2021 SUPPLY CHAIN PRIORITIES AND CHALLENGES

©2021 APQC. ALL RIGHTS RESERVED

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 In its seventh annual Supply Chain Management Priorities and Challenges research, APQC asked
supply chain professionals about their expectations and trends for the year ahead. With input
from 455 participants representing more than 23 industries, APQC evaluated:

» how supply chains performed in 2020,

» changes and trends impacting supply chains,
» the biggest obstacles to improving supply chains, and
» organizational focus areas and priorities for supply chains in 2021.
2020 was an unprecedented year for supply chain professionals. APQC found that the COVID-19
pandemic significantly impacted 95 percent of organizations’ supply chains. This statistic will be
unsurprising to professionals and the general population alike. Throughout 2020, supply chain
disruptions received significant coverage in mainstream news, political discourse, and social
media. We can comfortably mark 2020 as the year that the term “supply chain” entered the
lexicon of average people around the world.
Unfortunately, few supply chains truly shined during their time in the limelight. When
organizations (and human beings) needed supply chains most, only 13 percent stepped up to
save the day. A majority of supply chain organizations said their performance was middling at
best, and one out of five said they barely survived the experience (Figure 1).

Supply Chain Performance in Response to COVID-19 Pandemic

N=455
Figure 1

Don’t expect the spotlight on supply chain to dim in 2021. Supply chain professionals will need
to work even harder—and in some cases, do more with less. Fortunately, APQC’s research
shows that many professionals are already taking the steps necessary to make the road ahead
more successful and sustainable.

Overview of Key Findings

After more than a year of chaos and frustration, supply chains and their leaders aim to balance:

» enduring priorities and trends such as supply chain planning, sourcing and procurement,
automation, and digitization; and
» emergent trends and challenges including environmental and social corporate
responsibility, blockchain, robotic process automation, and—importantly—tighter budgets.

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 Innovation will be essential in striking this delicate balance. Indeed, a majority of supply chain
professionals rank innovation as a top area of focus for 2021. As we all know, though, marking
innovation as a priority is one thing—driving meaningful innovation is something else
altogether. Professionals will need to shake off preconceptions about what innovation is
supposed to look like (that is, expensive, flashy, and additive) if they expect to get it done while
also tightening their belts and putting out fires left and right.
After assessing overall supply chain performance in 2020, this whitepaper discusses data and
findings from the 2021 research in areas including:

» supply chain changes and challenges,

» supply chain priorities and focus areas, and
» trends and disruptions anticipated in 2021 and beyond.
In each area, APQC provides insights, strategies, and resources to help you strengthen your
supply chain for 2021.

How Did Supply Chains Perform in 2020?

2020 supply chain performance was not a pretty picture, but who’s surprised? The pandemic
year was extremely challenging for supply chains and the human beings that keep them running.
We were all glad just to make it out alive. But as tempting as it may be, we cannot simply erase
this year from our memories. Let’s take a brief, painful look back at 2020.
More than 70 percent of supply chains missed some or all of their business goals for 2020. Even
more (76 percent) failed to keep pace with competitors’ or peers’ performance. Comparatively,
about half of supply chains met their targets and kept up with competitor/peer performance in
2019—meaning that the other half did not. While the pandemic will get the brunt of blame for
2020’s failures, we must also admit that many supply chain organizations were not starting from
a position of strength.
Unfortunately, 2020 performance results are even lower when it comes to specific supply chain
goals. Consider the percentages of respondents reporting achievement for the following goals:

» Cost savings: 33 percent » Inventory: 27 percent

» Customer satisfaction: 29 percent » Customer service: 27 percent
» Sales: 28 percent » Return on investment: 20 percent
For each of these goals, supply chains reported worse performance in 2020 compared to 2019.
A particularly ugly spot here is customer service, which experienced a 16 percent drop from the
previous year. Struggles with this and other customer-facing goals made supply chain failures all
the more visible to everyone. Supply chains held on a bit tighter to financial goals such as cost
savings and ROI (both of which dipped by single digits year over year), but as we’ll discuss later,
they should not expect any rewards for doing so.
With the doom and gloom out of the way, let’s turn to the silver lining. 2020 performance data
is horrendous, but it also provides a baseline that should make it relatively easy for everyone to
look good in 2021. 2019 performance was far from amazing, but even returning to those levels
of performance would look like a big achievement with 2020 in the rear-view mirror. We hope,
though, that supply chains will not be content to just “get back to normal.” 2020 offered lessons
that supply chain professionals can and should leverage to build back better than before.

