In the Age of Supply Chain Volatility, Investments in Technology Will be Rewarded
By: Bcg Digital Ventures
Tags: Supply Chain, Supply Chain Management, Shipping

In the Age of Supply Chain Volatility, Investments in Technology Will be Rewarded

Global trade tensions and the COVID-19 pandemic have placed global supply chains under unprecedented pressure. Companies who look to technological solutions can bolster resiliency — and might even be able to take advantage of new opportunities. BCG Digital Ventures Follow Dec 11, 2020 · 6 min read

By Jeff Ahlquist, Managing Director and Partner, and Venkat Jonnala, Managing Director and Partner, BCG Digital Ventures

Over the last few decades, increasing global trade has led to a high level of supply chain sophistication, with manufacturers, suppliers, logistics providers, sales channels, and end consumers spread between continents. Minute refinements have made low inventory and high efficiency the status quo. In recent years, although protectionism and geopolitical tension have started to apply some pressure, with trade between the US and China dropping 16% in 2019, hyper-efficient, low-inventory supply chains seemed advanced enough to withstand almost anything thrown at them.

The COVID-19 pandemic put an end to this illusion. As factories closed and transportation screeched to a halt, companies found inventories quickly depleting as manufacturing was shut or slowed down. There were shortages of everything from automotive parts to food to medicine, with supplies contingent on an advanced yet suddenly fragile global supply chain under assault from all angles.

Companies that had begun rethinking their supply chain operations due to trade wars, geopolitical tensions, and natural disasters before the pandemic have now greatly accelerated these efforts. As a part of this vital reevaluation, supply chain resiliency can be developed by leveraging technology to digitize operations. Transparency, insight, and agility are necessary to respond to large global disruptions. Companies should drive redundancy to offset any manufacturing disruption, and investigate new sales channels to ensure liquidity if traditional distribution channels are disrupted.

The Great Rethink

Some companies are reevaluating their supply chain operations in order to make them more durable in the context of increasing global volatility. This has taken the form of regionalization and diversification, with some companies seeking out regional and local suppliers to offset the effects of geopolitical pressure or upheaval due to the ongoing pandemic. More still will look to add redundant capacity to boost resilience. For some, this will be an important step towards future-proofing their business, but for others the increased cost margins will be too much to bear. In most cases, companies will now have to balance cost against supply chain risks.

No matter what decisions are made, any supply chain reconsiderations should expand to take into account another angle: the flexibility and potential offered by greater implementation of technology.

New Tools and Technologies

One company that has come out of the pandemic in an even stronger position is Amazon. In the face of a significant shift to both B2C and B2B e-commerce activity triggered by the pandemic, Amazon was able to capitalize on this rapid shift because of its online platform and logistics system, which is the foundation for one of the most sophisticated supply chain operations in the world. This platform enabled Amazon to meet unprecedented demand even without the usual foresight that accompanies the runup to its peak seasons.

The company uses a variety of transport solutions — air, land, and sea — for maximum flexibility. Due to its scale and supply chain visibility, it is able to manage its inventory, and suppress those elements that are not in high demand. The key to Amazon’s success, however, is the technology that underpins its complex fulfillment operation. In the age of geopolitical upheaval, trade wars, and COVID-19, companies should follow suit by leveraging digital supply chain technology to help them be as resilient and efficient as possible.

So, what does this mean for companies looking to improve their supply chain operations by upgrading technical capacity? The first step is to understand the movement of inventory throughout the supply chain by using backend tools to track goods and components at every stage. Such tools should be connected to inventory and storage management systems, enabling more flexibility. In addition, new asset-light storage solutions can offer new opportunities. With an accurate picture of the supply chain, companies will be able to understand exactly how much storage space is required and where, giving them the option to either use third-party warehouses or offering their empty space to others. The same principle stands for transportation, with the flexible utilization of fleets again giving companies the opportunity to save costs and find the right option for their circumstances.

These efforts can be bolstered by new technologies, such as artificial intelligence and machine learning, which can identify trends and efficiencies that would otherwise go unnoticed in huge pools of data. They can also offer insights to allow for more accurate predictions and forecasting. Other technologies, including optimization algorithms, computer vision, IoT sensors, blockchain, and other innovations have been used to bring real-time, end-to-end visibility to supply chains.

New Opportunities

Although the first priority should be resilience and protecting supply chains, we also find the recent market situation has uncovered many new business model opportunities that can unlock significant value for the organization.

One acute problem during the worst weeks of the pandemic was distributors slowing or shutting down operations due to worker shortage or safety precautions, leaving some suppliers with warehouses full of product but no means to sell or distribute. Many companies were caught off guard, unable to manage their current sales channel digitally or sell and distribute directly to end customers.

Given this reality, many companies tried to quickly create sales portals and e-commerce solutions, but were hampered by legacy technology, contractual obligations that prevented direct sales, and lack of knowledge on how to build, launch, and scale these new capabilities and channels.

In the future, companies should look to digitize their entire customer value chain to unlock the efficiencies of digital interactions. These include ordering in a touchless fashion, transparency on the status and location of orders, and enabling demand-planning discussions directly with your clients. That said, to undertake this effort it takes more than simply standing up an e-commerce solution. It is critical to have deep insights into the wants and needs of all constituents in your value chain and how they want to interact with your company. Companies should define how this will complement or hinder their current business, and then build the correct business model on the correct technology stack to unlock value.

BCGDV-built UPS venture Ware2Go is one such example of how innovative supply chain solutions can pay dividends for companies. Ware2Go brings a new approach to the 3PL (third-party logistics) model, offering clients a nationwide network of certified warehouses, technology to streamline fulfillment across sales channels, and a flexible business model that eliminates long-term contracts and order minimums. The company combines an asset-light model with a strong tech backbone; this has given it significant flexibility to respond to changing market conditions and needs, driving value for all stakeholders — including UPS, customers, and partner warehouses. In the initial stages of the pandemic, Ware2Go was able to support 1M Masks, an initiative to get personal protective equipment (PPE) to New York City healthcare workers, by donating its logistics technology, network of warehouses, and fulfillment and shipping services.

The Rewards of Investment

While the global trade landscape and the context of the pandemic are likely to increase pressure on companies in the future, these factors should provide the catalyst for companies to hone their efforts to boost sales throughout, operational efficiency and effectiveness through technology. Beyond the vital uptick in resiliency, companies who are smart in their implementation of technology stand to gain not only in short-term efficiency, but also perhaps in new, valuable additions to their business model.