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COVID-19 and Digital Transformation: Supply Chains

The COVID-19 pandemic has had an outsized and multifaceted impact on one of the economy’s most vulnerable and easily disrupted components: the supply chain.

COVID-19 has had a multifaceted impact on the economy. However, it has had an outsized impact on one of the economy’s most vulnerable and easily disrupted components: the supply chain. The pandemic has shut down production and movement of goods across the world, causing dramatic changes in consumer demand – leading to shortages, over-stocks, rationing, and high prioritization of certain items.   

For decades now, supply chains have been notoriously reliant on older technologies and processes involving spreadsheets, Enterprise Resource Planning (ERP) systems, and paper-based records and receipts. Many organizations have been hesitant to modernize their supply chain management systems, under the assumption that additional capabilities and new efficiencies simply would not justify the cost of digitization. COVID-19 has revealed this belief to be painfully shortsighted. 

To be fair, traditional supply chain management approaches made sense in a global trade environment that was relatively stable and predictable. Unfortunately, as the pandemic has demonstrated, these models and processes are in fact surprisingly vulnerable to shock and disruption. As Clifton Wessels-Yen, Managing Director of the Sourcing and Purchasing Transformation Practice at AlixPartners puts it, “An unforeseen disruption in just one piece of a linear supply chain can have a devastating financial impact on the entire system, just as a physical chain is only as strong as its weakest link.” 

By necessity, companies must now scramble to integrate digital transformation initiatives into their supply chain management. This calls for the replacement of old hybrid systems, dependent on a combination of manual, paper-based processes and aging software, with digital supply chains built on cloud platforms and cutting-edge technologies that connect every element across the supply chain network. The adoption of digitization trends helps companies gain three essential capabilities enabling them to handle unexpected disruptions in the supply and ensure business continuity: End-to-end visibility, speed, and agility. 

 

End-to-end visibility  

End-to-end visibility across the entire supply chain allows companies to anticipate disruptions and fully assess their impact should they occur, making it possible to adjust plans and operations accordingly. For example, if a factory runs out of materials, end-to-end visibility enables companies to quickly react and shift inventory or production to an alternate location. A ship may not be able to make it to port on time, or could be idling at a port due to scheduling or compliance mishaps. Instead of accruing costs and risking spoilage, end-to-end visibility would allow the company to find an alternate port, or even an alternate supplier.

This level of visibility depends on all parties involved in the supply chain interacting and sharing information in real-time. Data silos must be torn down, and data from all internal and external sources—including demand spikes, schedules, ledgers, inventory, prices, port closures, various laws and regulations, weather, natural disasters, labor strikes, and political instability—must be connected and consolidated into a single, reliable source of truth. The data must also be accessible in a digestible way. Supply-chain visibility tools are of no value unless the people who need the data can view and understand it without advanced database skills or IT expertise. 

 

Speed

Sending and receiving data, analyzing that data to determine the best response, and executing on required actions all must happen as fast as possible. The less latency in data transmission between people, networks and devices, the faster decisions can be made and action taken. 

Digital transformation initiatives can significantly reduce or eliminate the paperwork and manual processes that slow production down. Onboarding new suppliers, for example, often becomes a bottleneck in supply chains due to the burden of securing contracts and letters of credit. Automated procure-to-pay processes and interconnectivity with banks and financial institutions can eliminate these bottlenecks. Rather than spending weeks or even months on paperwork—not to mention incurring additional costs in the form of labor and legal fees—digital platforms can integrate with the financial end of the supply chain, reducing friction and eliminating unnecessary expenses.  

Through high-speed interconnectivity and cutting-edge technologies such as artificial intelligence (AI), machine learning, and prescriptive analytics, digital supply chains can exponentially increase planning and response times. Changes in purchasing or manufacturing can be made days or even weeks sooner, and alternative supplier capacity can be reserved before competitors even know about a disruption. 

 

Agility

Leveraging technologies such as AI, machine learning, and prescriptive analytics not only increases the speed of operations and decision making, but these tools can also generate rapid insight, facilitating a nimble response to any emergent circumstances.   

Machine learning can detect very subtle changes in supply chain dynamics and provide early warning of potential disruptions before they happen. In this way, the company can alert the appropriate stakeholders in a timely manner and take immediate action. In fact, these alerts can even trigger automated, pre-planned responses that require no human intervention.

AI in digitized supply chains can also simulate the effects of disruptions. By modeling such scenarios, companies can identify the best methods for mitigating their effects, develop quickly deployable action plans, and explore a range of “what-if” scenarios. AI can also continuously update planning parameters and objectives to prevent outdated assumptions from becoming ingrained in the supply chain ecosystem. 

 

To truly digitize, supply chains must move to the edge

According to Lux Research, “Advances in information and communications technology are making the evolution of the supply chain more possible. Technologies such as IoT, cloud computing, 5G, AI, 3D printing, and robotics are all critical to enabling the digital supply network of the future. At the same time, a volatile business environment is making it all the more necessary.”

Ensuring the ultra-low latency, bandwidth, and processing power necessary to use these technologies will be crucial for supply chains to digitize. Centrally-located data centers connected by cloud alone simply cannot handle the demands of modern digital supply chains, and sudden “black swan” events—as we’re seeing with COVID-19—will prove to be too overwhelming for traditional supply chain processes and technologies. 

Local, interconnected colocation data centers located at the “edge”  the periphery of the network as close to users as possible provide the bandwidth, processing power, scalability, and near-zero latency supply chains need to digitally transform. As supply chains continue to not only digitize, but diversify geographically so as not to be overly reliant on certain regions or providers, connecting to the edge at colocation data centers is the best way to ensure the visibility, speed and agility needed to operate in a volatile, unpredictable global landscape. Contact us for more information.