Can digital technology boost supply-chain resilience?

However, this presents a dilemma. As has been demonstrated extensively in recent times, many supply chains that are appropriately efficient for stable situations lack adaptative capability in the face of disruption and instability. Many industries would have made themselves less vulnerable to disruption over the past three years if they had reduced their reliance on low-cost manufacturing in China, for example.

The pursuit of efficiency, rather than any consideration around resiliency, has principally driven the adoption of digital technologies to date. With the exception of select key technologies, few of those adopted on the grounds of improving operational efficiency have offered any significant benefits in terms of resiliency. However, that is not to say that these tools cannot be employed in such a way as to offer such enhancement.

To understand how, it’s important to first step back and examine the threats confronting businesses.

Six types of threat

There are essentially six types of supply chain disruption:

• Temporary disruptions

  These may create shortages, but underlying demand remains broadly stable. This is specifically applicable to basic products and staple foods. Consider the demand for toilet paper at the start of COVID-19: despite the sudden spike driven by panic buyers, there was no fundamental change in global demand.

• Huge demand increase

  Under these circumstances, shortages are caused by a major increase in demand. Consider the demand for masks or ventilator machines caused by the pandemic, for example.

• Structural supply-chain fragility

  Here, the problem lies in the overall structure of the supply chain. A good example is the ongoing shortage of semiconductors that has led to shortfalls in car production: 3m cars in 2021 and perhaps as many as 1.3m this year. When COVID-19 struck, car companies ceased accepting deliveries. As demand fell away and margins waned, suppliers cut back on investment. While capacity is now being expanded in response to rising demand, it is still lagging owing to the self-deconstruction of the supply-chain during the pandemic.

• Disruption of transport services and basic infrastructure

  The fourth category reflects disruption of services at global level. The Suez Canal’s pivotal role in global shipping is a prime example. The key characteristic is that the disruption causes huge shortfalls across numerous supply chains, on an overwhelming scale that precludes potential workarounds.

• Disruption of local or nearby services or infrastructure

  This is similar to the previous category but more specific to local markets. Consider the truck-driver shortages that affected the UK following Brexit and the outbreak of the pandemic. As these are on a smaller scale and will fit previous patterns of disruption with which businesses may have coped successfully, there may be continuity plans in place.

• Global shortage of products or materials

  This has been typified by the war in Ukraine, which has caused shortages of staple products including cereals and sunflower oil. In 2021, such risks were widely considered very low – but the consequences of this type of disruption have been substantial, in some cases resulting in basic food products becoming unavailable.

Which digital tools support resilience?

Some of the technologies most closely associated with Industry 4.0 have had a limited impact on resilience, despite the high hopes that businesses held for them. Autonomous robots and augmented reality (AR), for example, offer few benefits. Some, like additive manufacturing (3D printing as applied to industrial production) or blockchain are generally still at prototype stage and are yet to prove themselves in relation to supply-chain resilience (note that Maersk and IBM recently announced the closure of their blockchain trading platform).