The supply chain will remain global, even as supply management organizations face a new normal characterized by continued disruption and risk — which demands supply diversification, good governance and resilience.
“There has been a shift in the balance between prioritizing resilience and security on one hand and supply chain and efficiency on the other,” said Andrew Viteritti, a Washington, D.C.-based managing editor, commerce and regulation, at the Economist Intelligence Unit (EIU). “We’ve seen companies paying more attention to and having more interest in resilience. … They’ve come to the conclusion that many of the disruptions they’re seeing (like geopolitical risk and climate change) are not going to go away any time soon.”
Despite global uncertainty, a global recession is unlikely to occur, said Viteritti, the keynote speaker at the CAPS CPO Leadership Summit, held October 3-5 in Scottsdale, Arizona by CAPS Research, the Tempe, Arizona-based organization in strategic partnership with Institute for Supply Management® (ISM®) and Arizona State University (ASU). However, he anticipates global trade growth will “decelerate sharply” in the coming year.
Geopolitics are contributing to higher costs and playing a big role in the global economy, said Viteritti, who noted that EIU forecasts global gross domestic product (GDP) growth to register 2.6 percent this year, a drop from the 3.9 percent expected before the Ukraine-Russia war.
“The war in Ukraine has had a massive impact on the global economy,” causing commodity prices to rise, supply constraints and destruction of infrastructure to deliver commodities, he said. Nevertheless, EIU expects commodity prices to have peaked, but that they will decrease by only so much — remaining elevated as long as the conflict endures, he said. Such commodities include oil and gas, base metals and grains.
“This high commodity price environment has been fueling global inflation,” which EIU forecasts at 9.5 percent this year, Viteritti said.
He expects that some major economies — including the U.S., Germany, Italy, France and the United Kingdom — will post technical recessions (two consecutive quarters of GDP pullback) late this year or early next year. However, he does not anticipate “deep recessions.”
EIU’s 2022 GDP growth projections include the U.S. at 1.5 percent and China at 3.3 percent. EIU is forecasting slower growth next year for the U.S., that China may ease up on its zero-COVID policy, a recession in Europe and a global growth rate of 1.7 percent.
Participants observe keynote speaker Andrew Viteritti’s presentation at the CAPS CPO Leadership Summit in Scottsdale, Arizona. (Photo courtesy of CAPS Research)
Vitteriti detailed 10 potential “worst case” risk scenarios, saying, “These are very gloom and doom scenarios,” he said. “These are not events we’re expecting to happen.” However, should they occur, they could impact the global economy:
- Deteriorating relationships between China and the U.S./European Union, potentially leading to decoupling
- A new, severe COVID-19 variant
- A colder winter in Europe
- The continuation of China’s zero-COVID policy
- The Ukraine-Russia war turning into a global conflict
- A cyber war
- A conflict between China and Taiwan
- High inflation
- Monetary tightening by major central banks
- Famine brought on by extreme weather and the Ukraine-Russia war.
Supply Chain Implications
Continuing impacts from the Ukraine-Russia war and other disruptions are straining supply chains, and EIU expects global trade to decelerate through 2023.
Among EIU’s forecast for supply chains:
- Reshoring will be the exception, not the norm
- Shipping rates are not likely to return to levels before the coronavirus pandemic
- The semiconductor crunch will continue in 2023, but supply issues will ease around mid-year due to the continuing shift by consumers away from goods to services
- Companies will diversity their supply, but supply chains will remain global
- Asia will remain a production hub, with Southeast Asia benefiting
- Environmental, social and governance (ESG) measures will move to the forefront, as companies increasingly monitor and manage such risks while facing pressure from governments, investors and consumers.
A Futuristic Outlook
Today’s leaders must have a futuristic outlook, said Denis Wolowiecki, CAPS Research Executive Managing Director. “We’re tired of COVID; we’re tired of disruptions,” he said. It’s time to look to the future and being in the best place to handle disruptions, he said: “The world has become so small, everything affects everyone.”
CAPS CPO Leadership Summit sessions offered detailed insights into other risks and opportunities facing supply chain managers globally, including:
Talent. “The talent landscape is shifting,” said Jim Albrecht, senior principal at management consulting firm Korn Ferry during the “Tomorrow’s Talent” session. The C-suite is increasingly interested in supply chain, culture, diversity and succession strategies, he said. Leaders are expected to (1) be ahead of new trends in technology and employee experience and (2) have a well-thought vision for aligning talent, he said. Organizations need a comprehensive people strategy that emphasizes an employee value proposition, he said.
Nearshoring. Mexico is shaping up as a potential manufacturing location, due to its proximity to the U.S. and U.S. customers, said Greg Collins, Ph.D., supply chain management professor at ASU. With lower labor rates than China, it has an already established supply chain ecosystem for automotive, medical, electronics and apparel, he said during the “Reshoring Manufacturing” session.
Sustainability. That there are no consensus measures or terminology is limiting ESG endeavors at many companies, Hitendra Chaturvedi, MBA, professor of practice at ASU, said during the “Environmental Sustainability: What is Supply Management’s Role?” session. This can lead to greenwashing and deliberate ambiguity, Chaturvedi said. “(A supplier) can fudge carbon footprint data until the cows come home, but you will keep your jobs,” he told the audience, adding that sustainability and profitability must be symbiotic.
Other sessions covered cybersecurity, trends in digital supply management, greenhouse gas emission reduction strategies and emerging capabilities for risk identification and remediation.