The COVID Shocks
The recent Covid pandemic exposed weaknesses in the supply chains of various industries. No company could handle the repercussions of work stoppages, blockages like the one at the Suez Canal, and labor crunch. Therefore, it is more important, now than ever, to get the utmost visibility of the supply chain across all tiers upstream and downstream to be better prepared for the next pandemic or another such calamity.
Visibility Beyond Tier 1
This blog borrows a few snippets from the University of Chicago’s “Chicago Booth Review” publication on “How to Create a better supply chain – that is resilient, green, transparent, flexible, efficient, and smart?”. Companies admit that their supply chains are global and complex beyond their understanding. While they have visibility of their Tier 1 suppliers, there is no visibility beyond that. For example, Toyota reportedly diversified their Tier 1 suppliers for redundancy and crisis planning, not realizing that behind the scenes, the Tier 1 suppliers were using the same Tier 2 supplier/s. As a result, bottlenecks in Tier 2 caused disruptions in Toyota’s operations.
Governance Responsibility of Long Supply Chains
To compound this issue further, we highlight ” long supply chains that snake around the globe,” a description of a National Bureau of Economic Research project called “The Rise of Global Supply Chains, Networks, and the Rise of Interruptions: Looking Forward past COVID-19.” The effort, led by Harvard’s Laura Alfaro and Booth’s Chad Syverson, seeks to measure the consequences of longer supply chains and consider strategies to reduce risk. Long and lean supply chains can be interrupted by natural disasters, cyberattacks, and political upheaval.
Historically, significant supply chain players have the money to invest in technology, human resources, and management bandwidth and pursue risk, scenario, and strategic analysis. However, even with their financial capital, their requests for involvement with upstream and downstream entities remain relegated to high-level questionnaires. There has been little to no attention to supporting evidence, continuous audits, and data collection that is traceable, verifiable, trustable, and dependable.
Collective Risk Assessment
“A lot rides on the existence and type of substitutes available within supply chains,” says Syverson in the Booth Review. “How many companies supply a given input? How many countries and geographic locations are the sources? How costly is it for inventories to be used to insure against disruptions? Can air transport be used to substitute for ships? If interruptions occur, how costly is it to work around them? And does it make sense for companies to spend resources to expand such options before any problems arise?” The answer to these questions lies in the availability of a joint analytical solution accessible by all impacted parties, so those appropriate representatives can upload supporting data and analyze the impact jointly. Companies pull data into isolated reporting and analytical solutions owned and administered independently by the impacted parties. In today’s Web 3.0 technology trends, with a joint solution perhaps backed by blockchain technology, each party can rest assured that the data in the commonly accessed view will not change without visibility.
Data Collection – Starting with a Digital Map
Continuing on the transparency argument, companies must get comprehensive data from all their business partners before they can make significant changes to their supply-chain processes. “The supply chain has six mega processes: plan, buy, make, move, distribute, and sell. Companies work with others to accomplish the six processes. Still, few know all the parties with which they are directly or indirectly doing business, and few have enough information to see where the next crisis could come from, much less how to address it,” says Texas A&M’s Eleftherios Lakovou. Companies can address this collective lack of knowledge by making each entity in the supply chain responsible for first drawing a digital map (also known as the digital twin) of its tier 1 upstream and downstream entities. Then they need to assess what could go wrong in their immediate tier1 upstream and downstream. Finally, key stakeholders join the views to draw the whole picture once all participating entities complete this exercise.
ESG Considerations in Supply Chain
Pivoting to the green ESG angle, these elements have been a problem since long before the pandemic. The lack of transparency has enabled labor exploitation, environmental destruction, and reputational damage. Greenpeace and other activist groups have called out multinationals for using suppliers linked to problems that have ranged from dumping toxins in rivers to committing labor violations. Without full transparency, including regular audits, companies can claim they weren’t aware of the less ethical aspects of their supply chain. The first step toward clarity is for companies to map their networks fully from tier-one suppliers down to understand the exact composition of their supply chain. Latviv proposes an ESG periodic table based on World Economic Forum (WEF) ‘s four pillars – planet, people, prosperity, and governance. The table currently has 28 cells covering climate change, resource conservation, diversity, innovation, and unethical losses, amongst other items. We suggest that prominent supply chain players drive data collection and compliance across these 28 areas by all other participating entities for the world’s common good.
Incentives to Collaborate
Lastly, let’s discuss the lack of solid incentives for everyone in the supply chain to be more transparent. Each link in a chain has different goals and makes decisions in its best interests. This lack of incentive is a significant obstacle to sharing data within the supply chain. For example, consider an automaker and a brakes supplier three tiers down on the chain. The brakes supplier could be concerned that if it were to share capacity or cost information, the automaker might try to squeeze costs or bypass it and work with the supplier’s own suppliers.
Survey responses in the Business Continuity Institute’s 2019 Supply Chain Resilience Report indicate that 57 per cent of global companies surveyed likely lacked complete visibility into their supply chain before the pandemic, and another 20 percent were unsure if they had it. However, in light of the pandemic, “the urgency is there,” DeHoratius says in the Booth Review. “The incentive conflicts haven’t gone away, but there is more talk about the necessity of developing this map and understanding the supply chain.”
Need for an Innovative Solution
We believe participating players can address trust issues through NDAs (non-disclosure and non-compete agreements). On the technical side, there is emerging thinking on zero-knowledge proofs (ZKP) frameworks gradually gaining acceptance. For instance, companies up and downstream that don’t have strong NDA agreements can pursue the ZKP framework and still rest assured that the companies with the NDA agreements have relevant knowledge of the details. We will cover ZKP as part of another blog. In our practical series blog focus, we stay focused on applications that most non-technical folks can readily understand.
Please ask for a demo to see how a technology solution set up as a template by the most significant player in the supply chain can be used by all participating entities to leverage as a common standard. For example, this template could include, but is not limited to 1) standard landing pages, 2) network maps of interconnected plants, warehouses, and distribution centers, geography maps showing movements of goods, 3) self-assessments, 4) audits, 5) data characteristics, 6) dashboards, 7) checklists, 8) best practices, and 9) project templates.
Please ask for a demo to see how our architecture uniquely supports this initiative.