Resiliency must run across the supply chain

The coronavirus pandemic is the latest crisis to impact global supply chains. After the banking crisis of 2008, banks put in place stress testing to assess how resilient they were to future banking crashes. The same needs to happen in global supply chains. Organisations need to stress test against all possible scenarios: whether it’s another 2012 Fukushima earthquake, the 2010 Icelandic volcanic cloud or 2008 banking crash.

Digitisation, collaboration and data sharing were the common theme among the presenters speaking at the recent Reuters Supply Chain Europe 2020 virtual conference. Knut Alicke, a partner, at McKinsey urged companies to understand their exposure and overall footprint across their end-to-end supply chain. He said: “Companies know their first tier supplier; they don’t know their second tier or third tier suppliers.”

Sharing data down the supply chain allows companies that operate as tier 2 or tier 3 suppliers to have a much better understanding of what the primary customer actually needs. They can then ramp up and down production as needed. A paper-based approach, or even using spreadsheets to collate this information is not going to improve resiliency down the supply chain. Data needs to flow seamless to every business involved.

Role of AI

At the start of the pandemic, some car manufacturers saw their production lines disrupted because the widgets they needed were made by a company down the supply chain in the Wuhan district of China.

One of the speakers at the conference, Francesca Gamboni, senior vice president, supply chain, Groupe PSA described the challenges in managing a supply chain during the coronavirus. She said manufacturers need new ways to forecast demand. For Gamboni, artificial intelligence (AI) has the power to change supply chain forecasting. Rather than having to rely on “looking in the rear mirror,” to base business decisions on historical data, she said AI-based tools can be used to capture elements from the environment, correlate these with demand, then extrapolate the demand in order to improve forecast accuracy. “We work more with simulations and what-if scenarios – to minimise the cost of switching.”

This idea of switching suppliers is another of the issues that has come about as a result of the pandemic. It may require companies to source key components locally, run regional manufacturing and have processes to speed up how quickly new suppliers can be taken on board. No business can hope things will return to how they were prior to coronavirus. Senior executives across many industries believe the pandemic will drive digitization down through the supply chain.

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