The supply chain industry is ever evolving and growing in complexity. As supply chains span the globe, industry managers and executives have to take more factors into consideration than ever before. There are five primary forces that drive supply chains to adapt and evolve: social changes, technology, the environment, economics and politics. These five drivers of change can be simplified by the acronym, STEEP.
A STEEP analysis is not uncommon in many industries and sometimes includes other aspects, such as legal ramifications, demographics and geography. It is meant to serve as a tool for external analysis when conducting market research or formulating a business strategy. For the purpose of this content series, we will focus primarily on the previously mentioned STEEP model and how it affects the supply chain field.
In order to function with efficiency and effectiveness, organizations have to modify their supply chains to address all five change drivers, understanding the ways in which they overlap and affect the health of an entire business.
Through this content series, we will define each element of STEEP and provide real-world scenarios in which supply chains and the companies that operate them have been affected by these factors.
Social
Social consciousness has become a part of American culture over the last decade and is driving consumption in a way that has major implications for how supply chains operate.
Consumers today want food free of chemicals and products cultivated and transported to them by workers who are treated fairly. Companies have to maintain corporate social responsibility (CSR) not just at home, but also overseas, as outsourcing has expanded and media frequently call attention to any slip in ethically sound behavior. Business leaders must take into account low-cost sourcing and value for money, but also the carbon footprint and human labor elements of their manufacturing, transportation, distribution and procurement activities.
Some of the social factors to consider include ethical trading and sourcing, public health and safety, human rights, diversity and corporate governance.
Read our case study on consumer social responsibility and the Rana Plaza disaster here.
Technology
Whether through the use of social media to increase transparency or automated freight carriers to improve efficiency at ports, supply chain firms are finding that technology plays a crucial role in their operations.
Most commonly, supply chain companies adopt technology in the name of efficiency. Software can manage and automate much of the traditional paperwork involved at each stop of the journey and wireless technologies like remote frequency identification (RFID) tags can be used to scan cargo and provide exact status updates and immediate proof of delivery to relevant stakeholders.
The use of new technology is not always a choice, as governments are now requiring modernization. The Department of Transportation’s Electronic Log Mandate of 2015, for example, requires ongoing implementation of wireless technologies that provide real-time status updates of shipments and delivery confirmation. Companies are also being asked to store information in organized databases rather than relying on hard paper copies.
Environmental
Global supply chains mean increased potential for environmental impacts at one or more stages of a product’s journey from raw material to a finished good. Natural disasters can wreak havoc on supply chains, delaying deliveries, increasing costs and possibly causing loss of materials.
Following Hurricane Sandy in 2012, for example, shipments to and from major ports in New York and Philadelphia were halted. Businesses were forced to rebuild damaged distribution networks and in the aftermath, 65% of businesses responding to a survey from the Futures Industry Association said that they were reconsidering the location of production and disaster recovery sites.
In addition to this growing risk of environmental impacts, organizations are pushing to make their supply chains greener: shortening them as much as possible and purchasing materials produced with a minimal carbon footprint. This push is to remain competitive: A Boston Consulting Group survey suggested that roughly 73% of customers valued a strong environmental record in the organizations from which they chose to buy.
Read our case study on how a major Japanese earthquake impacted the supply chain here.
Economic
Supply chains are intimately linked with economics. Barriers to supply chain efficiency, such as poor transport infrastructure or political regulations that hinder the swift movement of goods, are a major impediment to business performance and economic growth. For example, new trade agreements can eliminate tariffs, but a Federal Reserve vote can increase interest rates, impacting retailers and suppliers in different ways.
Similarly, the economic performance of a country and the tactics taken by central banks and business regulators restrict the ability of multinationals to set up supply lines in countries and contribute to domestic markets. In 2013, Morgan Stanley identified Turkey, Brazil, South Africa, India and Indonesia as the so-called “fragile five” — economies with high potential for economic volatility and unpredictability. Supply chain managers immediately had to consider the risks of moving goods through such countries and assess whether the potential long-term costs are worth shorter-term savings.
Read our case study on how Brexit and Grexit are affecting the supply chain here.
Political
Politics have a foundational influence on supply chain effectiveness. Political violence, economic instability and rising nationalist governments that seek to protect their domestic resources are forcing organizations to build resilient business models to safeguard their supply chains.
The Chartered Institute of Purchasing and Supply’s (CIPS) recent quarterly risk index saw the overall supply chain risk score jump from 23.7 in 1994 to 79.8 in 2016 due to an increase in world instability. This tripling of risk has heightened the level of concern in an era of far-reaching global supply lines.
Government regulations can give special favor to domestic companies and sink trade deals that export valuable materials. Regimes may institute tariffs on trade in order to discourage deals with overseas multinationals. Some governments may decide to close ports and forbid any shipping traffic from entering or leaving the country, while others may loosen trade restrictions with particular countries, as in the case of the United States and Cuba.
Read our case study on how the political climate impacts international trade and supply chain.
To read the first part of this series, click here.
