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Four years since the start of the COVID-19 pandemic that opened the pandora box of disruptions worldwide, manufacturers are still struggling to fine-tune inventory, sourcing and planning while up against economic headwinds. Disruptions are the new normal. But what is happening now? How are interest rates impacting manufacturers’ inventories and how can technology change the game? Let’s look at the last four years to understand some of today’s challenges.
The calm before the storm
Between 2016 and 2020, the US economy showed signs of sustained growth with relatively low interest rates and stable consumer spending. Manufacturers were on a strong tech transformation track: Most had adopted a modern ERP system to gain data insights and better manage financials, and COOs were focused on refining it and adopting niche and edge applications to manage planning, logistics and other enhancing applications. Then came 2020.
2020: Year-long turbulence
Between lockdowns and healthcare concerns, consumer spending dropped dramatically, causing US Congress to respond with a massive stimulus package that injected trillions of dollars into the economy to spur consumption. The cost of capital plummeted, and at the tail end of the COVID-19 pandemic, consumer demand picked up to levels most economists couldn’t predict, leaving many customers unable to procure products in a timely manner.
Until then, manufacturers didn’t think about inventory the same way they do now. Many manufacturers had just-in-time (JIT) programs that allowed them to adapt as demand went up. The pandemic purchasing craze quickly drove companies to question that practice when pent-up demand was not met by supply. Manufacturers around the world switched from a “stop-the-bus" attitude in the first half of the year to a “drive faster” approach towards the end of 2020.
2021: Somewhere over the dumpster fire
As we embarked on a new year, manufacturers had only one goal: to meet consumer demands at all costs. Savvy company COOs quickly realized the need to seek alternative suppliers, and suddenly their vendor portfolio source quadrupled. Many manufacturers switched to a full supply chain management response as costs reached all-time highs. The cost of borrowing money was low, so manufacturers cared more about the risk of running out of supplies than they did about having excess inventory. Say hello to concepts such as “multi-sourcing” and “supply chain resilience.” In that push-and-pull, industry technology transformation was put on hold.
2022: Walking the tightrope
Between 2020 and 2022, markets were still recalibrating, but to control rising inflation, the Fed began to raise interest rates in 2022. The cost of capital went up, and consumer spending was strong; however, supply chains were still dealing with supply shortages. This was a non-typical supply chain equation.
Most manufacturers erred on the side of “more is better” from an inventory perspective to capture market share and drive-up revenue. Depending on the sector and products, some returned to stability faster than others. Those that did began evaluating their network and looking for opportunities to be more agile and reduce supply chain risks.
For many, this meant significant investment in network changes: new manufacturing locations, multi-source supply, etc. Smart COOs began investing in future operations and technology platforms to help orchestrate their supply chains.
The traditional material requirements planning (MRP) applications that helped companies plan and execute supply chains for the last 30 years are rigid. They are not capable of dealing with periods of disruption, uncertainty or volatility. Manufacturers started to ask, “Is it time to invest in new technology? If so, where do I start?”
At the same time, major ERP vendors began releasing new technology that was built on the cloud and capable of better managing volatility. Manufacturers then began asking themselves, “Is now the time?”
2023: The perfect storm
As many manufacturers looked to answer that question, interest rates and cost of capital continued to rise to levels we had not seen in many years, resulting in working capital pressures and conflicting priorities. Manufacturers were asking themselves, “Where is my money best spent?”
For some, securing supply and getting back to stability and flow remained the focus while others focused on long-term investments that can help drive down supply chain costs and risks. Many looked at restoring strong inventory policies, discipline and rigor with an eye on conserving cash to assist with a potential economic slowdown.
Different companies had different priorities and different short- to long-term strategies, but what was constant among them is the realization that significant technological changes are required to support their strategy in the new normal. Planning was top of mind for the majority.
According to PwC’s 2023 Digital Trends in Supply Chain Survey, while companies are investing in different technologies, their aim is often to address the bottom line in the near term. Business executives consider embedding new technologies into their business model a top strategic priority over the next three-to-five years, with 59% saying they will invest in new technologies. More than half of respondents (51%) said optimizing costs was a top objective when investing in technology for their supply chains. But less than one-third (30%) cited exploring new innovations and only 16% said implementing a different business model — the sixth- and eighth-most common responses, respectively, out of nine options.
Manufacturers know that planning is a crucial topic now more than ever before, and that's where many of them are starting to invest in their next generation technology platforms. Supply and demand balancing are table stakes and manufacturers are looking for applications that quickly run multiple scenarios and see the impact on margin and delivery performance. Manufacturers can rely on models that can quickly evaluate trade-offs and support decision-making and push into action immediately.
2024: Turning technology debt into technology equity
This roller coaster we have been riding since January of 2020 has taught us a few lessons:
- Manufacturers will likely need to digitally evolve operations, supply chain management and other critical functions within the next decade to remain competitive and navigate the new normal.
- The concept of supply chain resilience has not met our needs. It’s time to consider replacing it with business agility and data-driven decisions at the speed of thought.
- Cloud is not about being in the cloud. It’s about what it enables companies to unlock. There is no doubt that cloud applications reduce the cost of IT, but the value to the supply chain comes from the capabilities that next generation platforms unlock, not where it sits.
PwC and Oracle: at the forefront of cloud technology
Oracle has the breadth of capabilities, proven success in the market and a well-established alliance with PwC to aim at delivering end-to-end transformation that allows enterprises to achieve lasting business value. With Oracle as the enabling technology, PwC empowers business leaders to make strategic choices that drive measurable performance improvement through their cloud journey.
PwC’s professional knowledge lies in deploying innovative solutions that complement and extend the capabilities of Oracle Fusion Cloud Applications to help your organization bridge the gaps and digitize processes. Through a nuanced understanding of the manufacturing landscape, PwC has developed strategies and assets that help address aspects beyond the standard functionalities of Oracle Cloud ERP.
Preconfigured Oracle model solutions developed by PwC help meet industry requirements representing "what good looks like" for your industry based on our extensive experience, allowing an accelerated "design by exception" approach. In addition, we closely collaborate with Oracle’s development team to meet industry requirements and challenges. When capability gaps are identified, we extend Oracle’s platform to create client-specific solutions while working to get industry-standard requirements built into Oracle's roadmap.
This industry knowledge and proven approach are built into digital assets that deliver powerful insights and rapid outcomes. We then showcase rapid prototypes to inform early decision-making. This collaborative approach enables manufacturers to harness the full spectrum of tools and technologies required to navigate the complexities of diverse revenue-generation methods, offering a thorough and tailored solution that goes beyond the conventional ERP deployment.
Let us help you unlock the true value of next-generation supply chain applications to improve your inventory management function, navigate disruptions and gain a competitive advantage in the new world.
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