A new architecture for supply chains

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File image courtesy of Dublin Port Company

Posted on March 25, 2022 at 2:53 PM by

Brian Gicheru Kinyua







When Maersk announced this week that it was experiencing congestion issues at the MTL terminal in Dublin, Ireland, it came as a surprise. Apparently the MTL terminal reached its capacity to handle all loaded export containers and was unable to accept any more for a brief period. This is a good example of how pervasive port congestion is. It’s not just a matter of global hubs in China or the United States.


Port congestion in Europe and North America is so severe that it has rendered 12.4% of global ship capacity unavailable, according to data from Korean carrier HMM. In the pre-pandemic era, only around 2% of global capacity was tied up in delays at any given time.


But clogged ports are a symptom of a systemic problem with global supply chains. Despite their sprawling nature, they haven’t seen much innovation since the last century. Paper-based documentation still plays a vital role, and the industry has yet to achieve unimpeded data flow between businesses.


Undoubtedly, the current framework will not allow us to cope in a world riddled with pandemic-related disruptions, war and climate change. These shocks represent a new challenge for supply chain managers.


“Supply chain management is entering a new era. The relatively benign environment of the past three decades, during which we have witnessed phenomenal growth in the tradable sector and the expansion of distant global supply chains, is likely over,” Professor Willy Shih wrote in an article. recent for Harvard Business. Review.


Another proponent of a new supply chain architecture is Lora Cecere, a supply chain veteran.


In a recent article, she argues that the starting point for curbing supply chain disruptions must begin with managing emergent variability. Most stem from geopolitical competition and the need to decarbonize supply chains. According to Lora, low levels of variability over the past three decades have put supply chain leaders to sleep. The current supply chain architecture assumes that governments would be rational, variability would be low, and logistics would always be available. However, these assumptions have now been shown to be invalid.


Managing supply chain variability is the opportunity that logistics technology start-ups have identified as an entry point into the shipping industry. However, as they deploy technologies to mitigate supply chain risks, Cecere cautions.


“Today, there is no end-to-end planning system. Just like there is no Santa Claus, companies cannot buy into a planning system that stretches from customer’s customer to supplier’s supplier. Today’s planning solutions contain numerous optimization engines aligned to take transactional data and improve operational decisions within a function,” she writes.


The answer, she suggests, lies in market data that is less dependent on corporate data. Only nine percent of companies are actively designing their supply networks using technologies capable of modeling the levels of variability in the marketplace today. As a result, most businesses don’t have a workable plan.


Unfortunately, over 93% of companies use Excel spreadsheets to build their plans. This is no longer enough, she suggests.


Shipping will continue to reign supreme in future supply chain architectures. However, there are a few things to consider.


Recent supply chain disruptions have increased logistics costs. This challenges the practice of moving bulky, low-value (per unit volume) products over longer distances for processing, such as metal ore or rare-earth minerals, notes Professor Shih. Historically, this has been justified by labor arbitrage or environmental concerns with processing, but high shipping rates can negate these cost advantages.


Thus, we could envision a shift from distant global sourcing to more regionalized supply chains – essentially, further development of production and consumption capacities within regional trading blocs. For example, the North American bloc which includes the United States, Canada, Mexico and parts of Central America offers large markets, easy access to skilled and low-cost labor as well as short distances and transport costs.





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