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Supply Chain

Supply Chain Visibility Must Be a Priority Post-Pandemic

Toby Mcinnis

02, Sep 2020

18 mins

The Coronavirus pandemic has ripped a hole through our illusions of a stable, resilient globalised supply chain. Nearly 75% of companies report major pandemic-related disruptions to their procurement process, and the World Trade Organisation expects global trade to fall anywhere up to 32% over 2020, crippling many industries.

Clearly, something radical must change in response.

While some supply chains – notably food – have demonstrated admirable resilience, for the majority of supply chain managers COVID-19 has been a wakeup call. It has alerted them to the dangers of overreliance on global trade, and it has demonstrated with unprecedented clarity the critical importance of supply chain visibility and digital adoption.

To understand why this is, we first need to look at exactly what has gone so wrong during the crisis.

What Went Wrong | How Supply Chains Buckled Under COVID-19

In the wake of a major destabilising event like the Coronavirus pandemic, it is tempting to write-off any failures as the inevitable consequence of a ‘black swan’.

The truth is, many of the challenges supply chains have faced during the pandemic were foreshadowed in a variety of earlier disruptions – from the SARs virus of 2003 and the 2008 financial crisis to the various natural disasters and political upheavals we’ve seen across the world in recent years.

Aside from creating new and unique challenges for supply chain managers, the pandemic has clarified and exacerbated existing tensions and weaknesses within many business’s systems.

Over-Reliance on Global Trade

Since the 1990s, China has increasingly been treated as the world’s de-facto factory: it generates 26% of furniture exports, 40% of textiles exports and provides cheap labour and parts for huge swathes of the global economy. This is illustrative of a larger trend towards truly globalised supply chains, wherein numerous industries are reliant on a complex international trading system to fulfil orders and provide their products to the public.

The problems of this reliance are clear: between December 2019 and February 2020, there was a 44% increase of Force Majeure declarations, leaving gaping holes in already overstretched supply chains. From the shutting of factories and concerns over contamination to the closure of national borders and difficulties communicating with suppliers, COVID-19 exposed quite how fragile this system had become.

With so many companies having adopted just-in-time delivery in recent years, even relatively minor disruptions could cascade through the entire chain and create bulging bottlenecks. Most firms found themselves with inadequate reserves, having assumed they would always be able to replenish their stocks; the changing demands of consumers – in particular for home delivery of goods – only exacerbated the problem.

Invisibility and a Lack of Flexibility

On top of their overreliance on global trade, many firms have been found wanting in their capacity to adapt. In a survey conducted by Resilinc in early February, 70% of respondents said they were still trying to manually identify which of their suppliers had a site in the specific locked-down regions of China.

This was simply not a fast enough response, and contributed to further difficulties, as attempts to manage the crisis were continually outpaced by the rapid spread of the virus and the unfolding political and economic turbulence.

The problem extends beyond the simple question of fulfilment: without the ability to conduct virtual assessments, compliance and risk management were severely limited for most businesses during the initial wave of COVID-19, rendering them unable to do their due diligence and ensure safety, sustainability and security were maintained.

Trust and Transparency

With diminished visibility come inevitable concerns over compliance, trust and ultimately an increased risk of liability. In particularly sensitive industries – like pharmaceuticals and health supplies – the importance of trust and transparency are immeasurable.

With increased uncertainty comes difficult securing deals and ultimately a huge bottleneck in procurement appears.

The flip-side of this is the rise in scammers and fraud: desperation to fulfil orders and get ‘back to business’ has created a perfect environment for fraud and scamming. The Trump administration, for example, had to cancel a $55 million contract with Panthera Worldwide LLC, having been misled to believe that the company could supply it with N95 masks despite having no evident expertise in health.

Taking Stock

The overall prognosis is not pretty: the shocks of the pandemic have placed considerable strains on virtually every industry’s procurement process and pushed many past the point of no return. A global survey of senior financial decision makers found that nearly 43% of companies are concerned about their suppliers’ ability to fulfil orders. And evidence of the last few months suggests they are not wrong to be.

