What is the future of supply chain in 2025?
According to Darwin’s Theory of Evolution, adaption happens over millions of years. Today, it seems like business is being forced to adapt on a scale of minutes vs. millennia. So, from a supply chain perspective, what can we expect from 2025 in terms of potential changes—both good and bad?
There are many areas where companies are already thinking about potential impacts and strategies:
Global Economic Relations (Particularly US-China)
The relationship between the United States and China will continue to be a critical factor shaping global supply chains in 2025. With the 2024 US presidential election now decided, we may see a continuation or even escalation of trade tensions between the two economic superpowers which could lead to further tariffs and trade restrictions and potential decoupling of supply chains.
But, restrictions in one geosphere could also lead to opportunities in others, potentially creating opportunities for countries like India, Vietnam, Mexico, and Poland to emerge as alternative manufacturing hubs.
Regional Trade Agreements and Protectionism
Global supply chains are also likely to be impacted by “protectionist” measures and new trade agreements such as the EU’s Carbon Border Adjustment Mechanism and national efforts to curb inflation. These efforts tend to form “gated globalization” which will limit the flexibility of supply chains within smaller geographic areas of “friendly” trade partners.
Unfortunately, we also cannot forget also about ongoing global disruption from tensions and conflicts in key areas of the globe. These geopolitical hotspots may necessitate the diversification of trade routes and the development of more resilient supply chain networks.
Material Impacts
Many supply chains are dependent upon resources that continue to be critically constrained. For example, increasing demand for lithium and other materials crucial for electric vehicle batteries. Industries, such as semiconductor, also rely upon rare earth elements as well as increasing cost and effort to build critical manufacturing capacity.
On a positive note, these same challenges are also driving new innovation in material science and recycling technologies, as well as investments in new extraction and processing facilities.
Climate Impact and Sustainability Pressures
Environmental concerns will continue to shape supply chain strategies due to the natural and human impact. This year’s weather patterns have already caused significant disruption, and companies are making an assumption that next year will probably be similar. Additionally, consumers and investors are applying growing pressure for sustainable and low-carbon supply chains which may lead to new regulations and reporting requirements related to environmental impact.
Again, there is an opportunity for positive reactions to these challenges, including driving new investments in green technologies and more localized production.
Preparing for the Future
Many of the changes that will impact supply chains in 2025 are not new, but the frequency and intensity has the potential to bring new levels of strain to already stretched supply chains. So, what can companies do to prepare for 2025 and beyond?
Leveraging Technology for Adaptation
Just as the physical and natural world are changing around us, so is technology. This brings its own set of advantages and cautions, but it is certainly one area that companies are turning to in order to develop supply chain agility, resilience, and even some “crystal ball” capabilities. Let’s explore:
Supply chain planning software is certainly not new, but it has evolved quite significantly over the last decade, with the latest evolutions gaining critical capabilities that companies are going to leverage in the near future:
- Scientific Accuracy: Accuracy in supply chain planning is critical because it ensures decisions are based on precise data analytics, reducing the risk of errors and inefficiencies. High accuracy allows companies to forecast demand accurately, optimize inventory levels, and minimize disruptions, ultimately enhancing operational efficiency and competitiveness.
- Enterprise-Wide Collaboration: Collaboration across the product lifecycle, including supply chain, manufacturing, and engineering, is critical for supply chain efficiency because it ensures seamless integration and alignment of processes, which minimizes disruptions and reduces time-to-market. By fostering cross-functional communication, companies can swiftly address potential issues, optimize resource allocation, and maintain a competitive edge in rapidly changing markets.
- AI: AI and machine learning (ML) will become increasingly crucial to supply chain planning and optimization because their ability to process vast amounts of data and provide real-time insights, allowing companies to respond swiftly to market changes and unforeseen disruptions. Additionally, these technologies enhance predictive analytics capabilities, enabling more accurate demand forecasting and inventory management, which are essential for maintaining supply chain resilience and efficiency.
This last bullet has become an extremely hot topic in industry – perhaps because we see such innovation and impact from AI on our personal lives? The average person may know little about ERP or procurement systems, but almost everyone now has access to a digital assistant, speaks with a chatbot, or relies upon Google or Apple maps to recommend their route and departure time.
AI optimization has been a cornerstone of supply chain, inventory and logistics planning for many years. With increases in computing power and the ability to connect planning systems to real-time data sources, companies now have an unprecedented ability to react to disruptions and evaluate multiple possible business trajectories using precision virtual twin models of their supply chain.
And, just as we are automating many personal tasks and trusting the map application to not guide us into gridlock, companies are facing the same possibilities in the office. But, do we trust the AI with the same level of confidence and are companies willing to automate complex tasks that previously required significant human oversight? I think this will be something that we will learn a lot more about in 2025!
The Bottom-Line for 2025
Certainly, the geopolitical landscape of 2025, climate, constrained resources (material and people) will likely all continue to present complex challenges for global supply chains next year. However, these challenges also create opportunities for innovation, diversification, and the development of more resilient and sustainable supply chain models.
We will continue to learn and train staff and skilled workers to help, but it is clear that companies are going to have to continue to invest in evolving technology to effectively navigate this landscape. Technology advancements are accelerating in attempt to keep pace, but that in itself brings potential challenges like having the trust and security to adopt and allow new technology (especially generative-AI) to guide business decisions in the right direction.
I believe that companies leveraging new technologies and adapting to changing geopolitical realities, will be best positioned to succeed in the evolving global economy. However, it’s important for companies to work in partnership with technology vendors that have the right experience and knowledge, in order to ensure the best route towards digital transformation.
If you would like to learn more about the case for AI in supply chain planning, try our eBook “Unleashing Supply Chain Resilience using AI and Virtual Twins“.