Can digital technology boost supply-chain resilience?

As businesses around the world rethink their supply chains, Carlos Cordon, IMD Professor of Strategy and Supply-Chain Management, looks at which digital technologies they should be considering to enhance resilience.

Resilience has always been important to supply-chain professionals, but it has moved to the very top of the agenda in recent years as a range of extreme disruptions have shaken the global economy. COVID-19 was the first global event to have a profound effect on the structure of supply chains. The Ever Given container vessel running aground in the Suez Canal in 2021 revealed further vulnerabilities. Most recently, the invasion of Ukraine has created far-reaching supply shortages of key food products, as well as driving soaring energy prices in Europe.

While businesses are discussing options for dual sourcing and near-shoring, they have also been turning to digital solutions to enhance resilience. However, the evidence that this can offer direct benefits is limited. There is a danger that some businesses are becoming muddled about the risks they face and the role of technology in mitigating them.

If leaders are to maximize resilience against a variety of disruptions, they need to understand the nature of the risks they face, and be clear about the resilience benefits associated with just a small number of key technologies – namely artificial intelligence (AI), simulations, and system integration.

Shifting priorities

The renewed focus on resilience constitutes a radical shift in priorities for supply-chain design and management. Although supply-chain design is a complex task that must consider resiliency, sustainability, and service levels, the primary objective has typically been cost minimization. Organizations have established production bases in low-cost countries and set up “focused factories,” which concentrate intensively on a small range of products to obtain economies of scale. The same objective has also informed the selection of digital initiatives.