A series of momentous events — the global pandemic, labor shortages, and Russia’s war on Ukraine, to name a few — continue to expose vulnerabilities in the global supply chain. Once, we treated these as isolated, black-swan events but we've seen the end of those days. The recent past makes clear the risks of an interconnected world of supply and demand, where upsets in natural resource availability, politics and other evolving global factors run up prices and cause delays.
It's clear the supply chain exerts exponential power to shape an organization’s outcomes and sustainable progress.
At DXC Leading Edge we’re completing our latest cross-industry population study to examine changing business practices. One of the most significant highlights — which echoes our prior research — is the need to rethink supply chains from a one up / one down model (i.e., who we sell to, who we buy from), to modeling the entire supply chain.
In 2023, executives across industries are coming to terms with the prospect their business may find itself in chaos from any supply chain challenge, from raw materials to order fulfillment. Automotive manufacturers experienced an outsized disruption when semiconductors became scarce during the pandemic. Early predictions expected the shortage to cost the global auto industry $210 billion in revenue in 2021, according to consulting firm AlixPartners. It ended up costing much, much more and will reshape entire industries.
A recent survey of procurement executives from manufacturing companies across the US and the UK points to shared troubles: 97% are experiencing “significant disruption” in their direct materials supply chain, with 84% noting "modernizing supply chain processes" is a strategic priority. Most leaders also said they are not confident their existing technology can handle today’s supply chain challenges.
The nation state and the supply chain
Economic and digital sovereignty operate over theaters of supply chains, and trouble can bubble up from conditions up and down supply lines. Consider the scale of potential problems highlighted in a May 2022 exercise on graphing Hungary’s economic systemic risk through VAT records. The study calculates the supply chain vulnerability of the country at a detailed, granular level. In this nation of 91,000 companies, 75% of the entire national production is intertwined among 100 companies.
Each company cannot be seen as independent in such a market. Yet some possess an outsized risk to entire economies and as such represent an outsized potential for domino effects on the country’s supply chain. The other 90,900 are of marginal systemic relevance. This data point hid in plain sight.
A second example provides additional clarity: Sri Lanka discovered that losing control of parts of the supply chain (in this case caused by policy decisions on existing use and taxation) brought the nation to collapse, as it caused critical national infrastructure to fail.
My colleague Simon Wardley likens supply chains to the murky world of collateralized debt obligations (CDOs). We have built wonderful edifices to commerce on top of things we understand little about. Consider this: industrial giants are cutting ammonia production (an essential ingredient in synthetic fertilizers) due to the energy supply crunch created by Russia. A knock-on effect finds the UK — where the use of synthetic fertilizers is essential — is a few supply chain hops away from having to spend decades rebuilding the microbiological structure of its soil.
Building supply chain knowledge
Companies and countries alike need to examine the mission criticality of supply chains critical to their organizations, and to their national infrastructure and security. To that end, they need to investigate the technologies transforming this effort.
That includes open data sets, advanced machine learning and predictive analytics, data meshes, digital twins and model-based systems engineering, control towers piecing together the extended supply chain, and procurement resilience applications wrapping around ERP, PLM and MES Control systems.
Companies and countries alike need to examine the mission criticality of supply chains critical to their organizations, and to their national infrastructure and security.
At DXC we help companies bring continuous innovation to their supply chain technologies. This delivers greater agility and resilience with modernized applications and data, driving improved partnering with software vendors. Using our data and applied intelligence expertise, and incorporating process intelligence in applications, we delivered savings on one CPG customer’s overall supply chain expenditure.
CIOs and CTOs must be strategic enablers for their entire organization, enabling data scientists with the tools to drive COO and CFO supply chain decisions.
For some organizations, their technical modernization enables accessibility and data, and that in turn enables more strategic decision making. Some other organizations will have more to do, and they will need to prioritize their technical debt on the basis of the force of these external events.
We need increased visibility to re-engineer supply chains to enable better risk evaluations, make more informed sourcing decisions and create increased flexibility to pivot when needed. Added benefits around sustainability are a bonus: having this exact type of supply chain data, from concept to completion to reclamation, will enable more circularity with smarter resource deployment to protect a vulnerable planet and its peoples.
Simon will be giving us great new insight on how multiple industries are reacting to the supply chain challenges — what points are they investigating and where there is tension. These will come via a detailed new set of Wardley Maps. We are very much looking forward to sharing this upcoming research on supply chains and how they influence connected business practices with you.