The COVID-19 crisis has exposed the weak points in the globalized economy. This was how Stephanie Flanders, head of Bloomberg Economics and former BBC economics editor, described the impact of the pandemic at an investor conference in early 2020. She was referring to the intricate network of supply chains that had emerged as a result of growing globalization – and which had been shattered when China went into lockdown.
In the first three weeks of February alone, The FT reports, China had handed out 3,325 ‘force majeure’ certificates to companies, exempting them from fulfilling their contractual obligations to international buyers – to the tune of $38.5 billion.
Among the worst affected and most overstretched sectors were food and consumer packaged goods, especially as more and more countries felt the knock-on effects from China’s shutdown and people went into lockdown around the globe, changing typical consumption patterns.
Against this backdrop some questions arise. How we can prevent a similar breakdown without jeopardizing the benefits these supply chains have given us – including greater efficiencies and cost advantages? How can we still reap those benefits but make our supply chains more resilient and more agile so we can cushion any future ‘black swan’ events? And what should companies consider as they review their supply chains in the wake of the coronavirus outbreak?
Organizations need to ensure their supply chains are highly resilient to such incidents. While they are rare, and none have had the global impact of COVID-19, you don’t have to look too far into the past for examples of other disruptive events – think SARS, avian flu, swine flu, the 2008 financial crash or the Fukushima nuclear accident.
By building resilience, companies can, in the words of a recent McKinsey report, “ride the waves of uncertainty instead of being overpowered by them”. The consultancy showed that during the 2008/9 downturn, companies who had built resilience into their operations saw earnings rise by 10% while their peers lost close to 15%.
From a supply chain perspective, resilience means that firms need to know their ecosystem inside out, must be well connected with suppliers, and have a backup plan and be able to respond and mitigate rapidly to shore up supply.
Whether it’s change on the demand or supply side – or both, as in the case of COVID-19 – businesses must be agile in their response. Among the good examples are the consumer products companies who pivoted operations rapidly towards producing hand sanitizer, personal protection equipment and ventilators.
Needless to say, this agility will stand them in good stead not just in a crisis, but whenever a fast market response is needed, too.
Seeing what you can’t see
The biggest challenge for many companies is a lack of visibility when it comes to supply chains. Despite all digitalization – and TCS’ research shows that 50% and more of supply chain management is digital – dashboards showing the state of the entire supply chain and enabling real-time monitoring are still not the standard.
Many companies who sell finished products know their Tier 1 suppliers and associated schedules, but have little knowledge of those further along the chain.
Having real-time visibility of the entire supply network is a precondition for real-time preparedness and responsiveness: if a supplier drops out, or a country is shut down, companies must react quickly to overcome those logistics choke points.
To do so, they need both highly developed risk assessment mechanisms and to have mapped out stockholding levels, different suppliers and alternative shipping routes when the usual ones are blocked due to closed borders.
This multilevel visibility and transparency can also extend to other areas such as the tracing of ethical and sustainable sourcing, something that is increasingly important given the focus on environmental, social and governance reporting.
Technology to the rescue
If the current crisis has proved one thing, it’s how far digitalization has come. However, in supply chain management there is still plenty of room for improvement. Many digital communications continue to rely on sharing spreadsheets – which is neither secure nor sophisticated enough to support the complexity of modern supply chain management.
There is a range of technologies that should be front of mind as firms consider shoring up their operations in this area.
- AI platforms can today provide near real-time visibility of supply chains, including their multiple tiers of supplier relationships, and help identify the best routes to patch disrupted supply networks.
- Digital twins are already established in manufacturing and using a digital twin of the supplier ecosystem will enable managers to simulate the impact of change – whichever shape this takes – enabling a more thorough assessment and preparation.
- Blockchain – the technology behind cryptocurrencies – can speed up supply chain processes while also enhancing traceability, coordination between supply chain partners and financial interactions.
- Self-learning intelligent supply-and-demand reconciliation brings together AI, automation, ‘phygital’ systems, GIS, Internet of Things (IoT), cloud and cognitive computing to automate large swathes of supply chain processes
- Agile IT platforms to build complex platform ecosystems and automate supply chain management will help ensure real-time availability and responsiveness. This will include building more localized supply chains as well as national and international ones.
Digital supply chains in the real world
Digital supply chain strategies and management are not just theoretical; they have been implemented very successfully in the real world.
At Dow Chemical, the creation of a Customer Command Centre enabled a real-time, end-to-end view of the supply chain for base chemicals to streamline supply and meet customer expectations for timely deliveries.
Similarly, a US food and confectionery company has rolled out a digital platform for onboarding farmers and tracking crop-harvest data to be more responsive to fluctuating consumer demand.
To demonstrate ethical sourcing, Global GAP, a global farm assurance program, has built a technology-driven supply chain system that records anything from water and soil analysis to the use of fertilisers and pesticides. IoT and blockchain help monitor compliance with GAP principles, even extending to packaging and container loading.
Meanwhile, a large Nordic logistics company is using digital supply chain management to track and manage carbon emissions from its activities.
A new start
By exposing the weak spots of our global supply chain network, COVID-19 has forced organizations of all kinds to re-examine their supply chains and make them more resilient, agile and able to withstand a future ‘black swan’ incident.
But the benefits go far beyond crisis response. Digital supply chain management will give businesses the agility needed to adapt to changing market conditions rapidly.
At the same time, the pandemic is providing the opportunity to make supply chains more resilient and more sustainable, ethical and equitable. We should not let this unique moment pass us by.