The COVID-19 pandemic will have lasting effects on national and global supply chains. Several major areas of impact will be felt; from labor laws to financial engineering and geopolitics — everything will change.
The most meaningful of these changes that will be felt by consumers will be forced upgrades to the technology powering supply chains, as digitization is the shortest path to improved efficiency, resiliency, speed and, ultimately, cost.
Why will that be a priority? How will we see supply chain technology upgraded quickly at scale? A story that has played out across health care since 2008 offers an interesting foreshadowing.
Meaningful Use
After the Great Recession, the Obama administration was looking for shovel-ready projects that would improve the lives of Americans while also injecting much needed stimulus and job creation to the economy. Several initiatives were started. The biggest one in health care, the largest industry in the United States, was an effort to digitize health data.
Even by the late 2000s, over 92% of patient data was still managed via paper forms and file cabinets. It would be impossible for health care to evolve, and subsequent patient care to improve and costs reduced, without information being digitized.
As a result, the administration created a program called "Meaningful Use," which comprised multiple stages: Phase 1 would give around $20 billion to hospitals to buy digitization products, such as electronic health records (EHRs), which are a blend of enterprise resource planning (ERP) software and customer relationship management (CRM) software for hospitals. Phase 2 would then pay hospitals around $10 billion to prove they actually installed the tools they bought.
By the mid-2010s, the ratio flipped and over 90% of hospitals had EHRs installed, thus creating a massive sea change in the digitization of health information. Clearly, health care is still struggling, with costs still rising and frustrating experiences still prevalent from poor interoperability. However, as far as technology goes, it’s also clear the industry is in a better place than it was 15 years ago. It’s all because of a crisis event that catalyzed government action to fundamentally change an industry. That sounds awfully familiar.
Supply Chain Digitization
A global pandemic is the type of black swan event that will impact innumerable experiences for common Americans. Inflation is spiking, jobs are fleeting, childcare and schools are in flux, and things generally feel volatile. Supply chains are a big culprit as to why. Both governments and corporations will be looking for aggressive stopgaps and innovations.
The 2020s are being dubbed the "decade of data” as digitization efforts start to mature across every industry. Supply chains will be no different. What’s clear is that the ‘90s era technology powering most supply chains is inadequate at pulling the industry into the future. The key insight is that supply chains are ultimately a series of decisions being made, so coordinating across those decisions is the only way to instill the improvements we need. Archaic technology simply does not do that. Changes need to happen from top to bottom with regards to digitization and interoperability.
Much like health care, the biggest blocker to innovation is cost constraints. No other reason explains why ‘90s era technology like ERP software and warehouse management system (WMS) software have stayed installed for 20 years or longer. Change is not only difficult, it’s typically not scalable and the corporate risks associated with change often outweigh the economic benefits from changing.
As a result, stability of a specific link in the chain is prioritized over improvements of the chain as a whole.
It’s likely that the pandemic exposed supply chains as a societal liability that is negatively impacting inflation, consumer confidence and corporate performance — all things that politicians across the aisle want to fix.
It’s also clear a large section of Corporate America will want to reduce the risk and costs being levied upon them. It’s doubtful that Walmart Inc. would like to continue to pay $30,000 per container to buy safe passage to a loading dock, a famous anecdote amid the West Coast port congestion saga.
Combined, perhaps the most visible and lasting impact the pandemic will have on supply chains will be the way it accelerated an aggressive migration to modern technology. As a consumer, I sure hope so.
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