HOW I LEARNED TO STOP WORRYING AND LOVE THE NEW NORMAL
So much has already been written about supply chain disruption over the past 18 months, starting with the initial production shutdown in China, to fascinating stories of toilet paper hoarding, and now to the current inability to obtain a pending request through our ports. input – I was initially reluctant to add another item to the stack. So what made me change my mind? There are actually two reasons, which I will explain.
First, the issues and lessons learned from the COVID-19 pandemic are now forcing companies to become more agile, reassessing every element of their existing supply chains in preparation for the “new/next normal”. It’s now a clean sheet of paper, as previous manuals regarding sourcing, stock levels, placement and risk mitigation plans (if they even had one) – along with any supporting infrastructure people, processes and enabling technologies – are thrown out the window.
And while COVID-19 can be seen as the catalyst for forcing companies to perform these assessments, it doesn’t take a pandemic to bring a supply chain to its knees. In addition to the exposure brought by single sourcing of key goods or by maintaining low inventory levels (i.e., “just in time” versus “just in case”), the Designing a more resilient and less risky global supply chain will require including a broader list of potential risks to consider, especially when selecting foreign suppliers. These should include geopolitical conflicts, socio-economic factors such as labour, crime and corruption, limited port capacity/infrastructure, weather-related disruptions and even natural disasters (remember the earthquake of earth and the 2011 tsunami in Japan).
Take geopolitical risk, for example. The United States’ overreliance on China for products ranging from personal protective equipment to rare earth minerals has made it a growing concern from both a trade and national security perspective. A sobering report from the Hinrich Foundation (“Strategic US-China Decoupling in the Tech Sector”) states that “China-US geopolitical competition has reached a competitive tipping point and morphed into a new ‘Cold War’. “,” citing an increase in China’s bold hegemonic policies. The report further points to years of intellectual property theft in China, rising labor costs and more recent special tariffs imposed by the Trump administration as key reasons for an increase in channel decoupling. US sourcing from China and moving to more risk averse areas in Southeast China, quasi-shoring to Mexico or even re-shoring to the US.
In a side-by-side proximity exercise comparing China to Mexico, the benefits quickly fell to Mexico, citing a shorter supply chain with fewer physical touchpoints (damage/theft/service fees), lower costs lower transportation costs and eligibility for rights. -free admission under the USMCA Free Trade Agreement, plus side benefits including ease of communication with vendors and convenience of traveling to vendor locations.
RISK MANAGEMENT MEETS INDUSTRY 4.0
The second reason for my writing is that there is another movement afoot that aligns with supply chain risk initiatives from the perspective of enabling technology capable of producing even greater resilience. Labeled “Industry 4.0”, this next industrial revolution is the result of the substantial transformation that is occurring thanks to the digitization of manufacturing. For context, the first industrial revolution was made by the introduction of water and steam. Steam would give way to electric power as the second industrial revolution, with the third born out of the introduction of computers and their ability to automate previously manual tasks. Fast forward to today, when the fourth revolution further optimizes this automation by connecting computers to intelligent machines and “disruptive technologies” – such as artificial intelligence (AI), machine learning, advanced business intelligence, predictive analytics and data lakes – capable of removing humans from decision-making processes, including applications capable of identifying and even predicting risk.
Where Industry 4.0 supports supply chain risk management initiatives is that the 4.0 movement includes the digitization of global supply chains. This will result in unprecedented transparency and connectivity across the entire end-to-end ordering and shipping process, where supporting business functions such as product engineering, sourcing, sales and Marketing, Transportation, Trade & Customs and Accounts Payable traditionally operate in respective silos.
Take, for example, trade and customs operations. Their typical placement towards the end of the supply chain process, coupled with a lack of early visibility into the international order, has served for years as a recipe for reactive firefighting as shipments get “stuck in customs.” on arrival until data/documentation issues are resolved. . In a digitized model, silos are replaced with connected supply chain visibility that would enable trade and customs involvement to go upstream to the early stages of new product build/purchase decisions. As a result, they are now able to proactively provide critical advice on regulatory issues, import eligibility requirements, duty/tax reduction strategies such as tariff engineering, free zones, free trade agreements or changes in countries of origin (e.g. avoiding a special 25% tariff on Chinese products by shifting sourcing to Mexico) – all key factors capable of removing costs, risks and delays in their supply chain.
If you are currently developing a business case for launching your own risk management initiative, “Resetting Supply Chains for the Next Normal,” an interesting report from McKinsey & Co., might provide additional support. For example, in their survey of 60 senior supply chain executives across all industries and geographies, 85% said they struggle with insufficient digital technologies, 93% plan to increase the resilience of supply chain and 90% plan to increase the digital supply chain. internal talent needed to support this new technology. In short, you are not alone.
Whether your current plan is to deal with exposure to disruptions in your supply chain or digitize the entire business due to increasing disruption caused by technology-driven innovation, it is becoming clear that Companies will be forced to become agile and adaptive—able to change business models at unprecedented speed in order to survive and thrive in the “new/next normal”.
Jerry Peck has over 30 years of experience in global trade management. His career has uniquely encompassed nearly every facet of GTM, including third-party logistics, business operations within Fortune 300 multinationals, and professional services consulting firms. Learn more about QAD Precision at precisionsoftware.com.