The unprecedented disruptions to global supply chains caused by COVID-19 have forever changed the way businesses operate.
Overall, the crisis could cost the global economy $2 trillion this year. As MIT Professor Yossi Sheffi noted in a recent webcast, disruptions caused by the virus won’t look like other recent disturbances in global commerce. Unlike the Fukushima nuclear incident, Thailand floods or several hurricanes, he said, the pandemic “affects both supply and demand.”
At the same time, COVID-19 in many cases is merely exposing shortcomings in supply chains that already existed. These began to gain attention during the 2008 economic crisis, when manufacturers realized that small suppliers, higher in the supply chain, were disconnected from downstream producers. Vital systems were outdated and falling behind the current speed of business.
That’s because many businesses rely internally on a “hub-and-spoke” model, whereby information is collected at a central point from which other teams can access it. But supply chains aren’t single enterprises; they’re complex networks of organizations. Creating a system in which data can flow seamlessly doesn’t work under the existing model.
How do we overcome this problem? Through networked, cloud-based solutions for supply chains that provide the connectivity between organizations that modern, fast-based commerce demands.
In a networked supply chain, proactive steps can be taken throughout the system to avoid a breakdown in supply and improve efficiency. Rather than putting out fires, people along the chain can anticipate what’s coming. On a live network, the system looks at a disruption such as a late shipment from multiple points of view, to determine the underlying cause. It can also take into account multiple variables along the supply chain, to avoid amplification of bad data.
Say there was an adequate amount of toilet paper in a warehouse in the U.S., but stores suddenly started placing much larger orders than usual due to unforeseen customer demand. By the time those orders trace all the way back to small-scale suppliers, of which manufacturers may be barely aware, the size and duration of the need is often vastly exaggerated. So happens the “bullwhip effect,” causing shelves to sit empty and then be oversupplied after the crisis has passed due to communication bottlenecks.
Based on historical patterns, real-time network visibility, and predictive intelligence, the “control center” of a modern supply chain can instead prescribe intelligent action that enables every part to respond effectively. In this case, it could identify a need for more shipments to the warehouse in a timely fashion, while not demanding that small suppliers ramp up production to feed an unnecessary glut months later.
Such networked supply chains are already possible, and can reduce the impact of global supply-and-demand gaps that manufacturers and consumers are facing now. However, according to research by Gartner, only 25% of supply chain practitioners say digital projects across their companies are aligned under a single governance process.
Although the current crisis has had devastating impacts on both human health and global financial wellbeing, we’ve also seen how it can act as an accelerant for progress that’s difficult to enact during normal circumstances. Businesses accustomed to setting up supply chains, which may be limited in reach and rely on outdated technologies, can be fearful of the investment in time and money that a shift to modern systems can require. But these aren’t untested or experimental systems, and real-world use cases show how supply chains can operate smartly during a crisis.
For example, Burton Snowboards felt so confident in its supply chain that it has not only been able to carry on production, but also help others in need during this crisis. The Vermont-based company is currently producing 500,000 masks to donate to healthcare workers fighting the virus, an incredible feat for a company that manages entirely different lines of production.
“It’s an honor to be able to quickly mobilize Burton’s supply chain to help the doctors, nurses and other selfless professionals who are saving lives right here in the Northeast,” Donna Carpenter, chair of the board at Burton, told Forbes.
Additionally, modern technology is enabling the path to autonomous supply chains. That’s because an effectively networked system prepares the way for artificial intelligence and machine learning to provide predictive insights, furthering the ability of supply-chain leaders to be proactive in a crisis. Imagine a time in which smart supply chains could accurately predict the impact of a pandemic on household necessities before shortages appeared, staving off hoarding and panic buying. Or the impact on small businesses if sudden shifts in demand could be spread equitably across companies supplying basic inputs, averting a boom-and-bust cycle. We’ll be living in that age sooner than you might think.
Supply-chain resiliency is enabled by an organization’s ability to plan, execute and sense changes in as real time as possible. These capabilities will help business leaders take bold action to effectively navigate through the current pandemic and future crises. The technology exists to build networked, global supply chains that are resilient and adaptive. We must act now to deploy them, before the next crisis hits.
Rod Johnson is president and head of Americas at Infor.
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