For supply chain professionals, 2023 was characterized by a familiar headache: geopolitical disruption. Houthi rebels have launched an escalating series of attacks, applying pressure to the key chokepoint of the Red Sea. Added to ongoing conflicts in Ukraine and Gaza and this headache is beginning to look more like a recurring migraine. 

What the intensifying crisis in the Red Sea illustrates is that 2024 will throw up more of the same. Executives that assume otherwise are exposing themselves and their firms to an unacceptable level of risk. 

They can’t prevent these disruptions, but they can prepare for them. And the most important tool in the box should be strategic M&A with tech firms. 

Insulating supply chains from external disruptions is nothing new. There are tried and tested methods, none of which should be dismissed. Diversifying suppliers, comprehensive supply chain audits and up-to-date insurance valuations are supply chain professionals’ bread and butter. Without these foundations, retailers struggle to sleep well at night. 

But there are newer, more innovative methods available. Emerging technologies present a range of possibilities. At the most basic level, they make supply chains more visible, providing consumers, retailers and logistics providers with real-time information on the status of their goods. Beyond this, though, predictive data analytics can be used to inform pre-emptive measures, giving executives a crucial head start of days, or even hours, in which to get ahead of the crisis. 

Now, though, we can build on top of these technologies and deploy artificial intelligence (AI) and augmented reality (AR) systems to mitigate supply chain disruptions. It’s important to realize though that these are tools to be used surgically, not broad brushes to bet all our future hopes on. But as surgical tools, they do offer exciting potential.  

Some of these possibilities include dynamic route optimization, where AI reroutes shipping or cargo around areas of political instability, border closures or trade restrictions. Supply chain visibility can be enhanced with AR that overlays real-time data onto the physical environment, allowing experts to monitor goods and quickly identify disruptions. 

AI-powered simulations can model various geopolitical scenarios and be used to develop contingency plans and train staff to make informed decisions in a crisis. These are just some of the potentially game-changing options available.   

There’s a problem, however. Retailers and logistics companies run tight margins, and developing AI or AR systems in-house, from the ground up, is prohibitively expensive. The tech itself is costly – you need to have access to vast amounts of data, and the expertise to operate them is in short supply. This creates an insurmountable hurdle for most firms, leaving only the largest global companies with the resource power to organically develop their own AI and AR capabilities.  

The way around this hurdle is through M&A, where retailers and logistics firms consolidate with specialized tech startups. This offers a far more efficient path for companies looking to take advantage of these new technologies. 

Firstly, a strategic acquisition gives a logistics company instant access to AI and AR, whereas the development time and learning curve for developing these technologies in-house can take years. 

Secondly, M&A can give a company access to market-tested tech, reducing the risk of high-profile teething problems from unproven systems. 

Finally, it avoids a costly recruitment process. The talent needed to develop and implement these technologies is some of the most sought-after in the world, and bringing them under your roof will take extensive negotiations that cost both time and money. M&A with a startup brings a whole team of industry veterans into your operations in one swoop.  

Consolidating with startups to onboard tech and insulate supply chains is an established strategy. In 2015, UPS acquired Coyote Logistics, using the platform to improve supply chain visibility and backhaul utilization. Walmart’s 2017 acquisition of Parcel, a tech-based delivery firm that uses routing algorithms to enhance last-mile accuracy, gave the retail giant access to tech that can strengthen logistical networks. 

What’s different now is the operational difference that effectively deployed AI and AR could make. Where established data analytics software significantly improves supply chain resilience, AI and AR technologies could exponentially increase this, opening up a chasm between the logistics firms strategically using tech and those that aren’t. 

The starting gun has already been fired in a tech arms race, and the stakes are high. The winners stand to gain access to a range of tools with the potential to significantly mitigate the risk of disruption like we’re currently seeing in the Red Sea. The losers will bear the brunt of these future crises. 

Sadly, 2024 is not shaping up to be a year of plain sailing for logistics professionals, and the Houthi attacks are an indicator of choppy waters ahead. Executives need to get ahead of the storm now and start planning their shopping list, and at the very top should be tech firms. M&A here gives them a leg up in the arms race along with the technological capabilities to insulate not just their supply chains but also their bottom lines.  

Ed Bradley is CEO & founder of Virtualstock.