Gone are the days when a company’s sales pitch focused just on price, product and brand alone. Today an efficient supply chain is just as crucial, and experience is increasing its importance.
The supply chain is the backbone and epicenter of every business. That’s why it is so fascinating. In a way the supply chain is like the chip inside a computer. You don’t see it and you don’t necessarily need to understand how it works, but it has to be working and deliver on its promise. When the supply chain fails customer satisfaction is spoiled.
Simply put, supply chain refers to the system of organizations, people, information and resources that go into moving a product or service from supplier to customer.
I would like to expand on this view and involve the whole life cycle, which brings in the need for maintenance, service, upgrades, repairs, returns, recycle and reuse. Digital technologies are opening up new possibilities that provide advantages for businesses and the environment.
We can see a lot of benefits brought by the platform economy – for example, digital platforms facilitate collaboration between supply chain operators for truck capacity and combined volumes. Everything is in the ecosystem. Access requires digitization so that platforms can enable matchmaking and transactions.
Supply chain and trade finance are a different field where platforms and the interplay between various technologies, such as distributed ledger and artificial intelligence, will create significant changes and benefits.
Bain & Company estimates that demand for supply chain finance is expanding by 5-15% a year in the Americas and Western Europe, and 10-25% in Asia, with food and retailing among the most active industries.
The current use of the letter of credit as a secure instrument to finance trade is a very labor-intensive, paper-heavy, manual process. With distributed ledger technology, such as blockchain, a letter of credit could be converted into a smart digital contract, a piece of software.
The digital letter of credit is online, it is instant and it is secure, as only authorized people can access the documents and change the data. Add IoT, the Internet of Things, and the location of goods can be tracked and traced, which in turn can trigger payments once predefined geographies are hit. By digitalizing supply chain and trade finance we can reduce a process that currently takes ten days down to one hour.
A positive spinoff of digitization is the creation of data sets. After some time there will be enough data to rate how trustworthy participants in global trade are. It’s what bankers call KYC – Know Your Customer.
Currently 52 percent of the requests for finance from SMEs (Small and Medium-sized Enterprises) are rejected. The key reason is the lack of available data. The World Bank has identified USD 1.6 trillion in unmet financing needs, with most of the underserved businesses being in East Asia and the Pacific. Thanks to digitalization and the building up of reliable data sets we have the potential to capture a significant part of that.
These technologies are in the stage of proof of concept. Some technologies, such as blockchain, have limitations in scalability and involve high use of energy. But we will overcome many of these technical barriers.
Most important, though, is to consolidate the solutions and find standards that make it possible for technologies to communicate across industries and the globe.
Cyber safety is also at the top of the agenda. Cyberattacks are already part of today’s business reality. Two well known examples are the attacks on the terminal business of shipping company Maersk, which closed terminals for several days, and on TNT, a subsidiary of FedEx, which lost tracking of shipments because of hackers.
To prevent this, we probably have to move from total integration to deliberate fraction, to prevent a virus that enters through one door from freely moving thorough the whole system. Cyber risk should not hold us back to capture the enormous potential the solutions in the making are bringing to us.