No chain, no gain
Supply chains are beset with multiple challenges, including rising costs, recurrent shortages and geopolitical tensions. Such issues present opportunities, however, with those in the vanguard of the industry using technology to drive tangible change.
I n a world turned upside down by Covid-19, war in Europe, climate change and the knock-on effects from all these crises, global supply chains are under the greatest pressure in living memory.
First, the pandemic caused the supply of goods and materials to seize up as factories and transport networks shut down. Then, as demand roared back to life, manufacturers struggled, ports were gridlocked, shipping costs soared and end-users suffered.
This year, pressures have been compounded by Russia’s invasion of Ukraine, which has provoked a surge in energy costs, widespread shortages of agricultural commodities and rapid increases in inflation.
For supply chains already battling to cut emissions, reduce waste and promote human rights in line with environmental, social and governance (ESG) trends, the world might look pretty bleak. But current disruptions also present longer-term opportunities, driven by technology that could make supply chains more efficient, resilient, transparent and sustainable.
Enter the Fourth Industrial Revolution, also known as Industry 4.0. This promises technological advancement at an unprecedented pace, as digital devices develop ever-expanding processing power and throw off vast quantities of data, in turn generating constant innovation.
Ripe for change
Supply chains should be key beneficiaries of this revolution. Most are ripe for transformation by artificial intelligence (AI), blockchain, robotics and other technologies that touch all aspects of the sector, from product design to manufacturing and delivery to customers.
According to professional services firm PwC, almost 50 per cent of business leaders already use AI to make supply chain decisions and intend to use AI simulations to improve their operations. Use of this technology is ramping up fast. By 2025, more than 80 per cent of new supply chain applications are expected to use AI and data science in some way, according to consulting firm Gartner.
“Companies will need to reduce downtime, ensure quality and increase flexibility so that they can respond to future demand patterns as effectively as possible. Strong data and analytics capabilities are crucial in understanding complexity, anticipating current and potential disruptions, and quickly developing responses,” says Cory Rhoads, vice president of sales at US software group SparkCognition, which specialises in AI.
Such predictions come against a backdrop of high-level change in supply chain dynamics. For years, the industry revelled in globali- sation, which increased trade, helped developing economies to grow and reduced prices in developed countries. But pandemic-induced turbulence, followed by geopolitical tension, has focused attention on the downsides of globalisation – long, complex supply chains, over- reliance on China and vulnerability to shifts in legislation or political will. In response, many companies are looking to shorten their routes to market or make them more stable.
How do I carve out risk areas from my supply chain so I can continue to provide products to the market? Who are my international friends and suppliers, and how can I reduce my reliance on China?
“People are asking: ‘How do I carve out risk areas from my supply chain so I can continue to provide products to the market? Who are my international friends and suppliers, and how can I reduce my reliance on China?’ ” says PwC partner Fred Akuffo.
This trend can be seen at companies around the globe. Frank Vorrath is vice president of global logistics services at Danish engineering group Danfoss. He explains that turbulence, higher costs and the need to minimise its carbon impact have prompted the firm to reconsider how and where it sources essential supplies.
“We are focusing on making our supply chains more local under the design principle of ‘regional for regional’, with local or regional sourcing, manufacturing and fulfilment,” Vorrath says.
Technology is the second element of Danfoss’s response to supply chain stresses. The company has ‘digital twins’ in place for parts of its supply chain, such as manufacturing, where data powers simulation models that help to drive decisions. Vorrath expects to establish digital twins throughout the Danfoss supply chain so that most decisions gradually become automated.
"Over time, technology will be able to plan scenarios and make recommendations or take decisions that are fully or semi- automated. Or the technology will control all the flows of material and goods, capital and information, making recommendations to people who manage the supply chain from end to end,” says Vorrath.
German car parts firm Continental Automotive predicts its supply chain will be fully networked by 2030, with all elements connected over the internet and data stored in the cloud. The maker of tyres, brake systems and other products for vehicles says its systems will share workflow in real time to improve business decisions.