During times of turbulence, there is a tendency for organizations big and small to scramble desperately towards any semblance of solid ground. The reality is, such solid ground is not likely to be found where they are looking.

If ‘Black Swan’ events like this teach us anything, it is that resilience and the ability to forecast and adapt to risk are what businesses need - not pseudo-certainty or simplistic ‘solutions’.

Because things may look even tougher – and more complex - for supply chain management going forward.

The New Normal | How the Crisis Will Shape the Future

In the wake of the pandemic, things show no sign of going ‘back to normal’. The economic and political effects of the coronavirus will likely continue to shape the world of business for many years, and this faces leaders with a series of distinct, intractable challenges

Devolving Trade Demands Evolving Systems

The movement away from globalisation will create a greater need for adaptability and fast-paced decision making.

A third of global supply chain leaders have moved sourcing and manufacturing activities out of China or plan to by 2023, according to a recent survey. This movement was already in motion before the pandemic, with rising wage demands in the country and a nasty trade war with the US still not fully resolved. But again, the implications are clear: globalisation is on the retreat.

As fear of a global resurgence of COVID lingers, national borders will be far stricter than in recent memory; many firms have shown an overt wish to move to more localised sourcing, and where international trade is still necessary steps must be taken to manage potential disruptions.

Countries representing nearly 60% of global GDP have tightened their rules on foreign investment in recent months, and the practicalities of doing so mean serious costs may be incurred and establishing transparency and trust will be vital.

Businesses need to be able to at once shift towards localised procurement and diversify their sourcing whilst also being able to make use of global trade where it is effective or efficient to do so.

Sustainability and Health Will Increase in Importance

A perfect storm of increased public concern over health and ecology coinciding with a steep economic downturn will present a profound challenge for businesses to keep costs low whilst improving due diligence and making progressive changes to their sourcing practises.

The answer to this will be in finding costs to cut in their own processes, to avoid relying on cheaper labour or parts which almost invariably create weakness within the system.

Metrics like ESG like continue to grow in stature in coming years, and procurers will be expected to somehow appease a growing demand for sustainability whilst also managing trade turbulence and tightening purse strings.

Consumer Demand and Corporate Investment Will Be Precarious

Demand is also likely to remain highly precarious and unpredictable. This will make businesses without exceedingly fast, smart decision making capacities highly vulnerable to bullwhip effects and various other miscalculations. The potential for waste is extraordinary – a serious concern as budgets tighten and margins decrease.

All of these challenges – if not properly treated – will compound. Ultimately, this could set off a chain of decreasing investment leading to less manoeuvrability leading to further decreases in investment. To avoid this, leaders need to take up the reins and put supply chain management at the top of the agenda.

Supply Chain Visibility Will Be Pivotal

From rapidly evolving regulations and political tension to profound economic volatility and the attendant rise in scamming and fraud, supply chains of the future will have to be capable of adapting to change and achieving transparency on a level previously unthinkable.

This is where supply chain visibility comes in: not as a straightforward answer to the problem, but as an ideal to strive towards and a model for adaptable, antifragile procurement.

By monitoring risk and understanding in detail the status and security of their suppliers, businesses will be able to make faster, more dynamic decisions – increasing efficiency, reducing wastage, diversifying their options and ultimately creating a more robust and effective process of fulfilment.

  • 62% of companies have limited visibility of their supply chain
  • Only 15% only have visibility on production
  • 30% of companies don’t analyse the source of supply chain disruption properly
  • Just 46% of SMEs don't track their inventory or don’t have an automated method to track it.

But this will not be easy; in many ways, post-pandemic visibility will actually be more challenging. Trust and authority will be harder to come by and the sheer unprecedented turbulence of the global economy will leave many businesses struggling to justify the financial investment necessary to integrate cutting-edge technologies into their system.

