Digitalising the lifeline of the Global Economy
The importance of having true visibility over one’s supply chains was rapidly laid bare during COVID-19. When trade sputtered almost to a halt earlier this year, the interdependency between the world’s factories became glaringly obvious. The pandemic exposed weaknesses inherent in a system that requires all of its parts to work like clockwork. One missing cog can mean disruptions and closures in factories thousands of miles away.
Thankfully, the answer to greater visibility is at hand, which is technology.
Being nimble
One upside of the pandemic is that it pushed for industry-wide adoption of technology that would otherwise be done on a piecemeal basis.
Some 84% of chief supply chain officers stated that “lack of visibility” across the supply chain was the biggest challenge they face, according to a 2019 Frost & Sullivan White Paper done in partnership with IBM.1
Even Apple, which is widely regarded as having one of the top-ranked supply chains in the world, struggled to source parts manufactured in Malaysia, Italy, Germany and the UK.2
“COVID-19 posed a good opportunity to really give the digitalisation agenda a big boost because like it or not, willingly or not, be it any company or any industry, even the authorities are given no choice but to go virtual,” said Dr. Kelvin Leung, Chief Executive Officer of DHL Global Forwarding during the Standard Chartered ASEAN Business Forum held in August.
“Before the crisis, there was a lot of resistance to change but now there is really no choice.”
Digitalisation can enable improved visibility and provide real-time insights into the supply chain, giving people along the chain full control. For a company like Unilever with more than 400 brands bought in 190 countries, technology helped to recognise surges and slumps in demand.
“This was a unique moment to stress test how our system works, how our digitisation works and how our people cope,” said Amit Mohta, Vice President of Procurement Asia at Unilever, at the same forum. “There is nothing else that could have catapulted the digital transformation faster than COVID-19. And here we are.”
Prior to this pandemic, supply chain risk management principles only applied to top-tier suppliers, leaving firms blindsided and vulnerable to shocks and affecting their lower tier suppliers. Due to intellectual property issues and complex production processes or in a bid to reduce costs, firms can sometimes become overly reliant on a single company or geography to source particular goods.
What the pandemic showed is that due diligence needs to be conducted at a deeper level for tier 2 and tier 3 suppliers so that organisations can be aware of potential problems.
For example, some 63.4% of respondents knew the location of all Tier 1 suppliers in a survey conducted by the Business Continuity Institute in a report on Covid-19: The Future of Supply Chain. But this dropped to 36% for Tier 2 suppliers.
Digitising the buyer-supplier relationship is a fundamental element for building sturdy supply chains and will make identifying and recruiting new suppliers far less time-consuming. With technologies like artificial intelligence and the Internet of Things, companies can quickly switch to alternative providers when regular suppliers face disruption.
On AI, Unilever’s Mohta says that the company uses a scouting tool with inbuilt AI capability to scrape the internet to find the right supplier. Due to the AI capabilities, the tool learns from every search. Meanwhile, DHL Supply Chain is using AI software to assign robots to carry out specific tasks at its depot in Wisconsin, helping to alleviate the problem of social distancing within warehouses.
Even wearable technology such as Google Glass has helped Unilever perform periodical audits on its suppliers although internet speed and bandwidth in some parts of the world have proved to be a constraint.
Necessary rethink
Despite rapid advances in technology, the lifeline of commerce and the relationship between buyers and suppliers has been predominantly paper-based. But the pandemic has strong-armed the industry into a mandatory and necessary rethink.
For decades, low cost supply and minimal inventory were the key tenets of supply chain management. But COVID-19 has exposed the vulnerabilities of complex global supply chains built on lean manufacturing principles.
Digitalising trade carries wide-ranging benefits from lower cost to greater visibility. What matters now is flexibility, agility and resilience – and at the heart of it all is technology.
1 https://www.ibm.com/downloads/cas/ygbkmxjz