Is digitalisation truly the answer to all of supply chains problems?
Disruptions to the supply chain are becoming increasingly more frequent, costing businesses millions of dollars globally. Looking at these challenges from a bird’s eye view can be daunting, especially when a clear action plan is missing. To understand and combat these challenges, here are a few obstacles we’ve seen and some steps towards digitalization you can take to prepare for these disruptions.
What is the digital supply chain?
Before getting into the challenges that lie ahead, let’s outline what a digital supply chain really is. A digital supply chain involves the flow of goods from designing a product and procuring raw materials through to taking the final product to market and delivering the goods to customers. Each step of the digital supply chain is susceptible to weakness or oversights if there’s insufficient oversight and management. A digital supply chain incorporating various technological solutions are designed to improve management of supplier performance and customer needs to prevent disruption. Some of the technologies used include:
- The internet of things (IoT)
- End-to-end digital connectivity
- Artificial intelligence (AI)
- Predictive analytics
- Machine learning (ML)
- Control towers
Now that we understand what a digital supply chain entails, let’s explore the challenges we see on a global scale and how digitalisation can help to mitigate them.
Inflation and freight prices
In the UK, political leaders are grappling with potentially crippling supply chain issues that are constraining production. In Brazil, the main driver is a deeply uneven recovery, while in the US, consumer spending is helping to drive recovery, but labor shortages could halt any major progress.
Container freight rates have been rising exponentially since the last quarter of 2020. Although the rates have started to decrease, they’re still nowhere close to pre-pandemic levels. The increased consumer demand has put considerable strain on ship and container capacity globally, leading to congestion and shortages.
Another result of the pandemic disruption has been port congestion due to which ships are unable to load or unload as ports and warehouses are at capacity. This has been compounded by labour shortages and social distancing requirements, creating bottlenecks at major docks with main ports of Los Angeles, Long Beach, Hamburg, Antwerp, Hong Kong, Yantian and Shanghai experiencing problems meeting delivery commitments.
Scarcity of materials
The spike in consumer demand has resulted in suppliers struggling to meet demand, with parts and materials scarcer than before. From computer chips to construction materials and consumer goods in between, there is much less availability, longer lead times, and higher costs.
Geo-political conflict and the resultant trade wars create substantial challenges for the supply chain. According to the Harvard Business Review, even temporary trade restrictions ‘weaken trust and give countries the excuse to implement industrial policies in the name of resilience and self-sufficiency’. With Russia’s war on Ukraine ongoing, there are further material shortages in metals, noble gases, and agricultural commodities.
So, can digitalisation address these supply chain problems?
Supply Chain 4.0 with the implementation of IoT, use of advanced robotics that are capable of tracking your packages anywhere, creating networks across businesses, automating processes with advanced analytics of big data to improve performance and customer satisfaction is here.
With the price of freight and materials rising amidst material scarcity and congestion, business owners must consider ways to minimise in-house expenses. The implementation of automated processes in the supply chain, whether it’s robotics, machinery, AI or other, minimises labour expenses, limits the room for error, and lowers overall costs. A white paper issued by the Center for Global Enterprise, Digital Supply Chains: A Frontside Flip, indicates that implementing a digital supply chain can lead to a 20% reduction of procurement costs, a 50% reduction in supply chain costs, and an increase in revenue of 10%.
In the US, where port delays have been severe, a lack of automation is considered a major contributing factor. It has been reported that ‘that jobs might disappear or migrate to offices from the docks, unions have also resisted the kind of automation that is standard overseas. The result was serious turnaround delays even before the recent swell of pressure on capacity.’
For ports, automation can effectively increase synchronisation and fast-track tasks that were previously done manually. Likewise, digitalisation of the supply chain helps managers navigate the challenges of port congestion by increasing visibility throughout. Predictive ocean freight visibility is an invaluable tool in assessing the current situation, helping shippers avoid delivery delays and mitigate the risk.
With analogue systems that operated in silos, the ability to source, contract and purchase materials and goods was limited to existing partnerships or tried-and-tested connections. With the arrival of digital networks, buyers and sellers are able to communicate in real-time, with multi-sourcing a lucrative possibility. AI, machine learning, IoT and blockchain are reshaping industries by drawing intelligent insights from seemingly unrelated data. This is propelling those in procurement beyond the traditional scope and opens them up to new opportunities.
The disruptions caused by conflict and trade wars will always be a global reality, but this doesn’t mean the supply chain has to suffer. The advent of the digital supply chain is dissolving silos and enhancing end-to-end visibility. Whether it’s a sudden material shortage, protest action shutting down a plant, or a sudden spike in consumer demand, the digital supply chain is able to provide managers with this information in real-time, with adjustments made accordingly.
The increased visibility in the supply chain, the data-driven input and the real-time information make the system much more agile, thereby reducing the risk. While not every challenge can be anticipated, implementing an automated solution ensures resilience to better handle future conditions.