Supply Chains Still Reeling from Global Shockwaves
New book describes the crucial role of supply chains, how they’re being digitally disrupted, and what’s next
Global supply chains are in the spotlight. In the past few years, events and upheaval have demonstrated both how critical — and how fragile — these conduits are for trade and commerce. Much has been written and discussed about supply chain value, but there’s still work to be done to shore up the links.
“The societal and economic spasms of the early 2020s highlighted the crucial role of world-spanning supply chains in the modern global economy, as well as the growing role of digital technology, including AI and automation, in the future economy,” wrote MIT professor Yossi Sheffi in the Preface of his new book The Magic Conveyor Belt: Supply Chains, A.I. and the Future of Work.
Sheffi aims to add context to conversations about today’s supply chain problems and outline areas in need of actions. He succinctly states that supply chains have a massive mission: “To fulfill the needs and wants of humanity — delivering all the food, medicine, energy, apparel, and other worldly goods need by the eight billion people in the planet.” He described them as complex, overlapping ecosystems of all the companies involved in delivering products.”
When the pandemic put that immense ecosystem on hold, it was clearer than ever that the digital pipeline needed re-examination.
Globalization Loses Luster
As background, the 1990s ushered a golden age of globalization. The world seemed to be coming together. Thomas Friedman’s The World is Flat became an international best-seller in 2005 by nicely explaining what globalization was all about, including the key forces that contributed to flattening the world — from the collapse of the Berlin Wall in November of 1989, to the rise of outsourcing, offshoring, and global supply chains.
“The golden age of globalisation, in 1990–2010, was something to behold,” wrote The Economist in a January 2019 article. “Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised.” But, ever since the 2008 global financial crisis, globalization and global trade started to slow down. “Globalisation has slowed from light speed to a snail’s pace in the past decade for several reasons,” said The Economist.
But three major shocks have further reshaped globalization: The increasing trade wars and tariffs of the past five years, especially between the U.S. and China; the disruptive impact of Covid-19 on global supply chains; and more recently, the war in Ukraine, which threatens to further decouple the world’s economy into a Western and a Chinese trading bloc. Mohamed El-Erian, one of the world’s most influential economic thinkers, said in a recent podcast interview, that
the rewiring of global supply chains is one of the major drivers of major structural changes in the global economy.
Four Fundamentals
Sheffi’s book explains the foundations for understanding supply chains, the important role they continue to play in our global economy, their intrinsic and growing complexity, and the impact of digital technologies and automation on their evolution. The book is organized into four main parts. Let me summarize a few of the key points.
The Global Dance. Part 1 explains the intrinsic structure of global supply chains and the challenges of managing the huge networks they comprise. Even seemingly simple consumer goods are composed of myriad parts or materials from different suppliers. Each of these is further composed of many intermediate products from intermediary suppliers, all the way back to the providers of raw materials. “Even a single missing part can prevent the manufacturing of a product from being completed,” wrote Sheffi.
Complex supply chains are generally dispersed around the world. At one end are the localities that provide the required raw materials, as well as the expertise and capital needed to build the end products. At the other, are the widely dispersed markets for the finished goods and the consumers who will buy the products.
“Connecting all these supply chain elements is an intricate set of services and transportation networks that store, move, and service the goods efficiently, reliably, and quickly. The result is that supply chains are actually complex overlapping ecosystems of all the companies involved in delivering products.”
Sheffi illustrates the complexities of modern supply chains, with an example from the automobile industry. “Most cars have about 30,000 parts made around the world, with many of them traveling multiple times across and between continents. … Each of the 30,000 parts must be highly engineered, composed of specific materials, carefully manufactured, and then delivered to thousands of suppliers who assemble many of these parts and send the resulting subassemblies to a car factory. There, all these subassemblies are put together to make a sophisticated, yet affordable automobile.”
Complexities and Challenges. Part 2 of the book explains how the increasing demand for goods and the rising consumer expectations for fast, perfect delivery services have increased the complexity of supply chains over the past several decades. Moreover, beyond efficiency and customer service, companies are expected “to minimize emissions, advance social justice, and enhance their resilience,” even while demand is volatile, regulations and geopolitical constraints are increasing, and competition from around the world keeps rising.
“Once one understands all that is involved, the miracle is that it all actually works, and usually works very well.”
Resilience is increasingly important. If, for example, an automobile company faces a shortage of even a single one of its 30,000 parts, it cannot build the car. “Consequently, supply chain managers have to ensure that the factory always has enough of every single part and subassembly required to run its operations and make the product.”
To ensure a continuous flow of parts and reduce the risk of supply chain disruptions, companies may need to contract with more than one supplier for a given part. This involves many trade-offs. A single supplier for a part may offer a lower price based on higher volumes, and may give the company preference in the event of a shortage or disruption. On the other hand, depending on a single supplier for a part involves a serious risk should the supplier fail. Relying on multiple suppliers allows the company to continue production when one supplier fails, but also increases the complexity of having to manage a larger network of suppliers.
Vital Link in the Chain: Humans. Part 3 explains the growing role of technology and automation in manufacturing and in supply chains services, which some see as an existential threats to workers.
Sheffi argues that “human strengths make people natural complements to machines.” Collaboration between people and technology can outperform either one on its own because “robots and humans have complementary capabilities. Robots can take over tasks that require repetitive processes — even intricate, multi-step ones — and perform them with high levels of precision and consistency. Humans can apply judgment regarding complex contextual factors in order to evaluate the merits of using the machine, direct the machine to change when needed, correct the machine’s failures, or replace it.”
Technology’s Role
Looking Forward. Part 4 explores the multiple trends driving the evolution of global supply chains, and the skills people need to succeed in a rapidly changing future filled with advanced technologies, digital tools, and automation.
The future of supply chains will likely be determined by the interplay of three major trends:
· Supply chains and economies face increasing levels of volatility, uncertainty, complexity, and ambiguity;
· The world’s population is undergoing significant geographic and demographic changes which are expected to accelerate in the near future;
· A growing array of information technologies will provide data, decision, control, and functionality that are useful in such a fast changing world.
These trends will have two major impacts. As has long been the case, new technologies will automate some of today’s tasks and jobs while creating new types of occupations. But, notwithstanding the growth of automation, organizations will continue to have a need for highly capable people “to design, manage, and execute all the activities in all the supply chains that underpin the world’s economies.”
“New digital tools are set to help people make productive use of technology and bring more value to their jobs and to the economy. However, the allocation of tasks between people and machines will change dynamically as new and better machines become available and as companies adopt them and workers adapt to them. To be employable and succeed in both blue-collar and white-collar jobs, workers will require new skills.”
“Automation can help handle routine tasks so that people can concentrate on the more fulfilling parts of their jobs,” Sheffi concludes. “
AI and digital tools can augment the power of people, enabling them to handle jobs they could not in the past. Timely and affordable education and knowledge can help workers, managers and citizens cope with technological change, volatility and disruptions. … Managers and workers can make the most of AI and automation by collaborating with the technology to create fulfilling and well-paying jobs, affordable products and services, and a bright future. It is up to civil society to ensure that such a vision materializes.”
This blog first appeared May 18, here
