How to make supply chains more resilient
World Economic Forum (WEF) report advocates visibility, digitization and secure data sharing to achieve resilience in critical periods
The coronavirus pandemic has generated impacts of various sizes on logistics. To ensure supplies to the population, most operations have not shut down their activities, however, they have been facing daily challenges in fulfilling their mission. In view of this scenario, what has been most talked about is the need for more resilient supply chains.
The idea of “resilience” in this context refers to the ability to mitigate risks and cushion the impacts of unpredictable events, as was the case with the Covid-19 pandemic. Basically, this is the ability of a company to maintain continuity of operations at a desired level, even with external and internal adversities.
With the current crisis, most companies have been taken by surprise regarding this ability to cope with disruptions. Many of them have faced more difficulties precisely because they have not built a resilient chain. But how do you do that anyway?
In a report presented by the World Economic Forum (WEF) on more resilient supply chains, three main ideas are presented:
☑ Supply chain visibility is crucial to understanding the impact of the disruption.
☑ Scanning records will make operations more resistant to future shocks.
☑ Blockchain will help ensure data privacy for suppliers.
For organizations, the coronavirus crisis altered the supply chain. And now it’s important to look for ways to adapt. As such, having an end-to-end view of the entire chain is the first step. The WEF cites the example of companies that sell finished products, which “generally know the production and shipping schedules for their Level 1 suppliers, but have little or no knowledge of the suppliers later in the chain”, that is, the agency itself recognizes that this visibility is flawed, in that it is not complete.
The WEF argues that achieving full visibility of the chain is essential to optimize efficiency and agility during normal production. And when disruptions occur, this visibility becomes even more crucial to understanding the impact of disruption on the rest of the chain, so that other people in the ecosystem can plan and act, such as developing routes to alternative suppliers.
As Covid-19 has led to blockages, many suppliers in the chain are temporarily stopping production. There is also a great difficulty on the part of carriers, who are no longer able to carry goods uniformly, mainly across borders.
An example presented by WEF is Fiat Chrysler Automobiles, which announced the temporary interruption of production at an automobile factory in Serbia in mid-February because it was unable to obtain parts from China. Hyundai made a similar announcement for factories in Korea. The organization also mentions the interruptions caused by the decrease in international flights, as many carried a significant amount of commercial cargo.
The WEF also reinforces the issue of China playing a central role in global supply chains, showing in the following image how part of all imports of intermediate products originates in the Chinese territory:
The agency points out that this is not a new problem. The bigger issue is the lack of information provided by suppliers. That’s why every company needs to get complete visibility into the chain. Therefore, the agency recommends:
1- Abandoning paper and investing in digitization
Commerce depends on paper-based processes: the “Bill of Lading“- a detailed list of a ship’s cargo; handwritten notices; paper copies of each logistics carrier’s packing lists etc. In some cases, as in the “Bill of Lading”, paper copies are required by law. Most of the time, companies still need to digitize their processes and have not yet done so because they believe that the cost of doing so does not bring enough efficiency or security to justify the enterprise.
However, Covid-19 protective measures have made it clear that transactions dependent on physical assets, such as paper, can suffer serious disruption when physical presence is not a possibility. How can you ensure signatures and printouts on paper when working via home office, for example? In addition, chains that rely on the information contained in these paper documents lose access to this visibility very quickly and cannot react to the changes brought about by the crisis.
Therefore, for WEF, digitization is not just a matter of cost, but primarily of supply chain visibility and risk management. To limit the impact of failure points on the chain, it is important to make data available by digital means. According to the agency, in the current coronavirus pandemic, governments and companies with strong digital infrastructure and regulations that allow such signature laws and electronic transactions are handling supply chain disruptions much better than those that still rely on manual and paper processes.
2- Ensuring supplier data privacy
For WEF, the reason “upstream” suppliers do not disclose information to end customers, even if it is easy for them, is that they fear losing business advantage if their customers know even more about their operations, pricing, and supply. Suppliers should be able to control exactly who receives what data from them and verify these controls independently.
Most digital communications in the supply chain occur through Electronic Data Interchange (EDI) and Excel spreadsheets. When transmitted between two parties, data privacy is easily controllable and not a concern. However, when data in these communications need to be distributed to more parties, traditional, centralized systems cannot grant independent, auditable access controls to each individual party. Thus, according to WEF, a decentralized system is the best way to provide suppliers with the privacy they need, in addition to giving buyers the visibility they seek.
When created correctly, a blockchain can be the solution. Suppliers can directly control their data sharing permissions, while data can be securely distributed to those who are part of the network, without requiring peer-to-peer integration as in centralized systems. Thus, a technology problem essential to getting suppliers to participate in supply chain visibility initiatives would be solved.
3- Starting early
Finally, one WEF recommendation is “don’t believe that chain disruptions will never happen again.” The pandemic we experience today, with impacts on both supply and demand chains, is clear evidence that any level of disruption can happen at any time. Therefore, you must be prepared.
Thus, the agency recommends that the sooner recommendations for visibility and secure data sharing are implemented, the more supply chains will be resilient to deal with a future shock. It concludes by highlighting the importance of seeking to support suppliers who are in financial difficulties to make the value chain more capital efficient.
To learn more about the impacts of the current crisis and how to protect your business, click here.