This article was written by Stan Aronow, a VP Distinguished Advisor. The original article was published by Gartner, you can find the article here.
A lot of the supply chain leaders we’ve spoken with this month took time off to recharge over the year-end holidays. With unrestricted travel returning in most places outside of Asia, it almost felt normal — except it wasn’t. In late December, the cracks clearly showed in the U.S. air travel industry’s foundation.
It is an apt metaphor for where we find ourselves at present. On the surface, the world somewhat resembles the one we inhabited at the end of 2019, but it is also irrevocably altered. As we make our rounds in the COO/CSCO community, we hear a lot of supply chain leaders asking, “What’s next?”
Last year at this time, I wrote a blog titled, 2022: Supply Chain Pressures and Equilibrium. In it, I predicted that the economic-stimulus-fueled sugar rush would subside, and most markets would return to some semblance of equilibrium, particularly semiconductors, which would swing wildly from highly constrained to over-supplied in many markets. On the global health and geopolitical fronts, I suggested that COVID-19 would shift from pandemic to endemic and that China’s rigid Zero COVID policy would be one of the biggest disruptors to supply chains in 2022. Russia was threatening Ukraine at that time, but like most, I never thought Putin would proceed with a full invasion and the brutality that has continued to this day.
What to surmise from these made and missed predictions? I suspended my recency bias when it came to the economy but clung to it when predicting major geopolitical events. It makes sense to pan out from near-term, shareholder-driven planning cycles to see the broader trends. In the business community, we tend to overcorrect with every twist and turn of the economic roller coaster ride. One of our greatest influence campaigns in supply chain is to convince our business unit leaders to maintain longer-term growth objectives through continued investment — modulated vs. boom and bust-style.
From a macroeconomic perspective, economic inflation should continue to glide downward in 2023, though not straight line. As China awakens from its “zero COVID” restrictions, there is a risk that it will reignite commodity-based inflation. Chances are our central banks will need to settle for 3% to 4% inflation rates before lifting their feet off the monetary brakes, lest the borrowing cost on our national debts becomes unsustainable.
The geopolitical realm seems harder to predict. It tends to move in longer linear trends, until suddenly it doesn’t. The continued build out of regionalized and nationalized supply chains seems certain based on in-flight funding earmarks and corporations looking to hedge geopolitical risks. What will be most interesting to monitor are the actions of countries — and companies — straddling the line between East and West.
There are other wildcards to consider including demographic pivot points, disruptive new technologies and the natural environment.
Demographics as destiny: National demographic trends have made splashy news headlines of late. China’s population shrank for the first time since the 1960s, Japan’s Prime Minister proclaimed it is on the brink of social dysfunction as its population ages and births fall. Many Western nations are facing similar dynamics. In the United States, economists note that the current 3.5% unemployment rate is due in part to the several million Baby Boomers deciding to retire from the workforce. On that note, 2023 should prove a banner year for supply chain executive retirements. The timing feels right. It is the relative calm before the next storm and a much better time to hand over the reins than it was in the throes of pandemic disruption.
Restive youth: On the other end of the generational spectrum, we see the rising influence of Generation Z, which will comprise more than a quarter of the world’s workers by 2025. Many of the recent social movements in places like China and Iran have been driven by younger generations. In Western democracies, such as the United States, the urge for youth to politically protest is also elevated.
They see the social contracts that their elders accepted as tradeoffs, or simply reality as no longer tenable. While this might not lead to wholesale regime changes in 2023, it is a major geopolitical wildcard. We’re living in an era where our traditional political, economic and ecological systems are all under duress. It is no wonder that Gen Z is widely considered the most anxious cohort in modern times. It prompts a question on whether we, as Boomer and Gen X leaders, are blocking progress by steadfastly clinging to old ways. This story has yet to unfold, but it might herald a more enlightened society in the end.
AI at a crossroads: I would be remiss to not mention the inflection point with artificial intelligence technologies. The world is in love with new tools like ChatGPT, though lately I suspect we’ve all been waiting in digital line versus being able to use it. Others have written extensively about its business applications and social implications, so I’ll stick to the headlines. Like most technologies, this new level of AI will bring some good, bad and ugly. It will likely contribute to the spread of disinformation in our media. It will be disruptive to knowledge worker roles that do not require new thinking. On a more positive note, imagine a world where we use this new AI to prompt more prosocial behaviors in people.
Unavoidable ecology: Our climate has become more unpredictable. Sometimes it will swing in a beneficial direction such as the warmer-than-normal European winter preempting an energy crisis that was anticipated just months ago. More often these weather extremes have negative impacts on people and the broader natural world, such as the falling levels of key rivers across the globe. Scientists are warning that the return of El Niño in 2023 will bring unprecedented heat waves. We will need to focus on climate resilience in 2023, while our decade-scale emission-reduction programs gain traction.
What’s clear is that operating supply chains in today’s environment will require your steady hands on the wheel. Hopefully, as we look back on 2023, it will be a year where we navigated the challenges, while building a stronger foundation. Perhaps with the help of our younger generations, we will also reimagine new possibilities for our future.