The coronavirus crisis has exposed a shocking lack of resilience across global supply chains, and we’re paying a heavy price for it. Makers of everything from critically needed healthcare equipment and personal protective garments to CPGs and apparel have found themselves unable to respond quickly and adequately to the disruption caused by the global pandemic.
Thousands of companies are finding themselves grappling with challenges they didn’t know they had because they lack end-to-end visibility across their supply chains.
While the pandemic has stalled demand for or production of hundreds of millions of products, it has also led many brands, manufacturers and distributors to realize they lack resiliency and adaptability. For example, many are discovering dependencies on components or that inventory has gotten stuck somewhere in transit. Companies’ ability to identify inventories of urgently needed emergency goods such as ventilators, gowns and masks and get them to where they should be has been severely hindered by the lack of a globally connected supply chain system.
All stakeholders in the supply chain need to be able to produce, track and redirect inventory—whether it be ventilators and hospital gowns, food and CPGs, or apparel and beauty products—to where there is demand. Yet the vast majority of companies are unable to trace an item from end to end through its life cycle, including the post-purchase journey to recycling, resale or disposal.
Fortunately, technology advances mean that the problem is eminently solvable.
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The issue: lack of end-to-end supply-chain visibility
This pandemic has been a terrible reminder that a chain is only as strong as its weakest link. For many companies, all it took was a temporary shutdown at a single factory making a particular part or material to set off a cascade of effects that has ended with canceled orders, delayed shipments and lost revenues. With more than 4 trillion consumer products being made, shipped and sold across the globe each year, the scope of the problem is vast.
Manufacturers with detailed digital maps of their supply chains down to the lowest tiers have been unable to procure needed components and ingredients they typically source from areas hard hit by the virus. Others, with no such map, have scrambled to create one in the midst of the outbreak. But even that information doesn’t allow retailers and brands to track goods post-purchase.
Without complete visibility into all tiers of their supply chains and their entire product life cycles, companies haven’t been able to move with agility and speed when something goes wrong in one region and source alternatives from elsewhere or move inventory quickly to where it’s needed most.
We have the technology tools to digitalize and regionalize supply chains
With the hard lessons the crisis is teaching us, many companies will look to digitalization to help them move more of their production closer to home, or to geographically diversify their supply chains to a greater degree, in order to mitigate geopolitical, climate, pandemic and other risks. Manufacturers will look to technology solutions such as the internet of things, 3D printing, robotics, data analysis and cloud computing as they onshore or nearshore production, with the end goal of creating more flexibility across their supply chains.
By investing in these capabilities, companies will be able to cut losses and inefficiencies that result from counterfeiting and parallel trade, adapt to shifts in demand or conditions and, importantly, produce more sustainably by improving reuse, resale and recycling rates for products and their components.
But building elasticity and agility into somewhat opaque global supply chains can present a whole new set of challenges for manufacturers, retailers and brands. For example, imagine a CPG maker that attempts to localize some of its production but doesn’t have complete visibility into the lower tiers of its supply chain. Without that visibility into its ingredient sources, the company may be caught flat-footed when it finds, during a crisis, that it can’t get the raw materials it needs to make its end products from the countries where those materials are made. If the company is producing an item in a domestic factory, but one of the offshore factories it relies on for an ingredient shuts down temporarily, or if shipping and logistics in that country are tangled due to a natural disaster or other crisis, the CPG maker will be stuck, unable to manufacture its finished goods, even if it can procure the other 99 percent of the ingredients (and packaging materials) it needs.
This week, the World Economic Forum released a white paper on supply chain interoperability that shines a light on a pathway to interworking among supply chain blockchains. The paper illustrates how data can be exchanged across ecosystems on a scalable basis to facilitate the end-to-end traceability of an item, providing full visibility into every touchpoint on a product’s supply chain journey, from manufacturing to the consumer to recycling.
E-Commerce uptake underscores need for visibility and agility
Another important factor highlighting the need for a globally connected supply chain is the shift of more purchases to the e-commerce channel. With all but essential retail stores closed for safety in most areas, consumers have rapidly shifted to online shopping, even for categories they might not have typically bought online in the past, such as groceries, CPGs and household supplies. In the U.S., e-commerce represented only about a 5 percent share of grocery purchases prior to the COVID-19 crisis, but now millions of consumers are buying food, CPGs and fast-moving consumer goods online. McKinsey has suggested that consumer goods e-commerce transactions would see a 700 percent increase during the crisis.
By the time the pandemic is over, millions of consumers will have become accustomed to shopping for these essential categories, and most others, online—and that habit is likely to stick to some extent. By some estimates, e-commerce will account for at least 200 percent of the proportion of purchases it accounted for pre-pandemic.
To meet the increased demand for e-commerce after the pandemic, companies will look to invest in bringing more sections of their supply chains closer to their end customers. They’ll need to invest in factories, warehouses, digital technologies and last-mile logistics in order to build in more supply chain resiliency and agility. The shift in purchase behavior will also accelerate direct-to-consumer programs.
What We’re Learning
Achieving a globally connected supply chain will require that all stakeholders cooperate and communicate. Manufacturers, shipping providers, port operators, trucking companies, distributors, retailers and recyclers will need to work closely with one another, as well as with technology providers and government regulators, to ensure they don’t get caught again the next time a crisis hits. All parties will need to share previously siloed data to ensure transparency and efficiency.
We need to use this time to think about how digitization and regionalization can create more transparent, agile and sustainable supply chains. Consumers’ shift toward e-commerce will exacerbate huge inefficiencies in working capital, which is frequently tied up in inventory that’s in the wrong place at the wrong time. By working to build a global, adaptive system that networks data intelligence for every item flowing through it, we’ll ensure we can track the custody of every input, and every finished product, across its entire lifecycle, yielding economic benefits and more sustainable, resilient supply systems.
Niall Murphy is CEO and co-founder of EVRYTHNG, the product cloud providing digital identities for the world’s consumer products. A computer scientist by training, Murphy is a technologist, serial entrepreneur and angel investor. With 25 years of experience in innovation and future thinking, he has built pioneering businesses in internet infrastructure, the mobile Internet and web services in Europe, the U.S. and Africa. Murphy is a contributor to the World Economic Forum’s Global Future Council on Advanced Manufacturing and Production and a frequent speaker at venues around the world, including TED.