We spoke to Rob van Ipenburg, Co-founder & Managing Partner at Quyntess. He gave us his perspective on why orders are dropping across supply chains and why he expects digitalization projects to accelerate this year.
We are seeing normalization to 2019 levels if we compare apples with apples. In part, this is a reaction to lower levels of demand for finished products. But conversations we’re having with customers suggest that they are also starting to relax the high levels of inventory many had built up as a buffer against shortages during the volatility and demand spikes of the past 18 months.
It might look like the numbers are going down very sharply, but I’d caution against reading a crisis into this. The reality is that, at least partially, the reduction in orders is a result of companies flattening their inventories again as volatility begins to subside.
The majority of customers we’re talking to are pretty positive. The more agile among them have been able to turn volatility to their advantage in order to gain market share from competitors who were less able to remain collaborative with their suppliers in areas such as forecasting and inventory.
I’m not sure it’s quite that simple. Prices might be lower today than they were a year ago, but historically speaking, they remain very high. We still see a lot of “planes over trains” as well to counter the effects of supply disruption. With rising energy prices and labor shortages, however, the likelihood of a quick return to cheap transportation for global supply chains is small even as demand starts to soften.
What we see as a trend is that our customers on the Tradeshift platform have great interest in our new Carrier Collaboration app, which brings the triangle of Buyer-Supplier-Carrier or Buyer-Customer-Carrier together. Connecting the two worlds of material and transportation logistics, which is basically a service, means we can tackle a lot of potential disruption upfront. It also means we can tighten transport costs which is always a big hassle for companies.
The rich got richer. If we look at our existing customers who are on the Tradeshift platform, they increased the pace of their digital transformation, conducted further roll-outs across their supply chain, added additional processes, and expanded into other departments.
By contrast, businesses that were a little later in their transformation cycle have often found it difficult to make the changes they want to. It’s a little bit of a vicious circle where these businesses recognize the need for change, but they’re finding that the internal resource tasked with driving such change is simply overwhelmed by the day-to-day operational requirements of reacting to issues as they arise. When you’re under that kind of pressure, it can be very difficult to zoom out and look at the bigger, strategic picture of what you need to do in order to achieve better outcomes.
As I alluded to earlier, there’s a split between businesses that are already invested, and those that are a little further behind in their journey. Looking ahead to 2023 and 2024, we see a strong pipeline of customers who already see the benefits of supply chain digitalization in terms of resilience but need to give themselves some breathing space to make that change happen.
We’re definitely seeing more sophistication in terms of how customers want to use our solutions in areas such as forecasting and collaboration with suppliers over inventory. Businesses are also keen to get more insight into key performance indicators around supply stability versus just pricing.
Dual sourcing is another area where we see significant interest. Solutions like our Planner Workbench app can help organizations reduce a lot of the practical complexities of dual-sourcing and supplier switch capabilities rather than trying to manage this through their ERP system.
If we do see a significant slowdown in real terms (and that’s still not a given), then priorities will inevitably start to shift toward sales and operational areas in order to accommodate this change. That said, the basic principles of resilience, including agility, remain fundamental in any given scenario. Businesses need to be looking at how they increase the clock speed of their supply chain so that they can adjust their activities in a much more timely manner. The only way they can do this is by becoming more digital.
Digitalization enables businesses to be savvier about how they manage risk through the supply chain as opposed to applying crude financial policies to such decisions. It may well make a lot of sense to maintain three months of inventory in one area of the supply chain where the risk of disruption remains high, but in other areas keeping three months' worth of inventory is just an unnecessary overhead.
Just-in-time makes a lot of sense in supply chains that have strong physical proximity between buyer and supplier. If you look at supply chains that rely on outsourcing big chunks of their manufacturing to areas such as China, you could never really call that model just-in-time.
The problems with just-in-time supply chains rarely came at the first layer, where suppliers were typically in fairly close proximity to the customer. Where disruptions to this model did occur, it was because 1st tier suppliers were waiting for parts that had a longer lead time.
Just-in-time definitely isn’t dead, but businesses are certainly going to want a deeper view of their supply chain beyond the first tier to ensure they aren’t going to face any more surprises. We’re already seeing this among our customers who are taking a much more proactive stance on supply chain visibility.
The Great Resignation will have the most profound effect on digital supply chains in 2023 and 2024. Automation and AI-guided decision-making are unavoidable: Companies understand that this is no longer about cutting jobs but cutting vacancies from their job boards and making sure the business continues to operate.
The other trend I’m seeing is that “Service” is becoming material. What I mean by this is that 20-30% of the Purchase Orders we see going through the platform contain a certain level of services and not just physical products or materials. Companies are trying to focus on core competencies on the one hand, but suppliers are also seeking to add more value to their products through the addition of services. Supply chain systems are completely ignorant of this. MRP systems have been the defacto management tool for more than 30 years; warehouse management systems follow parts, as do transportation management systems. Services are a complete blind spot.
We’ve designed our Service Collaboration app to fill this white space and give customers much better visibility over the type, quantity, and quality of services they are paying for.