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Structural Changes to the Global Supply Chain

July 20, 2022


The late business guru Stephen Covey once stated, “There are three constants in life… change, choice, and principles.” Supply chain professionals, currently struggling with a relentless stream of challenges, can attest to how rapidly the world is changing and how difficult the choices are they have to make. And, in some cases, those choices involve principles supporting human rights. The staff at The Economist insists, “One thing seems clear: after years of anxious speculation, the structure of the world’s supply chains has fundamentally changed.”[1]


In a separate article, they note, “Everywhere you look, supply chains are being transformed, from the $9trn in inventories, stockpiled as insurance against shortages and inflation, to the fight for workers as global firms shift from China into Vietnam. This new kind of globalization is about security, not efficiency: it prioritizes doing business with people you can rely on, in countries your government is friendly with. It could descend into protectionism, big government and worsening inflation. Alternatively, if firms and politicians show restraint, it could change the world economy for the better, keeping the benefits of openness while improving resilience.”[2]


Why supply chains need to restructure


According to The Economist, “After the Berlin Wall fell in 1989, the lodestar of globalization was efficiency. Companies located production where costs were lowest, while investors deployed capital where returns were highest. … Over two decades this gave rise to dazzlingly sophisticated value chains that account for half of all trade. … All this kept prices low for consumers and helped lift 1bn people out of extreme poverty as the emerging world, including China, industrialized.” The magazine’s staff notes, however, that this rosy picture had a darker side as well; including the fact that “many blue-collar workers in rich countries lost out.” They add, “Recently, two other worries have loomed large. First, some lean supply chains are not as good value as they appear: mostly they keep costs low, but when they break, the bill can be crippling. … The second problem is that the single-minded pursuit of cost advantage has led to a dependency on autocracies that abuse human rights and use trade as a means of coercion.”


Those two challenges, underscored by current supply chain woes, have prompted many companies to restructure their supply chains to emphasize resiliency rather than efficiency. The Economist staff further observes, “The industries under most pressure are already reinventing their business models, encouraged by governments that from Europe to India are keen on ‘strategic autonomy’.” The staff goes on to argue that great caution should be taken as structural changes are considered. Strategic autonomy is a steppingstone to greater protectionism; which, in their view, would lead to “long-run inefficiency.” They argue, “That is why restraint is crucial. Governments and firms must remember that resilience comes from diversification, not concentration at home.”


In situations where autocracies control essential resources, the magazine’s staff argues that “the answer is to require firms to diversify their suppliers in these areas, and let the market adapt.” That’s not easy when the options are limited. Journalist Phil Hall reminds us that global supply chains are inherently messy. He explains, “In many ways, the disruptions in the global supply chain of products, materials and resources is a lot like the weather — it is something that everyone talks about it, but no one can actually do anything to control it.”[3] Jon Krchnavy, a business professor at Sacred Heart University, told Hall that many supply chain professionals have been operating under a deliberate naivete “based on an assumption that the system is overall reliable and it’s not going to have any long-term problems. … Of course, that was the pre-pandemic world.”


Like many others, Krchnavy believes global supply chains need to be restructured. He told Hall, “We need to take a step back and look at reliability. We need to rebuild our supplier base, trying to figure out maybe we shouldn’t be using everything that is concentrated in one area. And then we should become more diversified and maybe reassess a lot of our products that we buy, especially the strategic products such as medicines. I think solving underlying problems requires looking at the system rather than doing this piecemeal. My fear is that we’re not going to solve the underlying issue, and we’re going to be prone to another repeat of what we’ve seen before.” Doing nothing would be a big mistake.


Restructuring global supply chains


If you read a lot of articles about global supply chains, three words continually pop up: resilience, agility, and efficiency. Technology is the connective tissue that binds those words together. For a number of years, supply chain experts have urged companies to transform traditional supply chains into digital supply chains. Ganapathy Murugesan, Global Delivery Lead in Supply Chain Management at Cognizant, insists technology is the only way to optimize efficiency, resiliency, and agility. He notes, “Historically, the focus was on having an efficient supply chain and keeping the costs down, which led to lack of agility and resiliency.” Through the implementation of the right technology solutions, he believes supply chains can become more agile, resilient, and efficient. He suggests:


• Strengthening the demand forecasting and planning processes leveraging AI/ML, considering the current realities of supply chain.


• Adopting digital twin technology to simulate supply chain performance, including all the complexities of real life.


• Pursuing supply chain hyper-automation by leveraging IoT and AI/ML, freeing people to be available for value added services.


• Leveraging supply chain control tower operations across planning and logistics to improve end-to-end visibility and make the supply chain more responsive.


• Embracing a “Multi-Enterprise Supply Chain Business Network” to improve visibility, accuracy, and responsiveness along with cost efficiency.


Ryan Tang, an Executive Director at E2open, agrees that technology can help supply chains restructure in intelligent ways. He explains, “With uncertainty a guarantee in the year ahead, leaders are realizing the need to adopt applications that will improve visibility into demand and inventory, as well as tools that can help them model and simulate ‘what if?’ scenarios.”[6] That is exactly what the Enterra Global Insights and Decision Superiority System™ (EGIDS™), powered by the Enterra Autonomous Decision Science™ platform, was designed to do. Without a tool, like the Enterra Global Insights and Decision Superiority System, business leaders have neither the time nor the capability to think through enough relevant scenarios to make the best possible decision. By leveraging the System’s decision science capability, business leaders can consider a greater range of scenarios more quickly than possible in the past; thus, enabling them to make superior decisions drawn from an array of possibilities.


Concluding Thoughts


Like many other supply chain experts, Tang believes data will help companies better understand the best way to restructure global supply chains. He concludes, “Companies can build this understanding by securing access to decision-grade data from all channels. This is achieved through advanced applications with embedded analytics and AI, spanning the end-to-end supply chain via seamless integration. Analytics provide a deep understanding of threats and opportunities to improve customer experience and corporate performance. AI embedded into collaborative applications that reach beyond the enterprise boundaries can interpret and trigger action on the data. Data leads to insight, which leads to action.” Craig Fuller, a supply chain media executive, insists supply chain professionals must face the reality that the world is never returning to “normal.” He writes, “The world has permanently changed and supply chains are going to face continuing challenges for decades to come.”[6] And, like the experts cited above, he believes technology is essential to cope with this new world. He explains, “In a world faced with the prospect of tightening supplies, higher energy costs, heightened geopolitical risk, and strained transportation networks, advanced supply chain technologies will become mission-critical for many more companies.”


[1] Staff, “Why the structure of the world’s supply chains is changing,” The Economist, 15 June 2022.
[2] Staff, “The tricky restructuring of global supply chains,” The Economist, 16 June 2022.
[3] Phil Hall, “How did the global supply chain break down? And how can it be repaired?” Westchester & Fairfield County Business Journals, 6 June 2022.
[4] Meranda Powers, “Our partners share predictions for the future of supply chain,” Kinaxis Blog, 15 December 2021.
[5] Ryan Tang, “Megatrends Shaping Supply Chain Innovation,” LogiSYM Blog, 29 May 2022.
[6] Craig Fuller, “Supply chains are never returning to ‘normal’,” FreightWaves, 18 May 2022.

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