A rash of research has highlighted the dire lack of visibility companies have over their supply chains, despite the increasing availability of technology that can help
As globalisation increases, supply chains of large companies have proliferated and scattered across the globe. Many large firms now have up to 20 tiers contributing to their end products. This increases the risk that one weak link in the chain can disrupt supply with major consequences.
But research by Deloitte has shown that two in three procurement leaders have limited or no visibility beyond tier one of their supply chain and several other studies show similar results or worse.
Technology that tracks suppliers in real time can help retailers supply products to customers more quickly
According to the 2018 Business Continuity Institute (BCI) Supply Chain Resilience Report, 14 per cent of disruptions cost companies more than $1 million. Lack of visibility into the supply chain also often impacts reputation, logistics and can cause costly over or understocking.
Visibility of sub-tiers brings opportunities too. For example, technology that tracks suppliers in real time can help retailers supply products to customers more quickly, and improve their corporate and social responsibility credentials.
Jolyon Austin, partner at EY, says: “Visibility is no longer a nice to have, but a foundational capability to remain competitive. Visualisation and mapping help companies see new strategic opportunities and ways to improve performance in the supply chain.”
Mr Austin says one reason for poor visibility is that knowledge about supply chain tiers often sits with individuals and is not institutionalised. But burgeoning pressures on service, cost and inventory, and the accelerating pace of operations, increase the need for companies to visualise supply chains at strategic, tactical and operational levels.
“This is enabled by increasingly capable technology,” he says. “Blockchain [digital ledger technology] is hyped and will find its place. But we also see an increasing prevalence of so-called control towers [central hubs that provide a global view of the supply chain] in global freight, logistics and planning.”
According to the BCI report, 52 per cent of reported supply chain disruptions were in tier one, 23 per cent in tier two, 11 per cent in tier three or lower, while an alarming 30 per cent of respondents did not identify the disruption source. This means that anything between 34 per cent and 64 per cent of disruptions could be in tier two or lower.
These solutions enable companies to map their supply chains in more detail and foster relationships with each tier
So far, the three main types of software that companies use to track supply chain incidents are spreadsheets, business continuity software and financial solvency models. But a plethora of new software solutions, including control towers and blockchain platforms, are launching to help them map, visualise and track their supply chains across tiers globally.
These solutions enable companies to map their supply chains in more detail and foster relationships with each tier. How many tiers they map depends on the risk at each level, but the technology means they can theoretically go all the way to tier 20 if necessary.
Companies that are more successful in this area combine this information with analytics solutions to profile suppliers in each tier, including resilience and areas of risk. They can address any areas of weakness by helping suppliers build resilience and/or diversifying supply sources.
Another solution, already in use with some major manufacturers, improves visibility by identifying risk events such as typhoons or terrorist attacks every hour. It then classifies and geo-positions the event, superimposes it on their subscriber’s global supply chain map and alerts them.
Another big challenge is companies have limited resources to achieve all this across large, complex chains, especially given that external risks are much harder to manage than internal ones.
Douglas Johnson-Poensgen, chief executive of Circulor, a supply chain platform that uses blockchain to help manufacturers track components from mine to finished product, says: “The technology can reach every tier. The difficulty is engaging each tier with all the challenges of due diligence, audit and monitoring of suppliers.
“Most large organisations have close relationships with tier-one suppliers, but until recently a chain of custody from source, which could be tier six or seven, to consumption has been anathema.
“However, business conduct has become a mainstream issue. For example, car manufacturers want to demonstrate 100 per cent certainty over provenance of the cobalt in their batteries. Mapping technology can also do things like measure carbon intensity, which is essential for showing carbon neutrality.”
Showing the blockchain data in a user-friendly dashboard enables users to spot supply chain anomalies quickly, adds Mr Johnson-Poensgen.
“Blockchain has found its niche in supply chains,” he says. “It lends itself to a system that can exchange digital representations of commodities, in our case. Another example is tracking containers and linking that information to trade finance.
“[Systems like this] will become the way supply chains work. If you want a route to car manufacturers, you will have to play by those rules. It‘s relatively new technology, but manufacturers have been surprisingly engaged in the process. It bodes well.”