Turning Supply Chains into the Greatest Strength of the Company

Tradeshift is building a modern supply chain network and digitizing trade. Supply chains play a crucial role in this. Especially in times of crisis, stable supply chains are vital for survival. Here is an overview of what can cause supply chains to break down.

(Copenhagen) COVID-19, the coronavirus, is causing significant disruption to global supply chains. While no one could have predicted the scale, speed, severity, or timing of the outbreak, could companies have been better prepared for the consequences? This is not the first time they have faced a supply chain disruption. Just last year, we had the trade war, protests in Hong Kong, and various climatic events that caused unforeseen problems.

The outbreak of COVID-19 likely has greater impacts than all these events combined, as it has not only created hurdles but also brought production to a complete standstill, which many supply chains cannot withstand. However, the reasons companies struggle with the consequences are the same: supply chains are fragile.

There are five main reasons for this:

Reduced inventory:

Just-in-time manufacturing allows companies to increase efficiency and reduce supply chain costs, but it also makes supply chains less resilient to sudden shocks and supply shortages.

Rigid supply chains:

This would not be a problem if companies operated flexible supply chains. This way, they could shift order volumes to alternative suppliers in stressful situations. However, very few companies do this, leaving them unable to identify and contact alternative suppliers when sudden shocks occur in their supply chain that have noticeable impacts on production.

Manual supply chain management:

A major reason supply chains are rigid is that they are managed manually. Making changes to orders or switching suppliers is a lengthy and complex process, and in times of stress, it is a luxury that few companies can afford.

Lack of supply chain transparency:

Companies often do not know what is happening in their supply chain beyond the first tier, so they are unaware of where threats to production capacity exist. This makes it almost impossible to proactively manage a situation like the COVID-19 outbreak.

Consolidated production centers:

The globalization of supply chains has led to the development of specialized production zones – cities or countries that specialize in the manufacture of a few key products. These have helped ensure a plentiful supply of critical components of the supply chain and reduced overall supply costs. However, while this is advantageous in good times, it can lead to problems during disruptions. This is because there is not the capacity in other parts of the world to fill the supply gap.

How can companies better prepare for times of supply chain disruption? One solution is to build supply chains based on Nassim Nicholas Taleb’s concept of anti-fragility.

Anti-fragile supply chains

There is much talk about robust supply chains. Anti-fragility takes this a step further. Anti-fragile supply chains are not only strong, but they are also adaptable to ensure they continue to function regardless of the disruption. But, most importantly, they do not just survive the disruption – they improve as a result.

To achieve this, companies must operate digitally. Buyers and sellers need to be digitally connected. Creating this digital connection is the fundamental element for building an anti-fragile supply chain. Once this is done, all parties can benefit from improved data access.

Decision-makers can identify individual points of failure and make informed decisions on how to handle a disruption. Digital collaboration with suppliers and other parties in the supply chain ecosystem ensures that these decisions, including the search for new suppliers, can be implemented more quickly, which is crucial in times of stress.

Artificial Intelligence

Creating this digital foundation is also a prerequisite for applying the tools that bring the theory of an anti-fragile supply chain to life. Take AI, for example. It can analyze data from a range of public and proprietary sources to learn from past times of disruption and suggest what supply chain leaders can do to address upcoming challenges. At the next level, it could even automatically switch to alternative suppliers if it detects that the company’s regular suppliers are likely to face some disruption.

This is what it truly means to transition from reactive supply chain management to proactive supply chain management. And this is exactly what will transform the supply chain into a real competitive advantage for the company.

Supply Chain as Strength Instead of Risk

When COVID-19 is brought under control, everyone can breathe a sigh of relief. But caution is warranted. In our globalized world, the next disruption is just around the corner, so it is essential that companies do not rest on their laurels.

The supply chain becomes the greatest risk to a company during times of disruption. But by making it anti-fragile, it can become its greatest strength.

The Right Choice

Companies receive effective support when they rely on proven providers and products in the market. Tradeshift, for example, helps suppliers and buyers digitize all their trade transactions, collaborate on every process, and connect with any supply chain application on a single global platform. Inspired by social networking technologies like LinkedIn, an app ecosystem has been developed that reflects modern supply chains – complex, interconnected ecosystems.

This allows companies to establish transparency over the relationships between buyers, sellers, and even sub-suppliers, onboard suppliers free of charge and in a short time, and offer additional services such as access to digitized financing and early payment options. Over 1.5 million companies in 190 countries trust Tradeshift to process more than half a trillion USD in transaction values, making it one of the largest global business networks for buying and selling worldwide.

Photo 1: © Shutterstock / Tradeshift

Photo 2: © Tradeshift / Image Caption: Mikkel Hippe Brun, Co-Founder and Senior Vice President of Greater China at Tradeshift

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