Digital infrastructure the key to rebuilding supply chains

Digital infrastructure is key to rebuilding supply chains as resilient “networks” 

Record inflation and the prospect of recession has created a significant change in consumer spending habits in recent weeks. Shifting demand, compounded by material shortages, has created significant supply headaches for retailers and manufacturers in all industries. 

Reports of stockpiling and over-ordering to meet unpredictable demand are commonplace. In an economy much different from the seamless and open one in which global supply chains as we know them have developed, it is clear that new technology and new thinking are needed to ensure resources can be properly managed and maintained. 

Digital infrastructure and real-time information will be key to this, but so too is the reality that linear supply chains must be reimagined as ‘networks’ to ensure that both risk and resources can be evenly distributed.

Since the 1980s, globalisation, and therefore global supply chains, have developed rapidly during a period of relative geopolitical calm. As a result, the process of finding buyers and suppliers in an open international market has been relatively simple, relying only on price, capacity, and service. 

Broadly speaking, commodities of every kind have been available and affordable for a very long time, keeping consumer spending stable and, critically, predictable. The supply chains that have supported this have therefore been large, but they have been simple. 

Changing the rules of the game

However, geopolitics and economics are perhaps now more complicated than they have been for at least 40 years, and this has changed the rules of the game. Consumer habits are also perhaps at their least predictable in that time too, as they realise the increased costs of living. Amid varying lockdown policies, ongoing wars, and spiraling price pressures, linear global supply chains are facing their first real systemic and structural challenges at both ends of the spectrum, and they are struggling to cope. 

Perhaps for the first time, businesses have been forced to reassess what constitutes security in their supply chain and are diversifying their networks in order to ensure supply is steady. 

The answer for many has been to stockpile, and in many cases, businesses are stockpiling the wrong things as consumers look to buy cheaper alternatives or cut back spending entirely. 

The problem is that this supply chain diversification and stockpiling is global. There are too many buyers fighting over scarce resources. A sudden change in the market can change scarcity to a glut more rapidly than in the past. 

And at the heart of the problem is the fact that supply chains have developed in comfortable global conditions. This means that most have developed without the type of technological infrastructure and real-time information that can mitigate supply and inventory issues. These technologies are available, but with most businesses playing catch up when it comes to optimising data and inventory visibility, further implementation is needed.

The dawn of a new age

We now must consider a new age for supply chain management whereby adaptability, reliability, and communication are foundational. A global ‘shoring-up’ phase is imminent, and it is necessary. Pre-pandemic conditions are unlikely to return, meaning that predictability, which has been taken for granted for decades, can no longer be relied upon. 

In the face of this, many have turned to over-ordering to meet unpredictable demand, but this is an unsustainable solution that needs to be addressed quickly. 

Factories have a finite amount of materials, and sudden spikes in demand for anything from food staples to semiconductors can cause numerous supply chain links to over-order, leading to vast amounts of excess inventory. 

his ‘Bullwhip Effect’ is currently playing out on a global scale and, if conditions remain as they are, could perpetuate as a result of supplier and buyer guesswork. 

Removing the guesswork from the equation must become a priority for everyone. The need for more real-time information sharing between trading partners is critical to this and will help cultivate more adaptable networks that have flexibility built in. 

An example of this in practice is with modern “buffer storage” units. This is the idea that numerous suppliers are able to communicate with one another to share a mutual location to store valuable materials. Central to this is information sharing, providing knowledge of available stock for sudden demand changes or, for suppliers who have difficulty delivering on time, the benefit of being digitally connected to thousands of other suppliers in a so-called ‘network’. 

Knowing available stocks in buffer or in production can prevent over-ordering and smooth out the peaks and valleys of the bullwhip. The siloed supply structures that have functioned so effectively for decades are quickly becoming obsolete. 

Looking forward

The reality is that supply chains will probably not return to the predictable comfort of pre-pandemic conditions, where the cheapest route always wins. In the next decade, we will likely see supply chains become multifaceted with built-in flexibility and interoperability. 

This gravitation to more collaborative and open networks that can provide adaptability that is badly needed in a new-look economy has already begun and is gathering pace. 

As digital infrastructure is more commonly implemented to help manage supply and inventory challenges, supply chains will gradually become diverse, agile, and perhaps predictive. In time, we may even refer to them as supply ‘webs’ or ‘networks’ that provide the foundation for more informed decision-making in managing complex supply chains.

• Erik Wanberg is Head of Inventory Management at Taulia a provider of working capital solutions, focused on enabling buyers and suppliers to choose when to pay and get paid.