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 Supply Chain Changes and Challenges
Below are the top trends, obstacles, and challenges that research participants anticipate facing
this year, along with the anticipated budgetary outlook for supply chains.

TOP TRENDS ANTICIPATED TO IMPACT SUPPLY CHAINS BY 2023

Research participants anticipate that the following trends, listed in descending order and shown
in Figure 2, will impact supply chains over the next three years.

» Robotic process automation (RPA), which improves productivity and efficiency by enabling
employees to spend time on more value-added activities vs. transactional ones.
» Sustainability/environmental, social, corporate governance (ESG) factors, which have
come to the fore due to accelerating public interest in (and scrutiny of) supply chains.
» Blockchain, a peer-to-peer distributed ledger technology that enables greater traceability,
visibility, and sustainability.
» Digitalization of the supply chain, which has become critical in an environment where many
employees have shifted to remote and virtual workspaces.
» Global trade/tariff uncertainties, which require supply chains to stay agile and build
continency scenarios to mitigate emergent risks.
» Artificial intelligence/cognitive computing, which helps provide intelligence and analysis
along many different parts of the supply chain.

Trends Anticipated to Impact Supply Chains in Next Three Years – Across Industries

Figure 2 N=455

It’s worth noting that only two of these top six trends (digitalization and AI/cognitive computing)
held over from when we asked the same question on last year’s survey. Before the pandemic
hit, supply chain professionals saw technology as the primary—and near-exclusive—driver of

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 the biggest supply chain trends. COVID-19 taught supply chain professionals that there’s much
more to think about, like global trade uncertainty and ESG.
Industry is also a factor in assessing trends expected to impact supply chains in the near term.
While that’s always true to some degree, APQC found that it’s making a bigger difference for
2021 than it has in the past. Figure 3 shows the top anticipated trends for selected industries.
Certain industries expect that remote work and other COVID-related trends will continue to
impact supply chains over the next three years. Perhaps more curiously, broad trends fall out of
the picture for some industries. For example, the top three cross-industry trends—RPA,
sustainability, and blockchain—don’t even make the top six trends for petroleum/chemical
respondents.

Trends Anticipated to Impact Supply Chains in Next Three Years – Selected Industries

Figure 3

For additional industry-specific insights, see APQC’s Supply Chain Priorities and Challenges
collection.

OBSTACLES TO IMPROVEMENT OF SUPPLY CHAIN PROCESSES

The top obstacles supply chain professionals reported facing when trying to improve their
supply chain processes are shown in Figure 4. The top three challenges—too much change, lack
of support for collaboration, and low employee engagement—all stem from the circumstances
created by COVID-19. 2020 threw a world of changes at us, one of which was the abrupt
transition to remote work. Many employees struggled to collaborate and stay engaged in a
virtual setting. As these challenges emerged, most organizations either responded with stopgap
measures or simply put these troubles on the backburner. But just a few months into 2021, it’s
already clear that the changes won’t stop coming—and that these problems are not going away.

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 Top Obstacles to Improvement

