Digitizing the supply chain is now critical

August 5, 2020

The global COVID-19 pandemic has put pressure on a whole host of industries—chief among them retail, travel, financial services, and real estate. Disruptions have wreaked havoc on productivity, demand, and even consumer spending habits. After the pandemic, many companies will need to update their business operations, and digitizing their supply chains should be near the top of their to-do lists.

Vulnerabilities in global supply chains

The pandemic has exposed numerous vulnerabilities in global supply chains. In a new report, the World Economic Forum says businesses need to be prepared for dramatic changes to our supply chains once the pandemic subsides. Data cited by the organization shows that as global trade has contracted, invoices have taken longer to settle than they did pre-coronavirus. In 2019, businesses were averaging 36.7 days to settle an invoice compared to 36.8 days in 2018, yet in the first quarter of this year, that figure had already slid to 37.4 days.

The group adds that the sharp drop in orders during the pandemic—due to falling production and disrupted transport links—is set to cause a “tidal wave” of new orders. This will present a massive challenge around the world.

The pandemic has exposed the numerous vulnerabilities of complex global supply chains built on lean manufacturing principles, and the result will likely be a move away from China to manufacturing hubs like Vietnam, Mexico, and India—as well as a decentralization of manufacturing capacity, with many companies looking to bring production back to their home markets.

Supply chains are ill-prepared for change 

But talk to many supply chain professionals and they’ll tell you that they may be ill-prepared for such widespread changes. Even before the pandemic, when there were lower levels of diversification, visibility and transparency into the supply chain was a significant challenge, as much of the needed information is siloed in different parts of the business, on systems that don’t always communicate with one another. A recent survey of chief supply chain officers found that 84% feel a lack of visibility across the supply chain is one of their biggest challenges.

With all these changes to supply chains, the WEF says we’ll see rapid and wholesale digitization of the paperwork that accompanies global trade.

“Despite rapid advances in technology, the relationship between buyers and suppliers remains predominantly paper-based,” the group writes in. “Digitizing 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.”

Carlos Cordon, a professor at the IMD business school in Switzerland believes that in a post-COVID-19 world, companies will need to conduct regular supply chain stress tests, much as financial stress tests did for banks after the 2008 global financial crisis. 

“In a post-COVID-19 world, supply chain stress tests will become a new norm,” he wrote in May. “The distributed global business model, optimized for minimum cost, is finished. Tomorrow’s model demands new priorities in optimization.”

Which brings us back to the reams of supply chain data that exist only on paper.

Digitizing the supply chain 

Digitizing that data will help managers plan, forecast, and identify the risks of increasingly complex and interconnected supply chains.

On the procurement side, digitization gives organizations greater insight into vendors, the products they offer, and how they compare to competitors—the latter of which being particularly important when sourcing on-demand becomes a problem, or when a long-standing relationship breaks down.

Cordon believes we needn’t worry that digitization and automation will eliminate the need for human input. In fact, in an automated world, the supply chain manager’s role will become more important than ever. Citing the Toyota Principle of automation, Cordon estimates about 80% to 90% of the supply chain will be automated, while10% to 20% will require human expertise to improve system operation.

“The human dimension is back, and it will play a prime role in rebalancing the global supply chain during this crisis, and well beyond,” he wrote. “Although we need visibility for the people in the supply chain to be able to make decisions, most decisions should be made manually. Ergo, the human factor is key.”

While digitization has long been defined as using digital technology and data to enhance productivity, the increasingly unpredictable global landscape that businesses now face means digital remodeling will be just as important for maintaining workflow as it for improving it.

One thing seems clear, there’s no avoiding the digital supply chain anymore.

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