Leaders in the supply chain can take immediate action to prepare for a wide range of possible future scenarios, despite the fact that the manner in which these forces of change will manifest is highly improbable. Below are five recommendations for how companies can embrace and capitalize on the key forces of change that are changing supply chains and achieve their top procurement priorities in the process.  BSR will be working with companies over the next year to test these recommendations and identify other solutions to add to this initial list.