Supply chains are the backbone of the modern global economy. It encompasses a series of activities, from product and service design to manufacturing and delivery to consumers. Logistics and transportation play an essential role in it.
Since the onset of the pandemic, lockdowns imposed in cities around the world have disrupted foreign trade, creating obstacles and causing delays in the supply of goods and services. This has shed unprecedented light on the importance of supply chains for the global economy and daily life. Without quick, efficient supply chains that operate mitigating costs and risks as much as possible, goods and services become scarce, prices go up and inflation distorts the macroeconomic scenario in many countries.
To properly understand this crucial element of globalization encompassing design, production, distribution, and commercialization, let’s explore ten essential aspects of modern supply chains:
1. What is a supply chain?
Supply chains are the backbone of the modern global economy. They encompass a series of activities, from product and service design to manufacturing and delivery to consumers.
One piece of data can summarize the world’s dependence on supply chains: more than 1.4 billion people purchased something through e-commerce channels in 2019, and that number may have been even higher in 2020 due to the pandemic, according to the Global Value Chain Development Report 2021, a joint report by the World Trade Organization and other institutions.
Consider a coffee bag purchased in a supermarket to understand how supply chains work. Its presence on the shelf is the tail end of a series of processes, including growing, harvesting, roasting, and grinding the coffee beans; their subsequent packaging and storage; their transportation through several domestic and international routes; and their distribution to retailers or wholesalers, in this case, a supermarket.
2. Why new technologies are crucial for supply chains
Due to their complexity and the number of stakeholders, as well as the potential impact of systemic events such as pandemics or wars, supply chains are more prone to disruptions. In this scenario, new technologies provide more efficient, simpler, and profitable solutions that cut costs and reduce the time spent working on issues.
These are the technologies of the Fourth Industrial Revolution, also known as Industry 4.0: Big data, the Internet of Things (IoT), robotics, artificial intelligence, and 3D printing, among others.
3. What makes Industry 4.0 different from previous revolutions?
The First Industrial Revolution brought the application of steam machines to production, the Second Industrial Revolution leveraged electricity to enable mass manufacturing, and the Third Industrial Revolution introduced computing to drive process automation. As for the Fourth Industrial Revolution, it is based on the unprecedented progress of convergent digital technologies that have begun to erase the difference between physical and digital spaces, with potential for sizable economic benefits.
4. What are Industry 4.0’s disruptive technologies?
Internet of Things: A group of sensors, devices, and networks connecting objects with computing systems. Objects can generate data about themselves and their environment. IoT is quickly finding many applications in several industries, from healthcare to agriculture.
Big Data Analytics: The ability to process extensive databases to find patterns among the data, such as correlations or causalities. This technology is used in digital marketing and e-commerce, but adoption is growing in other activities, such as electoral campaigns or data journalism.
Artificial Intelligence: Machine learning, is an application of AI that uses algorithms to allow computers to learn routines and acquire knowledge. The most common examples of ML applications are self-driving vehicles, product recommendations on platforms such as Amazon or Netflix, and credit card fraud detection features.
Robotics: The deployment of digital technology to automate repetitive manual processes. Robotics has a strong presence in mass manufacturing (particularly for cars and electronics), warehouse management, and self-driving vehicles.
3D Printing: This technology creates objects by printing consecutive material layers which are then glued to mold the object. Its adoption is growing in product design (such as orthopedics) and industries such as electronics and car manufacturing.
5. The Supply Chain 4.0 concept
The deployment of Industry 4.0 technologies in several supply chain processes is known as Supply Chain 4.0. According to a report by Agustina Catalayud and Raúl Katz for the Inter-American Development Bank (IADB) titled Mejores Prácticas Internacionales y Hoja de Ruta para América Latina [International Best Practices and Roadmap for Latin America], a Supply Chain 4.0 has a high degree of interconnection between physical and digital environments, where IoT sensors allow compiling and streaming information in real-time throughout the chain, while big data analytics, AI and cloud computing enable concurrent decision-making to optimize the chain’s global performance in real-time, and automation and robotization help execute decisions without human intervention.
The deployment of these technologies in supply chains will provide sizable benefits in time, costs, agility, and risk management.
6. Actors involved in Supply Chain 4.0
The defining feature of Supply Chain 4.0 is the adoption of new technologies by different actors for several processes. Therefore, a close collaboration between actors from the public and the private sector, from ensuring system interoperability and enabling information sharing to synchronize changes, is required to make the most out of a comprehensive digital transformation.
7. What can SMEs do to keep up
One of the challenges of Supply Chain 4.0 is the lack of coordination between private-sector agents. During the transformation process, this causes a technological disparity inside the supply chain, depending on each company’s strategy. This lack of coordination between businesses can reduce or even offset the benefits of adopting the new technologies.
Disparate levels of technology adoption can also put SMEs in peril. In this scenario, a smart response from governments through public policy is key to driving transformation.
8. Optimizing the relationship between the public and the private sector
Coordination gaps can also be seen between private sector companies and public sector agents involved in supply chains. Cross-sector coordination is key to raising awareness about the challenges, opportunities, and best practices and leveling the field to enable digital transformation. This can also help build a regulatory framework for new technologies that drive innovation while protecting society, establish public policies to support digital transformation among the most vulnerable members of society, innovate and digitize public sector operations such as customs checks and infrastructure management, and act as a hub for players from different sectors to launch coordinated transformation processes.
9. Coordination inside national governments
Another major challenge for Supply Chain 4.0 is the lack of coordination inside the public sector, which is usually slower to embrace technological transformation due to a lack of resources, the need to pursue other public-policy priorities, multiple approval instances, the scattering of agents among various institutions, and internal resistance to change.
10. External risks for Supply Chain 4.0
Outdated technology or a lack of coordination with the public sector are not the only risks for supply chains. They are also subject to potentially disruptive external shocks: pandemic-induced lockdowns that cause bottlenecks at ports; a war like the conflict in Ukraine, which has disrupted energy and food markets; or geopolitical/geoeconomic rivalries that spark trade wars, distorting and threatening complex supply chains, like the US-China rivalry and its impact on semiconductors (microchips) and telecommunications (5G).
Technology is here to optimize supply chains, increasing efficiency and speed, but political leaders, multinational corporation leaders, and SME owners must do their part, too.