Figure 4

Knowledge and Technology Problems Hit Harder in Some Industries

Issues with knowledge accessibility
and clunky tech are further down the
flagpole on the cross-industry list, but Knowledge accessibility is particularly tricky in
they’re hitting a few industries industries with a lot of legacy software that
particularly hard. Healthcare,
have not invested in comprehensive knowledge
automotive, and
distribution/transportation management strategies and solutions. The more
respondents view these as much complicated and patchwork the technology
bigger challenges than respondents in infrastructure is—both within the organization
other industries. The question, of and across the supply chain—the more likely an
course, is: “Why?” While further organization is to suffer from knowledge siloes,
research will be needed to pinpoint limited visibility, and a poor user experience in
the specific drivers of these industries’
terms of search and discovery.
challenges, APQC finds that in general,
knowledge and technology problems - Lauren Trees, APQC
are interrelated.
Technology was already integral to enabling the flow of knowledge within organizations, and
when COVID-19 hit, it became the only way most employees could find needed knowledge and
expertise. If technology is difficult to use, it’s hard for employees to access knowledge. The
knowledge/technology challenge can also emerge from the other direction. If organizations
don’t ensure the flow of knowledge across the enterprise, employees will struggle with new and
unfamiliar technologies. In the absence of accessible information about how to use them and
who to ask for help, employees have to guess and experiment, which often leads to frustration
and mistakes.
For supply chain professionals seeking to tackle these interwoven challenges, APQC
recommends starting with knowledge accessibility. This is typically easier and less expensive to
fix at a functional level, and it can help with other obstacles such as collaboration,
communication, and engagement. See Improving Collaboration Across the Supply Chain for
guidance on getting started.

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 Overcoming Obstacles
Especially this year, it’s important to “be like water and go around the rocks.” Many of the top
obstacles are multifaceted issues that extend beyond supply chain’s immediate area of influence
and control. Some, like the whirlwind of change wrought by the external environment, cannot
be controlled at all. Thus, supply chains must meet these challenges with agility, not rigidity.
Fortunately, 68 percent of respondents report that they have evaluated and modified their
supply chain strategy to help head off some of the obstacles their organizations are facing. The
ability to remain flexible in times of chaos will be critical for weathering these and other
obstacles that emerge over the next year. When modifying strategy, it’s important to keep
measuring performance—even if it is poor. That data is needed to evaluate organizational
results in the long term. Data gaps will make it difficult to communicate consistently.

SUPPLY CHAIN BUDGETARY OUTLOOK

The budgetary outlook for supply chains is less than encouraging. Three out of ten respondents
said that in 2021, they expect decreased budgets for supply chain management tools,
technology, innovation, and initiatives. Only 43 percent said they expect budget increases,
which is a big drop compared to a year prior when 65 percent expected an increase.
This tough reality reflects the big-picture financial challenges many organizations faced
throughout 2020 and coming into 2021. Accordingly, supply chains in industries that had a
particularly rough year are feeling the pain even more. In retail and wholesale, 38 percent of
supply chain organizations expect smaller budgets. In aerospace, half of supply chain
organizations expect to have their funding slashed.
It's frightening to consider, but this could be the beginning of a vicious cycle for some supply
chains wherein underperformance is met by tighter budgets, which in turn results in more
underperformance, which in turn results in further budget cuts. Thus, the adage “be like water
and go around the rocks” applies here as well. Budget squeezing is a tough pill to swallow but
swallow it we must—at least until performance is restored. In so doing, APQC recommends
exploring costovation as a way to foster innovation in a budget-conscious environment.

2021 Supply Chain Priorities and Focus Areas

The findings in this section encompass overall supply chain management as well as supply chain
planning, sourcing and procurement, innovation, and logistics.

OVERALL SUPPLY CHAIN

APQC asked research participants to identify where their organizations are investing resources,
innovation, and hiring for the supply chain as a whole in 2021 (Figure 5). Supply chain planning
tops the list, as it has over the past several years. This makes sense given the critical role supply
chain planning plays in the overall success of supply chains. In the number-two spot is sourcing
and procurement, which has been in the spotlight due to COVID-related supplier risks and
failures in 2020. Rounding out the top three is innovation. Supply chain leaders recognize that
they will need innovative ideas and new approaches to find a way out of the current state mess.

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 2021 Overall Supply Chain Areas of Focus

Figure 5

Logistics is another important area of focus for 2021. Known to some as the “heart” of the
supply chain, logistics is a key touchpoint between the business and its customers. Customer
expectations for logistics were already increasing (thanks in large part to the popularity of
Amazon and its lightning-quick delivery), but the pandemic turned efficient, customer-centric
logistics from a “nice to have” into a “must have.”
This report concentrates on the top four focus areas, but supply chain professionals must stay
attuned to the others as well.

