Certainty of Uncertainty: War and Pandemic Emphasize the Need for Supply Chain Resiliency
Two years ago, the pandemic fixated global attention on the fragility of our supply chains. As consumer behavior switched from eating in restaurants and buying in stores to home delivery, enterprise supply chains struggled to match the shift. As a result, a hunger crisis arose while farmers were consistently forced to leave produce and meat to spoil due to supply chain bottlenecks.
The collective realization that Just-In-Time methodologies could not cope with uncertain supply chain shocks was followed by renewed interest in creating resiliency. However, the magnitude of the problem is enormous, and like many things coming out of the pandemic, we fell victim to thinking these problems would resolve quickly. Despite two years of focus, supply chain issues are not resolving themselves. To amplify the problem, we are now bearing witness to another example of the unpredictable: Russia’s invasion of Ukraine. On top of the dire humanitarian consequences, the war will create a new supply chain crisis as sanctions and restrictions were implemented overnight.
While today’s issues are apparent – the lingering impacts of the pandemic and a new military conflict – the broader problem is evergreen. As McKinsey reports, major supply chain disruptions occur on average every 3.7 years, costing enterprises half a year’s profit over the course of a decade.
The pandemic and the Ukraine crisis are the latest urgent reminders for why enterprises need to build resilient supply chains. There are several reasons that have elevated this topic to a board-level conversation.
What impact will Russian sanctions have on our supply chain? Do we have any single points of failure? Answering simple questions about supply chain exposure can be difficult given the breadth of supplier networks (for example, Lenovo has over 2,000 suppliers). Adopting tools that can assess supplier risk and discover weak points are essential to responding to disruptions and maintaining business continuity.
Environmental, Social, and Governance (ESG) factors are increasingly important for enterprises and their consumers, investors, and the governments where they operate. Taking a strong stance on sustainability – from carbon to labor and fair trade – means enterprises need to prove compliance with environmental standards, labor laws and other regulations. This requires a clear picture of where materials are sourced and the practices of suppliers.
Understanding cyber vulnerabilities extends to the supply chain. The Maersk 2017 cyber attack and more recent SolarWinds hack are two examples that exploited supply chain exposures. The resulting financial damages were estimated to be over $100M, and national security was compromised due to multiple state agencies exposures. Having visibility throughout a supplier network can help assess cyber risk and exposure, and ultimately could prevent large scale breaches.
Supply Chain Concerns are board level conversations
Business Continuity, ESG and Security concerns are all driving companies to adopt new software to build supply chain resiliency.
These are difficult problems to solve. The immediacy of the Russia-Ukraine conflict makes it even more challenging. And the worst thing we can do is allow near term fires to further delay long term strategic improvements. Fortunately, new technologies are emerging to handle these issues. The SaaS and cloud computing world has built much of the toolkit to solve these problems. And the business model already exists: learnings from scaling software in other verticals such as fintech and customer experience can be adapted to scaling supply chain related Saas.
We are seeing new supply chain Saas categories emerging quickly. Automation enabled by artificial intelligence and machine learning are helping to map supply chains. Altana.ai uses a knowledge graph to create a global supplier map that is used for resiliency, security and compliance. Related, Tealbook has an AI-powered platform to optimize procurement and help enterprises identify new suppliers. This type of innovation extends beyond supplier mapping. In the import sector, KlearNow and Mercado are two examples of companies that are digitizing the process of cross-border freight, bringing further efficiency and visibility to this part of the chain.
These are just some examples of how technology can help us rethink these supply chain problems and not only fix the issues of today, but also pave a better way to a more resilient future. Given the decade or longer it will take to transform supply chains, we can’t wait any longer to invest in these improvements.
What is certain about disruptions is they will continue to happen. Even though the exact timing and place are impossible to predict, enterprises can create resilient supply chains to mitigate the impact. The world may not be able to eliminate disruptions, but everyone – both consumers and businesses – will fare better as supply chains are designed for resiliency.