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Foreword

Jonathan Derbyshire, Tech for Growth Forum Editor, Financial Times

A combination of the Covid-19 pandemic and growing geopolitical tensions has placed the just-in-time supply chain model, on which the past three decades of globalisation have been built, under unprecedented strain. This poses significant challenges to governments and policymakers, and to companies and chief executives.

No one can predict where the next destabilising shock will come from, of course, or in what ways the shape and distribution of global trade will change in the years to come. But there remains a great deal that corporate leaders can do to protect their supply chains from disruption. 

This report from the FT Tech for Growth Forum explores some of the technological solutions available to them - from machine learning, through the digitalisation of procurement and fulfilment, to the use of the internet of things in the transporting of goods and deploying robots to enhance stock and warehouse management.

None of these technologies is a ‘silver bullet’ - global risk is too protean for that. But what can be said with certainty is that companies which do not invest in technology to cope with increasing complexity of supply chains will put themselves at a significant disadvantage.

Supply chains under pressure

Supply chains face a rethink. Geopolitical fissures have disabled the just-in-time model, unwinding decades of globalisation. The dangers of overreliance on one large manufacturing base, China, has been exposed by the pandemic. Early on in the Covid outbreak, Fortune observed that 94 per cent of Fortune 1000 companies had experienced supply chain disruption. 

Added to this, many companies in the UK have been hamstrung by Brexit. Multinationals had the resources to prepare for Britain’s departure from the EU and, in critical sectors such as pharmaceuticals, many received government help to increase inventories and set up alternative sourcing. Small and medium businesses without financial clout, however, have been severely affected. 

Other countries did not have the UK’s additional impediment but they still experienced shipment delays. The August 2022 Global Supply Chain Pressure Index collated by the Federal Reserve Bank of New York showed that while  delivery times had reduced in the previous four months, pressure was still high. This left the chain vulnerable to any disruption or even to fluctuations in seasonal demand.

Against these stresses, consumers continue to expect greater choice delivered quickly, cheaply and, increasingly, more sustainably. Even as disruptions continued, global trade for 2021 reached a record high in value, according to the UN Conference on Trade and Development. Suppliers should aim to meet the challenges that accompany this demand. To do so effectively, factors such as resilience, reliability and flexibility of the supply chain should be treated as more important than cost and efficiency.

Visibility is the key

Visibility can help to solve problems. An accurate overview of the chain will mean that disruptions can be identified and dealt with. This will give a degree of resilience, says ManMohan Sodhi, professor of operations and supply chain management at Bayes Business School London. At the consumer end of the chain, traceability can fulfil shoppers’ demands for sustainability.

Most companies recognise the need for better visibility but only a few can achieve it. In 2020, SupplyChainBrain, the supply chain management information resource, said most enterprises could see just 20 per cent of their chains – it recommends 70 to 90 per cent. SupplyChainBrain says digitisation to enable greater visibility is "no longer optional" if we are to avoid severe business consequences. 

For the best results, supply chains should be digitally integrated from the most upstream commodity and component supplier to the final customer. Manual inputs would be turned into digital data that is consolidated, legible and visible throughout the system. 

The costs of not embracing digitisation are considerable, according to a study in 2021. It said the average annual cost to an organisation of manually entering data averaged $1mn in the organisations it polled, while more than $600,000 was spent in manual entry of supplier invoices.

The importance of a digital supply chain strategy is well understood but, due to the complexity, most companies struggle with implementation. 

Transmetrics, an AI logistics software provider, says the logistics sector is notorious for its heavy use of manual processes and large volume of disparate data that can be costly to centralise. The result is that holistic digital integration is extremely challenging. 

Supply chains are also disrupted by technology silos between and within companies, as well as the lack of standardisation in data — a barrier that organisations including GS1, the champion of the barcode, are working to dismantle.

Adopting technological solutions

Many companies are eager to deploy technology-enabled solutions. A survey conducted in 2022 by SAP, the software solution provider, found that within the next year or two, 70 per cent of UK businesses plan to adopt the latest technology to try to overcome supply chain challenges. 

Older technology is already adding value. Some solutions that have evolved over decades, such as robotics and supply chain optimisation, have lowered costs and improved efficiency. Systems based on legacy software have emerged to improve supply chain visibility. Wincanton, the supply chain solution provider, has developed an application that applies new modules  to existing technology. Its system can track goods from order placement to arrival at a consolidation centre. This "control tower" capability is still being developed and some manual elements remain. 