» Order management sits at the center of supply chain integration. If logistics is the heart of
the supply chain, order management is the blood that keeps systems and processes moving.
Order management problems, whether they stem from manual data entry issues or a lack of
transparency from order management partners/vendors, reverberate across the supply
chain and create big customer experience risks.
» Product development and supply chain must work together for any organization to
compete in this fast-paced environment. Product development can come up with the most
amazing idea, but ’ll never get to market if supply chain does not step in with the knowledge
to source materials, define costs, evaluate launch readiness, and drive time to market.
» Manufacturing also needs supply chain’s support to ensure the reliability of inputs, keep
costs under control, and maintain product quality. Partnership between manufacturing and
other parts of the supply chain is even more important for organizations that use just-in-
time production as well as those that work with contract manufacturers.
Keeping all of these in mind is especially important given how much focus areas are being
shaped by industry this year. As with the top trends, APQC found that industry-specific
perspectives are having a bigger impact on focus areas for 2021 than they have in the past.
Figure 6 presents the top priorities for selected industries alongside the top priorities across
industries. As this colorful mosaic shows, the top seven priorities still matter, but different
industries weigh them differently.

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 2021 Supply Chain Areas of Focus – Selected Industries

Figure 6

SUPPLY CHAIN PLANNING

In supply chain planning, the number-one focus area is demand planning and forecasting,
followed by analytics and measurement and sales and operations planning (Figure 7). Demand
planning and forecasting is key to success in supply chain planning, especially in the face of
major disruption. Professionals learned important (and often painful) lessons about the
importance of demand planning during COVID lockdowns.

Supply Chain Planning Focus Areas

Figure 7

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 Data from this bizarre (and hopefully, one-off) year won’t be enough to create accurate demand
forecasts moving forward, so professionals should expect to dive deeper into predictive trends
and external factors. Analytics and measurement will be a big help here, as it enables
organizations to make sense of large amounts of internal and external data. Sales and
operations planning will also be key to enable agile, coordinated, and rapid responses to
changes.
The top areas of focus are directly related to supply chain planning priorities for 2021, which
include:

» Standardizing processes (47 percent)

» Implementing new technologies and capabilities (47 percent)
» Evaluating and comparing performance through benchmarking (44 percent)
» Identifying and implementing best practices (43 percent)
» Shortening cycle times (42 percent)
Standardizing processes is a critical first step to implementing new technologies and capabilities,
while comparing performance via benchmarking and implementing best practices helps pinpoint
opportunities to shorten cycle times and close gaps in supply chain planning processes.

Supply Chain Planning Resources

APQC has many resources to help improve supply chain planning. Start by assessing where
your organization stands relative to peers and competitors with APQC’s Interactive Supply
Chain Planning Tune-Up Diagnostic. Then, see the Supply Chain Planning Practices collection
with the Supply Chain Planning: Blueprint for Success and industry-specific insights and the
Demand Planning collection for tactical guidance on streamlining and optimizing supply
chain planning.

SOURCING AND PROCUREMENT

In sourcing and procurement, the top focus area for 2021 is vendor/supplier relationship
management or SRM (31 percent), followed by purchasing (29 percent) and procure-to-pay (25
percent). Professionals are wise to focus on SRM this year, given last year’s struggles. Next-
generation SRM encompasses the entire procurement process, looking for opportunities to
drive long-term, mutually beneficial partnerships with key suppliers. It also means knowing
when to allow suppliers to innovate how to deliver desired outcomes. Procure-to-pay brings
that collaborative mindset inside the organization
to align efforts across functions.
Looking at the top priorities in this area (Figure 8)
The research on SRM supports the fact
raises a concern. One of the top two priorities is
reducing supplier costs. While this makes sense in that we need to harvest the collective
the current environment, it should not come at the knowledge and expertise of our supplier
expense of relationships and collaboration with and buyer relationships because we get
suppliers. APQC recommends that professionals much higher value at the end when we do.
consider the other top priority—standardizing
processes—as an alternative method of cost - Bonnie Keith, University of Tennessee/Forefront
reduction. Standardized processes enable Group

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 organizations to introduce automation, thereby reducing time-consuming errors and freeing up
staff for value-added work.

