Is data really the solution to supply chain fragility?

The unprecedented scale of the disruption caused by the COVID-19 pandemic has highlighted many vulnerabilities in our globalised and disjointed supply chains — vulnerabilities that need to be addressed if we’re to future-proof production in an increasingly unstable world. Businesses recognise this – our 2020 Global Navigator survey showed that just under half of businesses (48%) consider digital and technology as the immediate priority in supply chain management.

In the past year and half, lockdowns around the world have repeatedly stopped or slowed the flow of goods from one country to the other. The pandemic has been a wake-up call, an opportunity to strengthen their supply chains and make them more resilient to future shocks.

Here, we look at some of the key questions facing global supply chains, and what companies can do now to prepare.

What challenges will traditional supply chains face post-COVID?

In order to anticipate what’s to come, it’s helpful to look at recent trends. In the past few years, we have observed trade disruptions of three different types. First, the increasing frequency of extreme weather events has caused physical damages to companies and prevented production from happening. Second, a rise in nationalist rhetoric has led to an increase in trade barriers and tariffs. And finally, the pandemic resulted in disruptions both physical (as some factories were forced to shut down or implement new hygiene processes) and regulatory (as many countries’ attempts to contain the outbreak involved the closing of borders).

In the coming years, we can expect more of the same: climate change is set to accelerate weather-related disruptions, geopolitical uncertainty will continue, and scientists are already saying this won’t be the last pandemic. At the same time, we’re also seeing a regulatory trend towards more supply chain transparency. The EU’s Supply Chain Due Diligence Directive will soon make it mandatory for most companies in member states to report all sustainability and human rights-related risks throughout their supply chains, and other regions are expected to follow.

What does this mean for companies?

Businesses will need to have an in-depth understanding of their supply chains to prevent and report any social or environmental rights violation. On the positive side, this transparency exercise is set to strengthen the relationships between buyers and suppliers. They will also have to consider carefully where their suppliers are located, making sure their geopolitical and climate risk exposure is diversified. All in all, this will lead to more collaborative and resilient supply chains.

How can digitisation help?

Digitisation will not only be helpful but necessary, and companies know it. Digitisation can enable the processing of large amounts of data to detect and tackle vulnerabilities. For instance, HSBC recently teamed up with IBM to develop a solution combining optical character recognition with advanced robotics to analyse export bills, reducing compliance risks and speeding up trade transaction. Digital innovation is already happening at all stages of production, and transparent real-time supply chain management will soon be a reality, helping companies mitigate all kinds of risks.

What are the main obstacles to this digitisation?

There are many reasons why companies, particularly small and medium-sized, may find digitisation difficult. For one, this type of long-term investment may not seem like a priority at a time when many are still reeling from the COVID crisis. Digitisation can be a daunting task, and companies may not have the right in-house expertise to know how to get the process started. And of course, there is also the issue of trying to layer new technologies on top of legacy systems.

What support do companies need to successfully transform their supply chains?

Supply chains are set to become more digital, transparent and especially collaborative: all of the hurdles above can be overcome with the right partners. For instance, trade and supply chain finance providers have the resources to support their clients’ digital transition. Now is the time to reach out to them and kickstart your supply chain’s resilient transformation.

For more information on how we can help secure your supply chain, contact your Relationship Manager