The wonders of modern technology, which have made ‘just-in-time’ business models possible. These inventory light models, of course, rely on well-oiled and highly-efficient global supply chains. A disruption to these chains inevitably brings a supply-side shock.
It is no coincidence that this ‘COVID’ recession started as a supply-side recession – the first one since the 1970s. The mass quarantine of populations has also severely affected the demand-side, making this a problem of unprecedented complexity for businesses to solve relying on physical supply chains. According to Fortune, 94% of Fortune 1000 companies are now seeing related supply chain disruptions. COVID-19 is coming on the heels of an already highly disruptive environment. 2018 was the fourth-costliest year since 1980 in terms of insured losses due primarily to environmental events data from MunichRe shows.
Image credit: Goldman Sachs
The good news is, advanced digital technologies are not only part of the solution to the disruption during COVID, but they will also be the solution in a post-COVID world. Companies have a unique opportunity to drive through highly impactful digital transformations and re-model their supply chain approaches.
No one technology offers a silver bullet. Instead, a holistic, strategy-led approach, bringing together advanced technologies such as IoT (sensors), AI, analytics, cloud computing, and 5G is the best role technology can play in overcoming supply chain disruptions.
Such an approach enables companies better to anticipate unseen or ‘black swan’ risks and respond with the right agile methods. It starts with IoT, itself more of a design language than a technology. Companies typically know more about what is going on at the end of the chain – or primary product suppliers – than what is happening at the beginning – a regular blind spot for companies at the end of complex chains. The right IoT strategy enables you to obtain the critical data you need to increase forecasting accuracy, allow real-time information to manage channel inventory, and track assets better.
With this data, AI-driven analytics and cloud-based platforms can deliver the right actionable insights to know how (and where) to avoid (or minimize) supply chain disruptions and develop robust demand-supply balancing capabilities. For ‘last mile’ supplies, where a key component might often be missing in a disruptive environment, 3D printing can complete the set.
One of the biggest problems playing out now is the over-reliance on a single supplier. According to EY, even after the reopening of factories, the majority of factories will struggle to achieve 50% of their previous capacity.
The impact on the automobile sector is particularly severe:
- Jaguar Land Rover has warned it could run out of spare parts in just three weeks.
- Fiat Chrysler, as recently as February 14th, announced an inability to get the requisite spare parts from China and that; as a result, all production at its car factory in Serbia would stop
- For similar reasons, Hyundai has seen its supply chain severely disrupted and has been forced to stop production in its plants in Korea.
More than 200 of the Fortune Global 500 firms have a presence in Wuhan, where the outbreak originated, highlighting the risk of concentration. This event particularly emphasizes the importance of developing the right technology approach and is why it is so crucial to both manage risk today as well as position your supply chain strategy for a post-COVID world. Such an approach goes beyond ‘merely’ digitizing your supply chain and instead, moves from a ‘linear’ chain model to a circular chain model with a digital center, serving and receiving goods, services, and data from a smart factory, a digitized supply chain, and ‘connected’ customers.
In times of disruption, the winners are those who have built both resilience and agility into their supply chains. Underpinning this with a comprehensive technology strategy that integrates multiple advanced digital technologies, based on smart data capture, is the best way to overcome supply chain disruption and deploy technology during this unprecedented pandemic, and beyond.