Microsoft & McKinsey: AI can solve supply chain disruption

Microsoft leveraging AI firms' know-how for supply chain agility, while SMEs collaborate on haulage, sea freight, to ease global logistic woes

Global logistics has always been a balancing act between long-term forward planning and on-the-ground problem resolution, and the Covid-19 pandemic has not changed this. But what it has done is to amplify the logistical challenges businesses are facing - many times over.

Port congestion, labour shortages and spiralling freight costs are serious problems that have been layered on top of those that global supply chains have always faced, such as political instability, extreme weather events and major traffic incidents.

So in terms of global logistics, how are businesses responding to this blizzard of challenges?

On a strategic level, thanks to the pandemic, many are seeking to mitigate risk through shrinking their supply chain, making it less global and more regional (near-shoring), domestic (reshoring) or a combination of the two.

According to a McKinsey survey into ways Covid-19 has shaped the supply chain, different industries have responded in distinct ways. Healthcare players stand out as resilience leaders, with 60%  of respondents in this sector saying they have regionalised their supply chains. 

Although the figure is lower for other sectors, including automotive, aerospace and defence, almost 90% of respondents said they expect to pursue some degree of regionalisation over the next three years.

Samsung the poster child of reshoring

Samsung US is the poster child of reshoring, having announced a new US$17bn microchip manufacturing plant in Texas, part of its long-term move to nullify any future shortages of microprocessors. The logic is sound enough: reduce the scope of the supply chain, reduce the logistical challenges.

But reshoring is something of a nuclear option when it comes to mitigating risk. There are other approaches - such as that of Microsoft.

In an average year, Microsoft ships between 60 and 70 million units into 122 countries. Everything is outsourced, including manufacturing and distribution centres, meaning it has to manage in excess of 250 tier-one, -two, and three suppliers in around 40 territories. It’s a multifaceted supply chain, across different channels, including not only enterprise but also big-box retail. 

Over the past seven years Microsoft has been undergoing a digital transformation. 

“It all started with an awareness statement, not a mission statement,” Microsoft global supply chain GM David Warrick told Procurement & Supply Chain Live in September 2021.

That statement was: that the supply chains of the future will have the interdependency, interconnectedness and the intelligence to predict disruption before it occurs. Which is pretty much the silver bullet of global logistics.

AI giving supply chain agility, automation

Warrick maintains that this goal is not as ambitious as may first appear, thanks to the “beautiful ecosystem of bespoke solutions that target key problems within the supply chain.”  

He added: “We've partnered with some incredibly smart companies with wonderful solutions, and have evolved our supply chain at an incredible rate. It’s all about visibility and automation.”

An example of this is Microsoft’s dynamic transportation management system. (TMS). Pre-digitalisation, the company had seven TMS systems, none of which talked to each other. So Microsoft partnered with a third-party logistic company, CH Robinson.

“We told them we would still negotiate freight rates with FedEx, UPS, AMCO, Maersk and so on, but that we’d hand over the rate cards to them and have them manage the TMS, end to end.” 

The result was a product called Navisphere Vision.

“We're now tracking ships using FleetMonitor, a third-party aggregator,” says Warrick. “We use FlightAware for airlines and Bing Maps for road traffic, and can use all this information to predict estimated times of arrival for goods.”

This, he says, allows Microsoft’s logistics teams to focus on cargo that is late and that will impact customers, all of whom are informed of delays.

But of course, global logistics isn’t just the concern of multinational leviathans such as Samsung and Microsoft, with mountains of cash to throw at logistics challenges.

Thriving SMEs ‘have own logistics function’

Countless small manufacturing and retail businesses also rely on the global shipments of parts and products. Indeed, in many ways, the logistical problems facing such companies are even more severe, as not only do many lack the finances to adopt Industry 4.0 and 5.0 solutions, but they also get buffeted by even small disruptions to supply. Driver shortages, for example, which have affected the UK, swathes of Europe and the US.

Rob Wright, executive director of SCALA Consulting- a provider of management services for the supply chain and logistics sector - says the companies coping best with driver shortages are those with either well established in-house logistics functions, or those with long-term fixed contractual arrangements with logistics providers. 

Wright says the companies who have been hardest hit are those that are reliant on spot-market transport, or who use temporary labour. “It’s a seller’s market,” he says.

Collaboration on haulage, shipping ‘vital’

Wright’s advice to smaller businesses is to collaborate with competitors on road transport.

“Organisations need to work together across the supply chain,” he says. “Manufacturers should share their supply chain assets for mutual benefit. In our experience, very often a company’s best collaborative partner is its competitor, because they face the same challenges, share the same customers and often the same suppliers.”

Wright says collaboration can also help smaller companies cope with problems concerning container shipping, which is currently seeing global delays and inflation on an unprecedented scale. The cost of shipping goods between China and the UK has risen threefold in the past year alone, for example. 

And this is no short-term headache; many experts predict these problems will run well into 2023. 

“In terms of what businesses can do on containers, shipping in bulk is prudent because it increases volume per shipment,” advises Wright. “Businesses might even think about sharing shipping deliveries with similar or partner businesses, allowing goods to be shipped in fewer journeys.” 

In some sectors, Wright says, companies are moving from sea freight to air freight, which although more expensive, is much faster.“It’s mainly companies with high-value and lower-volume goods,” he explains. “Air freight results in guaranteed availability and inventory. 

So for smaller businesses it seems that it’s very much a case of ‘stronger together than apart’.

But large or small, companies are having to plot a strategically smart path through the onerous global logistical challenges they face. Anything less, and they know they might not emerge from the other side.


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