Can transparency help create new business opportunities? In this article, Professor Tinglong Dai from Johns Hopkins University explores how a war conflict and a pandemic lockdown revealed a crucial need for transparency in global supply chain management.
The twin events in Ukraine and Shanghai have shattered the core assumptions underlying global supply chains. Since the fall of the Berlin Wall more than three decades ago, multinational corporations had often been able to separate business and geopolitics, assuming that world leaders generally make rational decisions regardless of their ideology. However, with Putin's invasion of Ukraine and Shanghai's severe, month-long lockdown, it's clear that such assumptions were wildly over-optimistic.
As the good old global supply chains come to an end, companies are rushing to diversify their supplier bases and move their supply chains closer to the consumer markets they serve. More regionalized supply chains will inevitably emerge in the coming decades, leading to what I like to call a "Supply Chain Iron Curtain."
Such efforts, however, may be in vain without supply chain transparency. As a case in point, according to Bloomberg's Rachel Sanderson, an Italian company that makes hydraulic equipment believed it had brought its supply chains back from China and that all of its new suppliers were in Germany, the United Kingdom, and Luxembourg. When the conflict in Ukraine erupted, they were shocked to discover that all their suppliers were getting their pig iron from a single factory in Mariupol, Ukraine.
If efforts to improve resilience are not guided by visibility into the entire supply chain—not just tier-1 and tier-2 suppliers—they may backfire. The ability to map the entire supply chain is important because it is the only way for a company to identify potential supply bottlenecks and conduct stress tests to see how well its supply chain can handle a crisis. You can't manage risks you can't see.
In the wake of the global supply chain crisis triggered by the events in Ukraine and Shanghai, supply chain transparency can become a growth engine in the following ways:
The emergence of new solutions
A new wave of innovative supply chain transparency solutions from startups or industry leaders will emerge in response to the need for greater supply chain transparency. Currently, self-reporting and proprietary datasets are commonly used in these solutions to build a network of suppliers. They are better than nothing, but their scope and functionality are limited.
In recent years, data analytics and artificial intelligence have become increasingly capable in helping ensure an up-to-date, end-to-end view of supply chain networks. Blockchain technologies have been cited as one way to achieve supply chain transparency, although successful implementations are few (if any) and their value remains dubious. The pursuit of supply chain transparency could inspire more practical and cost-effective alternatives to current technologies.
Creating stakeholder value and ROI
Second, increased supply chain transparency can reward companies that invest in building shorter, regionalized, and more responsive supply chains. In the case of medical supply chains in the United States, for example, hospitals rarely have any knowledge of their global supply chains beyond their tier-1 suppliers, even for critical medical supplies. This means hospitals are unable to distinguish between those who have resilient supply chains and those who do not. A higher uptake of transparency solutions can reveal the major vulnerabilities in each supply chain, allowing businesses to move away from geographic risk with confidence. As a result, truly resilient supply chains can stand out and be rewarded for their good-faith investments.
Shaping new industry standards
Third, the demand for greater supply chain transparency presents large global corporations with compelling opportunities to shape new industry standards. By 2021, the combined value of the top 50 global corporations has reached nearly 30% of global GDP. Their supply chain decisions can help rewrite industry standards. Large retailers, such as Amazon, Walmart, Costco, and Target, can have disproportionately large impacts on supply chain transparency by developing in-house transparency solutions and partnering with third-party providers. With the implementation of these transparency solutions, consumers will be able to shop with more confidence and trust.
The crises in Ukraine and Shanghai are unlike any other in recent memory, and they could spell the end of global supply chains built by Western companies over the last three decades. In response, companies will need better end-to-end transparency as they begin their efforts to build more resilient supply chains. Otherwise, they will be shooting in the dark. This demand means supply chain transparency will become a new growth engine, paving the way for supply chains that are more agile, adaptable, and better aligned with stakeholders' interests.
Disclaimer: This article was written by an external expert contributor to CEVA Insights. The perspectives and ideas are the contributor's and do not necessarily reflect the views of CEVA Logistics.