Top Sourcing and Procurement Priorities

Figure 8

The prioritization of sustainable sourcing is also worth noting, as APQC finds this is not just a
reaction to media, consumer, and regulatory pressure (although that’s certainly part of it).
Sustainable sourcing provides tangible benefits in terms of speed, efficiency, and risk mitigation.
To get it done, though, organizations must have next-generation SRM. Procurement will need to
carefully consider and coordinate all interactions with suppliers to reach sustainability goals.

Sourcing and Procurement Resources

See APQC’s Sourcing and Procurement Blueprint for Success for key performance indicators,
benchmarks, and actionable guidance on optimizing the core processes that comprise
sourcing and procurement. You can also compare your performance against peers with
APQC’s Interactive Procurement Tune-Up Diagnostic.

APQC’s Research Library also provides frameworks and strategies for Next-Generation
Supplier Relationship Management, which can help guide organizations in selecting the right
sourcing business model based on business needs and supplier relationships. For help with
the people side of procurement, see Procurement Talent Management and Skills for Future
Success.

INNOVATION
Within innovation, the top focus area for 2021 is operational innovation (Figure 9). Operational
innovation involves identifying new ways of working that make the business more effective
and/or improve the customer experience, so it’s a good place to focus in these lean and
disruptive times. Innovation analytics is a key enabler here, as it helps organizations pinpoint

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 opportunities and evaluate the effectiveness of their efforts. The third focus area, improving
collaboration, is crucial for driving meaningful innovation both internally and, when extended to
suppliers and key customers, externally.

Innovation Focus Areas

Figure 9

The top priorities within innovation flow directly

from these focus areas. They include: People have changed their buying behavior
and therefore their supply chain
» Integrating innovation into organizational goals
behavior…You have to rethink where you
(50 percent)
make things, where your suppliers are
» Embracing new business models (47 percent)
located, and how you distribute things.
» Adopting a structured approach to innovation
Everything has to change because in order
(43 percent)
to meet that customer need, you’ve got to
It’s clear that supply chain professionals are wisely work differently.
focused on driving tangible, meaningful innovation
rather than chasing half-baked ideas and nice-to- - George Bailey, Digital Supply Chain Institute
haves.
Operational innovation isn’t as flashy as product/service innovation, but it’s often a faster and
cheaper way to drive real benefits. To do it well, organizations need to align innovation with big-
picture goals, explore new business models, and—importantly—leverage a structured approach.
Operational innovation isn’t an area where you can just throw stuff on a wall to see what sticks.

Innovation Resources

A good starting point is APQC’s Innovation: Driving Successful Change collection, which
offers a wealth of insights on innovating in the face of chaos and disruption. For those
seeking to innovate on tight budgets, we recommend How to Innovate More and Spend Less
with Steve Wunker. For a big-picture view into innovation trends, see our Global R&D and
Innovation Survey Report.

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 LOGISTICS
In logistics, inventory management (35 percent) is the number-one focus area. Given the supply
shocks and demand fluctuations of 2020, the spotlight on this key process burns even brighter in
2021. Other key areas of focus include:

» Warehousing (27 percent)

» Analytics (24 percent)
» Outbound transportation (21 percent)
» Inbound material flow (21 percent)
» Automation and digitization (20 percent)
Warehousing has crept up a few spots this year compared to last, which makes sense given
shifts in consumer behavior. Demand fluctuations and the rapid rise of e-commerce hit
warehouses hard, emptying some and flooding others. And while other forms of commercial
real estate are in decline, the market for warehouses is booming. Take a drive through almost
any major city and you’ll see how quickly yesterday’s shopping malls are turning into
tomorrow’s logistics hubs.
Turning to logistics priorities, it’s great to see identification and implementation of best
practices topping the list, followed closely by new tech and capabilities (Figure 10).

