What do many business leaders think about the future of the global economy? The article offers some insights into the changes in the economic climate and the spreading geopolitical uncertainty.
For years, governments, CEOs and policymakers have been predicting a major shift in the global economy, driven by the proliferation of technology in the workplace, growing geopolitical uncertainty and demands for more sustainable business practices.
At the World Economic Forum in Davos, much of the talk centered on the coming economic storm. It would be a natural impulse to batten down the hatches and wait it out. We saw this at the beginning of the pandemic, when major companies responded by canceling orders and slowing payments to suppliers. Today, we know that this attempt at short-term self-preservation has only exacerbated the deep-seated structural problems of the current supply chain model.
Recessions and Adverse Circumstances
Recessions are usually short-lived and are followed by long periods of growth and prosperity.
A 2010 Harvard Business Review study analyzed the strategies of companies during the last three recessions. The aim was to find out which characteristics led to post-recession profits. The result was that companies that mastered a balance between cost-cutting – to survive today – and investment – to grow tomorrow – did well after the recession.
CEOs in all sectors now acknowledge: Amid short-term forecasts, supply chain resilience, access to finance and a focus on sustainable trade are seen as the fastest path to a brighter future.
Alan Jope, CEO of Unilever, suggests that we need to accept crisis as the new normal. We should focus on the challenges that lie ahead once the current storm has passed. Technology is giving us many of the tools we need. With them, companies can mitigate not only the resurgent impact of inflation, but also other supply chain issues.
Adversity is a good motivator for creative thinking and working together in the common interest.
The German supply chain law that will come into effect in 2023 and the pressure to decarbonize and diversify supply chains present new challenges. Conversely, they can also be the catalyst for a commercially successful future. A focus on sustainable procurement and green energy may be Europe’s best hope for breaking the current cycle. And with the emergence of new technologies and energy sources, we could be on the cusp of a new industrial revolution. A revolution in which highly skilled work creates tangible long-term value for all.
B2B marketplaces: A networked ecosystem
To comply with the Supply Chain Sourcing Obligations Act (LkSG) and EU Supply Chain Act, companies should advance their digitization and automation efforts along the supply and value chain. In terms of transparency, connectivity, flexibility and even data, companies have some catching up to do in their supply chains. Procurement must continue to evolve away from fragile, individual business relationships to more organic, dynamic and resilient networks. The best example of these new networks are B2B marketplaces that connect global buyers and suppliers into a holistic ecosystem.
Global B2B marketplaces accelerate procurement by providing access to a wide range of products, suppliers, and prices that are digitally connected to the buyer and suppliers from around the world. They improve process efficiency thanks to shared, standardized infrastructure that enables fast, accurate and increasingly automated transactions at scale on cloud-native platforms. They reduce risk and increase transparency by pre-screening each participant to ensure they meet required product standards and digital processes. And they bring the transparency that companies lack today to continue to work legally with suppliers from developing and emerging markets.
More transparency across the entire supply chain
The most efficient and resilient supply chains are digitally connected ecosystems of suppliers, distributors, retailers, and all the other partners a company needs. This holistic model enables all participating companies to share information in real time, accurately predict changes in demand, and communicate effectively with partners. This shift requires not only a change in thinking, but also a change in methodology.
According to KPMG, comprehensive transparency is an important prerequisite for meeting ESG criteria. Companies need a complete overview of their entire supply chain. This includes all suppliers involved in the value chain. Also with regard to whether they comply with all environmental and social standards. Especially for globally operating companies, the challenges are high due to complex production conditions and globally interlocked economic activities.
In order to comply with the Supply Chain Duty of Care Act and EU Supply Chain Act, companies should constantly drive forward their digitization and automation efforts along the supply and value chain. In this way, they can ensure that they can successfully keep up with current and future competition.
Author: Christian Lanng is co-founder and CEO of Tradeshift.