Faced with ongoing disruptions and continued uncertainty, global supply chain leaders are increasingly investing in building resilience, and some have delivered promising results through digitalisation.
Global supply chains have been caught in an unprecedented storm over the past year. On top of the widespread disruptions brought by the still-ongoing Covid-19 pandemic, the continued trade tensions among major powers, the geopolitical disputes around the world, and unexpected incidents like the days-long Suez Canal blockage in March 2021 have all strained supply chains and led to significant economic losses. A study estimates that the cost of supply chain disruptions was up to USD 4 trillion in 2020 for US and European multinational companies.
With the vulnerabilities of global supply chains exposed, supply chain leaders are increasingly looking for ways to build greater resilience into their networks – not only to weather the current storm, but also to navigate through the post-COVID “new normal” that still looks blurry and prepare for future shocks. According to a Gartner survey, 87% of supply chain professionals intend to invest in supply chain resilience within the next two years.
“The current situation has pointed out, to many companies that their supply chain is the life blood of their company,” says Robert Imbriani, executive vice president at Team Worldwide, an international logistics provider based in the US. “They are beginning to understand that they must have a vibrant and flexible supply chain policy, as many factors can disrupt supply chains at any time.”
A great part of the vulnerabilities lying in global supply chains results from their complexity. Since the onset of globalisation, companies have been rapidly expanding their supply chain networks to achieve lower costs, which inevitably makes risk management increasingly challenging. For example, one auto manufacturer is estimated to have around 250 tier-one suppliers and 18,000 suppliers in total across its whole supply chain.
Even years before the current crisis, experts had warned that the lack of visibility in supply chains could compromise a company’s survivability. Today, significant gaps still exist in data sharing and communications between buyers and suppliers, as digital tools are not yet widely adopted.
“Supply chain processes are still heavily paper-based,” notes Rebecca Liao, co-founder and advisor at Skuchain, an American company offering blockchain-based supply chain management solutions. “Most supply chains do not have any visibility beyond the tier-one supplier, but the most vulnerable points in the chain are in the middle with the producers of the semi-finished goods and components.”
The lack of instant information exchange is also a pressing issue in logistics, where the coordination between logistics service providers, importers and exporters is not always optimal. Imbriani believes that logistics companies would be able to operate more flexibly and efficiently if they have a better grasp of anticipated logistics needs and can plan shipment beforehand. “Exchanging information on needs and availability of transport, as well as tracking and tracing information has never been more critical,” he says.
Technology is expected to provide significant help in information sharing, with more and more digital tools introduced to offer better features and cover a wider range of stakeholders. Among them is Wärtsilä Navi-Port, a technological solution launched in 2020 that connects ship navigation systems to ports, enabling ships to arrive with perfect timing, instead of waiting for a long time at anchor to enter a port.
By facilitating information sharing, Navi-Port helps lower fuel consumption for ships and ensure greater efficiency and predictability in port operation. As unpredictable delays at ports are a major issue for land transport, the system also contributes to efficiency and resiliency of global supply chains.
Another major threat to the resilience of global supply chains today is the lack of liquidity. Transactions in supply chains tend to be complicated, as they typically involve lengthy assessment of a business’ creditworthiness and requires the participation of the buyer, the supplier and their respective banks to unlock liquidity. When global business-to-business transactions slumped in March 2020 due to the Covid-19 outbreak, many companies were faced with serious issues in liquidity and desperately sought to build or maintain their cash reserves.
Liao points out that there exist financing platforms that handle transactions more quickly, but they normally charge a higher rate for the liquidity service. “Both buyers and suppliers need more streamlined, cost-efficient options for trade and supply chain finance. Expensive trade finance instruments and lack of working capital for moving goods across borders can have a detrimental effect on supplier operations.”
She sees blockchain technology as an ideal infrastructure for a distributed system like supply chains. Leveraging the decentralisation nature of blockchain, Skuchain co-created a digital trade solution called the Distributed Ledger Payment Commitment (DLPC) with the Banker’s Association for Finance and Trade, the largest transaction banking trade association in the world. The DLPC simplifies transactions by allowing buyers to directly finance their suppliers without passing through suppliers’ banks, which leads to more secured cash flows and fewer transaction costs.
Experts have long urged companies to work on building supply chain resilience. While some bigger enterprises have already started digital transformation and supplier diversification to achieve more resilient supply chains, small and medium enterprises tended to be more hesitant due to the large amount of time and investment required. In this respect, both Imbriani and Liao believe that the current crisis should be a great motivator to encourage companies to finally take actions.
“I think that the current situation will create a new normal going forward regarding supply chain management. Logistics service providers must embrace the concepts of flexibility and collaboration with other stakeholders in supply chains,” says Imbriani. His company has expanded direct partnership with key supply chain players, instituted services in new trade lanes and opened new gateways such as a groupage service via Miami to Latin America for the ongoing trend of supply chain diversification.
“It would be a mistake for global companies to conclude that this pandemic is a once-in-a-lifetime fluke event that everyone simply needs to ride out,” concludes Liao. “I hope these companies will keep conviction around their multi-year efforts to improve their supply chains, truly diversify suppliers and scale technology tools across supply chains.”