Top Logistics Priorities

Figure 10

Both will be key to improving inventory management

as well as warehousing. As organizations seek to
optimize inventory management and increase their
distribution footprint with more and smaller
warehouses, they cannot afford to reinvent the wheel
or replicate the manual processes of the past. Best
practices will help organizations learn from others to
find ways to improve performance, while leading-edge
technologies will enable the scalability and traceability
required for truly competitive logistics.
Logistics Resources
The best place to start improving logistics is
to see how your performance stacks up to
peers and competitors with APQC’s
Interactive Logistics Tune-Up Diagnostic and
our logistics key benchmarks. For insights
into current state practices within and across
various industries, see our Logistics Practices
Reports collection.

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 Moving Forward in 2021 and Beyond
For supply chain professionals, the key word for 2021 is “flexibility.” 2020 was a whirlwind of
change, but just a few months into 2021, it’s clear that changes will be continuing. APQC’s
Senior Principal Research Lead for Supply Chain Management, Marisa Brown, recommends that
professionals take these three steps to build agility in 2021:
1. Strengthen relationships. Develop open, two-way communications with suppliers, internal
stakeholders, and key customers to identify emerging threats and capitalize on emerging
opportunities faster and to greater mutual benefit.
2. Improve and automate. Look for opportunities to streamline, automate, and/or eliminate
tedious tasks to free up time for relationship building and deep work.
3. Grow your knowledge base. You can’t pull the right lever at the right time if you don’t know
what levers are available, so continuously seek out new information. Remember that APQC
is here to help with webinars featuring leading supply chain experts, benchmarking data,
best practices, and effective strategies.
There’s also a word we should stop using in 2021: “unprecedented.” If you’ve used this word
more over the past 12 months than the past 12 years, you’re certainly not alone. Taken as a
whole, 2020 was wildly different from anything that came before. But if you start picking apart
all the issues and challenges packed within that crazy year, it’s clear that we have faced many of
them in the past. Supply shocks, logistics nightmares, changes in demand patterns—none of this
is new.
Calling challenges unprecedented might feel good and help excuse poor performance, but it
doesn’t solve anything. So, while it will be difficult to stop thinking about 2020 in 2021, let’s at
least do it in a smart and productive way. Instead of dwelling on yesterday’s disruptions and
blaming them for today’s failures, let’s focus on the insights and lessons learned from that
horrible year. For example, consider how many companies’ three-year plans for digitalization
turned into three-month rapid rollouts when the pandemic hit. Few executives would have
thought this was possible. And yet, it really did happen, even in very large, well-established, and
complex organizations.
The pandemic and its aftermath showed that the
external environment can turn on a dime, but so too It’s not feasible to predict exactly what
can organizations. Companies can more flexible than
2021 will bring for supply chains, so
you’d think. Supply chain professionals should keep
professionals need to be flexible enough to
this in mind while striving to be more agile and
innovative this year. As difficult and unlikely as it may navigate whatever challenges arise.
sometimes seem, nothing is truly impossible.
- Marisa Brown, APQC

For additional insights, see APQC’s 2021 Supply Chain Priorities and Challenges collection.

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 About This Research
To conduct this research, APQC gathered data and insights with a global survey administered in
December 2020 and January 2021 in addition to interviews with supply chain professionals,
experts, and industry observers.
APQC’s 2021 Supply Chain Challenges and Priorities survey included 455 valid global participants
from a wide range of different industries as illustrated in Figure 11.

Top Participating Industries

Figure 11

As highlighted in Figure 12, nearly all respondents (98 percent) are from organizations with
revenues greater than $500 million USD. Most respondents were either a manager/process
owner (41 percent), director/senior manager (25 percent) or VP/senior executive for their
organization.

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 Organizational Region, Revenue and Role

Figure 12

ABOUT APQC
APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s
foremost authority in benchmarking, best practices, process and performance improvement,
and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a
differentiator in the marketplace. APQC partners with more than 500 member organizations
worldwide in all industries. With more than 40 years of experience, APQC remains the world’s
leader in transforming organizations. Visit us at https://www.apqc.org/, and learn how you can
make best practices your practices.

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