How a company approaches digital transformation is critical to success. Change should be viewed as an opportunity rather than a threat — and businesses must be prepared to fail as they learn. Michael Feindt, an adviser at Blue Yonder, the specialist in intelligent supply chains, says that while a move towards greater use of technology can be hampered by fear, this is less prevalent in South America and Africa – perhaps because there is more to gain in less developed markets. 

A supply chain upgrade should be a stepped process rather than a simultaneous, wholescale overhaul. Adoption of new technologies, such as blockchain, artificial intelligence (AI) and the internet of things (IoT), should be incremental, not least because these are still poorly understood and sometimes seen as a panacea, which they are not. Early adopters will undoubtedly experience disappointment. 

Most importantly, as Sodhi's research emphasises, companies must first identify the problems they face and then, second, clarify their strategic goals.

Technology will certainly help companies to become more adaptable and flexible, reduce costs and errors, optimise asset usage and speed up processes and communication. It will free workers from repetitive tasks to roles that require judgment and experience. Yet only when the right solutions are applied to defined problems can supply-chain technologies achieve any of the many aims. 

"Whatever the prioritised list of needs or expected benefits you seek and whatever your organisational constraints … you bring that to the vendor and ask them which they can or cannot do",  Sodhi says.  He emphasises that the onus is on suppliers to identify solutions and, if necessary, to undertake their own pilot schemes to test nascent technology.

Having the right organisational structure can improve outcomes and prevent a failure of experimental technology from going on to affect the entire business. Paul Durkin,  chief customer and innovation officer at Wincanton, says his company has improved by splitting its technology function in two. One part addresses the challenges that face the existing business while the second identifies opportunities and products based on emerging technologies. He says "this creates bandwidth" for product development without neglecting current projects, thus creating more solutions for customers’ problems.

The two parts come under one division and they unite to implement viable solutions. "There is no technology we have taken that hasn't met expectations, but there are technologies that we have to be ready to consume as an organisation," Durkin says. He adds that people are key. "In some cases [we may be] ready from a technology point of view; in [other] cases that might be from a people point of view. It's the combination of people and technology that make it work."

Understanding the limitations

Even once a technology solution has been identified as the right one, it is important to understand its capabilities. Feindt says: "Data-driven AI can help [in the] short term but for long term planning it gets more difficult. That is because the [likelihood of] unprecedented events becomes larger with longer time frames." In other words, AI cannot overcome the fundamentals of statistics nor predict the unpredictable.

"Once an event has happened, software can help [you] adapt fast,” Feindt says. “For instance it can predict how consumer behaviour will develop and the necessary execution." It can also rapidly assemble data about current circumstances, such as blockages at ports, helping companies to act quickly to find alternative products or suppliers. 

In the early days of the pandemic, machine learning (ML) could outperform humans. As the latest data came in, ML made use of them to come up with the best response. ML quickly learnt that this was not at all like a holiday period. 

Some customers initially feared that their software would be unable to cope with the unprecedented situations caused by the pandemic. Machine, however, turned out to be far faster than man in understanding and reacting to the flood of data. AI and ML also measured predictions against actual outcomes, learning as it went.

While unpredictable events are inevitable, technology can devise scenario planning to help supply chains withstand shocks. It will optimise inventory management by incorporating levels of uncertainty and can help organisations reach strategic goals, for example, minimising wastage. 

Ultimately, networks will be able to be envisioned, designed and tested for resilience through scenarios where parts of the chain are "attacked" and contingencies brought into play. This could also help with the relocation of supply chains, such as from China to other parts of Asia, with systems optimised for site location, capacity, inventory management and customer response. 

To outline some of the technologies that can make a difference, this report looks at the strands of a typical supply chain to show which solutions add value and where, and which hold promise for the future. 

Companies should  focus on what technologies do, not what they are, advises Cambridge University's Centre for International Manufacturing. Echoing Sodhi, it says that a business’s strategic objectives — better delivery, better products, increased efficiency — should drive decisions on which part of the supply chain needs investment and the technology to be deployed. 

IBA Group, the outsourcing and software services company, says it can be better and less stressful for management, and therefore more successful, to upgrade facilities than to switch to an entirely new infrastructure.