With the help of AI, we will be able to predict upcoming threats. Natural disasters, materials shortages and even traffic jams can be forecast in time for us to take the necessary precautions
Avinash Kalarickal, a supply chain specialist at Continental, says: “If a truck has to change its route due to traffic or an urgent order, everyone receives the new route and arrival time instantly and can plan accordingly. And improved and new technologies, such as robots, drones and smart glasses, are going to support everybody’s work within smart factories. By 2030 we will have gained a significant amount of data within our supply network. With the help of AI, we will then be able to predict upcoming threats. Natural disasters, materials shortages and even traffic jams can be forecast in time for us to take the necessary precautions.”
Just as the turmoil of the past few years has been prompting companies to embrace innovation, the urgent need for improved supply chains is attracting technology start-ups and investment capital to the task of moving goods around the world.
SparkCognition, chaired by former BP chief executive John Browne, raised $123 million in January, valuing it at more than $1.4 billion. The company says its success stories include saving an oil and gas company $2 million every two to three weeks by helping its shipping fleet respond rapidly to disruption.
Other tech innovators include Interos, which uses AI to detect stresses in global supply chains, and KlearNow, which automates customs documentation. Interos, valued at more than $1 billion, says it has mapped out 400 million businesses worldwide. Well before Russia invaded Ukraine, the firm had calculated that more than 3,300 US and European companies had at least one direct supplier in Russia and that more than 650 companies had direct suppliers in Ukraine.
By 2025, more than 80 per cent of new supply chain applications are expected to use AI and data science in some way
Big data problems
After the war started, 700 companies contacted Interos looking for help to assess their exposure to suppliers in Russia and Ukraine. The company is now working on a new product to assess other scenarios, including a Chinese invasion of Taiwan, the world’s biggest maker of advanced microchips.
Interos chief executive Jennifer Bisceglie says: “Most of our problems with supply chains today are, in essence, big data problems. None of these bad actors or factors are insurmountable, provided you have dependable, comprehensible and usable data.”
KlearNow’s platform uses AI to automate paper-based customs clearance processes. Companies in the UK have been signing up in droves after Brexit forced them to fill out customs forms, following decades of frictionless trade with the European Union. Steve Workman, head of customer operations at BioCare, a UK-based maker of vitamins and other food supplements, says a manual process that took three days and cost £60 per document now takes minutes and costs about half as much.
“The AI system took a little while to get to know the layout of the document, but once that was done, it became extremely efficient,” he explains. BioCare also uses World Options’ shipping platform, which enables companies to buy spare capacity on lorries at attractive rates. “When you’re trying to get the best transport price, that’s very useful, especially in today’s conditions,” says Workman.
ESG issues are also high on most companies’ agendas, as governments, investors, employees and consumers pay increasing attention to where and how products are made. Ledger technology can be hugely beneficial here, and is used to track the provenance of items as diverse as diamonds and bananas.
Diamond producer De Beers said in May 2022 that it was using blockchain to provide customers with confidence about the origins of its jewels. Fyffes, the world’s biggest importer of Fairtrade bananas, has adopted blockchain so that all of its bananas can be traced back to the farms where they were grown. The group also has an agreement with Dutch retailer Plus to supply carbon-neutral bananas and pineapples. In a further bid to make its products more appealing to environmentally conscious customers, Fyffes has begun using drones to reduce fertiliser use and so drive down greenhouse gas emissions.
Technology may be racing ahead, but many companies’ systems are not equipped to take advantage of the opportunities, argues Akuffo. “In terms of what people bring to us, over 50 per cent is helping people to get the foundations in place,” he says.
ManMohan Sodhi, professor of operations and supply chain management at Bayes Business School in London, believes governments will need to support companies, and that small suppliers will need help from governments and their big customers.
Fyffes, the world’s biggest importer of Fairtrade bananas, has adopted blockchain so that all of its bananas can be traced back to the farms where they were grown
As a model, he points to India’s creation of a shared infrastructure for ecommerce, known as a ‘commons’ because it is open to all users. “If you think about the total numbers of businesses, most of them will be very small. Developing technology commons and logistics commons would be dramatically beneficial to small companies,” he suggests.
In an age of geopolitical tension, climate stress, high inflation, populist politics and ever-faster digital communication, global volatility may be here to stay. Supply chains are exposed to all these challenges and businesses are being forced to respond – taking steps to improve old systems, adopting new solutions and being alive to the need for change.
“We have to move to a mindset of real urgency to do things in half the time we normally would take,” Vorrath says. “The next disruption is just around the corner and we have to prepare.” n