Supply chain technology: Ready for a massive makeover
It has been a challenging time for global supply chain administrators and their teams of commodity specialists. It began with Brexit in early 2020, was immediately made worse by the unpredictable lockdowns of COVID-19, followed by severe port congestions, and compounded by planet-wide extreme weather events. As if that was not enough, supply chains continued to be pounded by the Ever Given blocking the Suez Canal and now by the Russia-Ukraine conflict. Let’s put some of this in perspective. The total loss from weather events in the US alone during 2021 was $145 billion. This is massive. The total cost for the last five years at $742.1 billion was one-third of the disaster cost of the last 42 years between 1980 and 2021 ($2.155 trillion). The Suez Canal blockage, said German insurer Allianz, could have decreased annual global trade by 0.2 to 0.4%. The Russia-Ukraine conflict has disrupted wheat supplies, sunflower oil, neon, palladium, platinum, xenon, nickel, etc., affecting pasta and snack food makers, automobile manufacturers, semiconductor suppliers, and cosmetics companies. The unthinkable is also happening: About 7% of truck drivers in Germany are from Ukraine. Many have been returning to their homeland to join the fight against Russia, sending logistics in Germany into an unexpected tailspin. The problems with supply chains continue to grow and become more complex. They need urgent fixing.
We could argue that pandemics will recede, wars will end, climate change will — somehow, we hope — be brought under control. Maybe the lessons learned from the Ever Given will prevent us from suffering a repeat of similar snafus. The optimism in such beliefs is necessary. However, what this is telling organizations is straightforward. Every organization must build bulletproof supply chains for long-term stability and improved efficiency. The need for stability and efficiency in business is perennial. These needs are not “trends” or “short-term” measures. The quest for business efficiency will outlast the pressures of pandemics and wars.
There are obvious measures to be taken. These measures include adding more technological might to supply chains.
By now, it is a well-accepted fact that businesses must not depend on any single geography. The supply chain should be diversified. Small suppliers, especially those closer to the point of manufacture, must be encouraged to adopt technology so that data from manufacturers can be shared with them in real-time. The inventory, production, and logistics functions should be able to provide real-time data for decision-making to supply chain systems. Most important, demand sensing has to improve. Reliable and actionable demand data is gold in the hands of supply chain managers. With technology, the demand data can automatically reconfigure supply chains, picking the most efficient options from a broader and more diversified set of suppliers.
There are two areas where supply chain technology can be improved dramatically. One, as already mentioned, is building demand intelligence from more comprehensive sets of data. The second is to reconsider investments in monolithic supply chain systems.
Today, no organization can hope to survive without capturing demand signals. But the data takes time to consolidate, analyze, and action. In addition, the data can be improved, given that more sources of rich data are now available to tap into. For example, many supply chains do not have the sophistication to listen to and isolate demand signals from social media (difficult to believe this in 2022, isn’t it?). Viral social media generates demand quickly, but the window of business opportunities may often be narrow. Traditional supply chain processes miss these opportunities.
When systems provide reliable inputs from social media and other newer sources of data such as audio and video content, the IoT, Google Trends, live point-of-sales data, analytics from direct to customer websites, syndicated data for broad spending patterns, etc., the supply chain needs to be tightly integrated with suppliers. Without this integration, supply chains will have the intelligence but will not be nimble in their response.
Integrating newer data sources into the supply chain gives them the capability to deliver proactive rather than reactive decisions. Besides, cognitive and AI-driven sentiment analytics are becoming commonplace. These technologies will give supply chains superpowers unheard of until a few years ago.
The second area we need to examine is investment in supply chain solutions. Investing in monolithic ERP-type solutions should be avoided. Users are tired of complicated and inflexible systems that do not meet their changing needs. Businesses, too, are exhausted from trying to maintain and upgrade them. The time is ripe for thinking of supply chain technology as a collection of loosely coupled applications centered on mobile, cloud, diverse data, real-time intelligence, and automation.
This means stitching together a range of products for planning, inventory, sourcing, production, delivery, and returns management. It should be possible for an organization to upgrade and scale each supply chain product (components) independently, at will, depending on the business environment.
Smart organizations will quickly move to elevate their supply chain performance. These organizations will survive political shifts, pandemics, and wars; they will become more efficient and, above all, meet changing customer demands.