Globalisation of commerce and decades-long innovation in provide chain networks have resulted in important advantages for all stakeholders – better efficiencies, decrease prices, better entry to markets to call only a few. But, Covid-19 has uncovered vulnerabilities in world provide chains. Dispersed provide chains provide extra potentialities for shocks to penetrate and unfold, and practices akin to “just-in-time” and single sourcing can amplify shocks and lengthen restoration time.
Which begs the query: Why weren’t corporations higher ready? In spite of everything, lecturers and practitioners have been stressing the significance of agility and resilience within the provide chain for many years. They’ve advocated for diversification so worth chains can deal with demand and provide shocks. The issue, nonetheless, is that in good instances, corporations are unwilling to make the bigger investments which have at all times gone together with diversification, within the type of complexity and coordination prices. The selection is to both get monetary savings with a concentrated provide chain construction that will increase disaster vulnerability, or construct in costly redundancies to organize for a wet day that could be a great distance off. This cost-agility trade-off (Determine 1) leaves conscientious corporations splitting the distinction between current realities and projected future calls for.
A cautious take a look at how some companies successfully responded to the Covid-19 disaster reveals a brand new, simpler provide chain frontier. The easy framework offered in Desk 1 illustrates this.
Desk 1: Totally different provide chain constructions
Supple provide chains
Is it attainable for companies to benefit from the “greatest” working mannequin relying on the working circumstances of the second, e.g. diversified in periods of excessive volatility and concentrated in steady intervals? In different phrases, can companies swiftly and seamlessly shift their provide chain construction between S1, S2, S3 and S4, not simply throughout crises but additionally after, with out ruining their enterprise because of the prices of pivoting and restructuring? The reply is sure.
Throughout Covid-19, hospitals have been ready to make use of on-line platforms to entry and share essential provides of non-public safety tools (PPE) and ventilators (Determine 2), transferring from S1 to S3 in a single day. Tech giants like Alibaba used their procuring and logistics infrastructure to help farmers in Hubei to revive gross sales post-lockdown. Apple and Huawei partnered with supply platform Meituan Dianping to ship smartphones to prospects’ doorsteps. On the similar time, Alibaba itself tapped the net freight platform Freightos to serve its worldwide patrons and sellers.
Extra examples? Take Rungis, one of many world’s most iconic meals markets in Paris. It overcame the lockdown of its B2B enterprise (connecting a diversified provider base with a comparatively concentrated pool of institutional meals/hospitality prospects) by beginning a brand new B2C enterprise, Rungis Livre Chez Vous (Rungis Delivered to Your House) in partnership with a five-year-old start-up, transferring from S3 to S4. The bond-market buying and selling platform MarketAxess had struggled to interrupt into the institutional bond markets that relied largely on private contacts. It well leveraged each the availability spike in company bonds on account of corporates speeding to shore up their funds and an ecosystem of merchants and traders with no choice apart from do business from home, transferring from S1 to S4.
The widespread denominator is that these companies tapped platform options to soak up demand and provide shocks and enhance the agility of their provide chains. Platforms allowed these companies to realize entry to a number of, numerous and dependable suppliers and prospects that have been beforehand inaccessible, or have been too expensive to succeed in. Moreover, these companies benefitted from platform-enabled insurance policies and processes, targeted on assuring high quality and constructing belief amongst companies and suppliers.
However are these observations sufficient to conclude that integration with platforms is the inevitable future for each provide chain? There isn’t a doubt that platforms give collaborating companies some great benefits of diversification, however they don’t seem to be costless. Certainly, platforms provide decrease coordination prices than a agency would incur by itself when making an attempt to diversify its provider and/or purchaser swimming pools, but the transaction charges charged by such platforms might be important. Platforms performing as intermediaries additionally current a possible risk to collaborating companies by controlling the circulation of data within the worth chain. Furthermore, within the post-crisis interval when volatility declines, the financial benefits of platforms could disappear (e.g. Apple could not want to proceed to make use of meals supply platforms to ship iPhones in China post-Covid, particularly when prospects are able to flock again to shops). Due to this fact, the following step in transferring the availability chain frontier can be for companies to extend or lower their diploma of engagement with platforms relying on their present working circumstances.
Companies can attain such a excessive diploma of agility by proactively investing in a strong platform expertise stack together with cloud computing, API connectivity and built-in knowledge programs. Companies that be sure that the platform expertise stack (Determine 3) is integral to their IT and enterprise technique will be capable of swiftly plug into a number of third-party platforms or construct their very own community of suppliers and patrons within the long-term. Notice that these applied sciences independently present companies with operational benefits akin to price financial savings on account of automation, provide chain transparency, data-driven enterprise intelligence and such. Nonetheless, mixed use of those applied sciences give companies platform-enabled agility with out a substantial enhance of their working prices.
The platform expertise stack has just lately grow to be a subject of curiosity on account of its skill to supply companies with economies of scale, scope and studying (clever automation). An extra compelling benefit of such a stack is to allow companies to function a digital, platform-enabled working system, which supplies them a swift and cost-effective method to shift their provide chain construction between S1, S2, S3 or S4 as wanted to cope with the circumstances (Determine 4).
Platform-enabled companies have displayed markedly better resilience throughout Covid-19. Africa’s main B2C ecommerce agency Jumia and B2B agtech start-up Twiga Meals quickly repurposed their provide chains together with distribution networks and expertise platforms to adapt to in a single day shifts in demand and provide. Pre-pandemic, Twiga Meals equipped 3,000 retailers throughout Africa with recent produce procured from a community of 17,000 farmers and eight,000 distributors. Because the pandemic resulted in sudden demand disruption from its retailers, it partnered with Jumia to repurpose its recent produce for Jumia’s finish prospects. Due to their platform expertise, these companies have been in a position to merge their numerous demand and provide swimming pools within the face of unprecedented disaster.
Digital platform-enabled working programs must be central to the technique of companies planning and constructing an agile provide chain, one that may reply to produce and demand shocks and simply revert to steady-state operations when the disaster subsides. The way forward for agile provide chains lies in operational agility, which will probably be generated by the technological structure of companies slightly than an operational strategic alternative alone.
This text was initially printed at The Edge Malaysia.
Aarti Gumaledar is the Director of Emergentech Advisors and CxO at www.mytechfrontier.com.
Sameer Hasija is a Professor of Expertise and Operations Administration and the Shell Fellow in Enterprise and the Setting at INSEAD.
V. “Paddy” Padmanabhan is a Professor of Advertising and the Unilever Chaired Professor of Advertising at INSEAD. He’s the Tutorial Director of the INSEAD Rising Markets Institute.
Don’t miss our newest content material. Obtain the free INSEAD Information app right this moment.
Comply with INSEAD Information on Twitter and Fb.
OMG is continually cementing what Social-First means, the way it positively transforms society over the long-term and most significantly, it should be the business mannequin companies convert to. The ethics we dwell by, form our values and tradition. We have now made nice strides due to the help we obtain from the general public.