The war in Ukraine, Covid-19 pandemic, and ongoing extreme weather events continue to expose the vulnerability of global supply chains. Many companies are turning to digital solutions to boost resilience and sustainability
The past two years have been a torrid period for any international company dependent on the smooth running of global supply chains. Global trade was upended by the Covid-19 pandemic and subsequent lockdowns around the world. This has been amplified by the war in Ukraine, causing further supply chain disruption and global shortages of crucial commodities such as oil, natural gas, wheat and sunflower oil.
While the war in Ukraine is disrupting trade in Northern Europe, trade with Asia has also been hit by the zero-Covid policy in China and ensuing city-wide shutdowns, causing havoc in major Chinese ports, including Shanghai, Shenzen and Guangzhou. The shutdown in Shanghai, which handles 20 percent of China’s international trade, led multinationals including Apple, Tesla, General Electric and Amazon to warn of knock-on disruption to their supply chains.
At the same time, extreme weather events – from floods, wildfires, hurricanes and earthquakes, to record-breaking rainfall and temperatures – are also affecting supply chains, for example by destroying crops or damaging vital infrastructure such as roads and rail links. Severe flooding in parts of China in June 2022, for example, submerged swathes of a major economic and transport hub, threatening supply chains for goods ranging from cars and electronics to pigs, peanuts and coal.
Need for resilience
So where do these extraordinary circumstances leave supply chains, and what impact does it have on the widespread efforts by many multinationals to build sustainability into their supply-chain strategy?
The news may not be as bad as it could seem. As we reported in May 2022, the crises of the past two years have undoubtedly been a major disruption, they have forced multinationals to build more resilience and flexibility into their supply chains, which can have positive knock-on effects for sustainability.
For example, the unprecedented disruption and stress caused by Covid-19, has resulted in many companies hitting reset on their supply-chain strategies. As businesses return to normality after the pandemic, many are redesigning elements of their supply chains, with sustainability as a priority.
Companies are looking for ways to make the end-to-end supply chain the most resilient, including using assets more strategically, deploying more digital technology like artificial intelligence (AI) and blockchain, for example, using more contactless transactions, and reusing materials and resources with ingenuity.
And the past two ‘pandemic years’ have also taught companies some important lessons about supply chain performance under extreme pressure. As Joanna Konings, senior economist, international trade at ING, said in our previous report on supply chain resilience: “The pandemic showed companies where their supply-chain dependencies are, which parts of the chain can be affected, and which costs are really volatile. It forced companies to review their supply chains, and that is valuable.”
Digitisation boosts sustainability
The answer for many companies has been to build resilience – with associated benefits of sustainability – into their supply chains through digitisation.
Digital technology adds an imperative for companies to operate their supply chain sustainably. Transportation assets such as shipping containers, railcars, and pallet loads of cargo can be fitted with sensors that allow them to be monitored remotely. These devices feed a steady stream of data to a remote location, where it can be used to measure and monitor supply-chain operations. Because this always-on data stream improves transparency at every point in the chain, it gives companies the insights they need to take decisions specifically related to sustainability.
“There are big gains to be made by bringing more transparency to the process and getting everything online,’’ says Konings. “Digitalising trade facilitation could offset a lot of the price rises we’ve seen, as well as reinforcing the case for global supply chains.”
In addition to remote monitoring, blockchain technology will also be accelerated by digitalisation of the supply chain. Blockchain is a distributed ledger that accounts for goods in transit and enables transparency in all moving parts of the chain. This in-depth accounting can have many sustainability benefits, for example by providing more insight into the sourcing of raw materials, the selection of ethical trading partners and analysis of food safety. It can provide a laser-like view of sustainability checks and balances, right through to the delivery of the product to its destination.
Jules Oscar Kollmann, global lead, containers logistics at ING, says that companies are also finding that AI can be used to boost sustainability in the supply chain, allowing, for example, trade routes to be optimised to reduce energy consumption. It can also assist in ensuring that containers and ships are loaded optimally to ensure a minimal fuel consumption per distance. Assets such as trailers, aircraft, railcars, and warehouses may be coordinated so capacity is shared and optimized. With technology, data, and computing, we may discern the ultimate cost of goods to the planet, according to Kollmann.
“Digitalisation provides more insight on where goods are coming from and how they are transported to the ultimate customer.” That falls in line with the four Ps that drive many companies’ corporate social responsibility efforts these days: planet, profitability, people, and purpose.
Disruption is here to stay
Ultimately, few deny that supply-chain disruption will continue, especially as the war in Ukraine looks set to become a protracted, slow-moving conflict. A recent analysis by ING economists predicts the lasting supply chain impacts of 2022 and beyond could result in permanent changes to established trading patterns.
In this context, companies need to plan further ahead than ever before, and harness the power of technology to ensure their supply chains are as resilient and as flexible as possible to withstand the external pressures. If they do, the application of digital innovations at each point of the supply chain will not only help to ensure goods continue to flow, but also help supply chains become more sustainable – even in the face of unprecedented adversity.