Such short-termism will prove ultimately perilous. While we are used to talking about the Coronavirus as anomalous and unexpected, such ‘unanticipated’ shocks are in fact very much the norm – from financial downturns and tariff wars to natural disasters and health panics.

Organizations that overlook such ‘known unknowns’ leave themselves consciously and needlessly vulnerable -not to mention missing the opportunity to radically improve their bottom line, regardless of catastrophe.

Historically, many firms have not properly prioritised supply chain visibility, creating a lack of incentive for proper action and ultimately allowing responsibility to become diluted within middle-management.

Thriving businesses of the future must fully understand the scope and cost of true supply chain visibility; those that don’t will be left in the dark.

Known Unknowns: The Challenges of Supply Chain Visibility Post-Pandemic

In building greater supply chain visibility, two clear problems must be faced: a crisis of resources and a crisis of trust.

Digital Transformation

While a huge number of businesses were found wanting in their digital capacities during the pandemic, this wasn’t for a lack of options. Much of the tech required to build more robust, agile procurement processes exists – it just isn’t being properly harnessed and many businesses lack the skill set or inclination to invest in it currently.

As the coming months demonstrate that the effects of coronavirus aren’t going away, more and more businesses will be swayed by the overwhelming case for digital transformation. This change in mindset – seeing tech as an investment which will continue to pay off as the Internet of Things, Blockchain and AI grow in capacity and scope – is vital.

Procurement decisions are often slow because data is being pulled in from various sources and must be processed by humans. The cognitive load of these tasks is intense, and almost inevitably leads either to oversight with regards the data or oversight with regards to larger strategic decisions.

By leveraging technology to bring more accurate Realtime data into the process, a whole world of possibilities opens up.

  • Only 4% of companies leverage artificial intelligence extensively for their supply chain management efforts.
  • 46% of organizations don’t use AI at all for their operations while 50.1% report limited usage.

Using predictive and prescriptive analytics will allow supply chain managers to make much faster, more agile decisions. Not only will it result in better procurement choices and more effective resource allocation, it will save time and relieve the cognitive load on leaders, giving them space to think strategically. If done correctly, a positive feedback loop of improved decision making and smarter strategy can ultimately be set off.

In part, these analytics are a product of smart tech – in particular AI and machine learning, which reward large data sets and remove human error from the equation. But they also rely on a streamlined source of trusted, authoritative information. This is where things may get trickier.

Authority and Trust

Supply chain information is almost by its nature untrustworthy; few suppliers are interested in reporting their own difficulties or weaknesses, and individual sources of data tend to focus on specific areas of risk at the exclusion of other, equally valid and valuable signals.

The answer is simple: combine as many different information sources as possible in a single place. The meta-analytic product will provide a far more robust sense of overall supply chain health than any individual source – the only issue is the burden of all that sourcing.

But if a single source could verify, analyse and present all sources of supply chain risk in a single space, it would truly be a gamechanger.

A trustworthy, impartial source will not only improve decision making – it will help in the restructuring, diversifying and risk-proofing of the chains. If the pandemic is anything to go by, the future of many businesses might just depend on finding one.

Conclusion: If You Don’t Make Change Happen, Change Will Happen To You

If the pandemic has taught us anything, it is that not acting is its own form of action – and a disastrous one at that.

Making supply chain visibility a priority in the future is as much about understanding this – understanding the continual flux of the global economy and the need for flexibility and agility – as it is a simple business imperative.

The legacy of COVID-19 has yet to be determined, and each individual organisation has the power to shape their own destiny in its wake. Regardless of the specifics of your business, focusing on gaining a fuller understanding of risk and achieving a more robust approach to mapping, managing and mitigating it will surely hold you in good stead in the coming months and years.

The future looks tough for many organisations, and prospects might seem bleak. But in the words of Marshall McLuhan, ‘there is absolutely no inevitability as long as there is the willingness to contemplate what is happening.’

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