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Co-founder and CEO of CapGrid
The measure of a good and frictionless supply chain has been fairly consistent over the last three decades. The approach entailed scouting for inexpensive markets for raw materials; transporting them to a site with the most affordable labor; and finally delivering the completed product to the developed markets that needed it. Each link in the supply chain was conditioned to keep rehashing this sequence. The supply chain’s secret has always been a conveyor belt-like functionality where every procedure is carried out smoothly in an intrinsically phased manner. However, some major disruptions over the last few years are forcing a shift in how supply chain management is being run.
Shifting the gears of the supply chain: The major shift drivers
A number of factors over the last decade have altered the very DNA of the supply chain. A sudden upheaval was caused as a result of the rise of Industry 4.0 and its validated use cases from 2015.
Sophisticated technologies like robotics, artificial intelligence (AI), machine learning (ML), and real-time traceability have created a generational jump in how supply chains used to function and how their engines grind in the modern ecosystem now.
Industry 4.0 generates disruption and pushes businesses to rethink their supply chain strategy. Emerging technologies are transforming conventional methods of labor. For instance, robotics has ensured that the dependency on labor has been reduced dramatically. Mega trends and consumer expectations further alter the game. In addition to the necessity to adapt, supply chains have the chance to achieve the next level of operational performance, utilize developing digital supply chain business models, and turn the organization into a digital supply chain.
Some notable agents that have caused the market’s disruption also stem from the nationalistic sentiments that have given birth to local job protection drives across the globe. There is a perception that made in India products will work in India. Similarly, all American muscle cars like Fords and Chevys would be preferred in the US over the Japanese motor giants, Toyota. Talking about Toyota, the behemoth car manufacturer felt the aftereffects of the Fukushima disaster. The tsunami reflected not just on the land of the rising sun, causing devastation across the length and breadth of the island, but also on Toyota’s operations of their tier-1 and tier-2 suppliers.
The pandemic massively shifted the equilibrium in the supply chain
“Supply chain crisis” became a commonly used expression during the coronavirus outbreak, when Covid-19 caused massive economic disruptions worldwide. It has been used to explain why grocery shelves are empty and why it takes so much longer for items to reach companies and customers. The crisis has exposed weaknesses in the global shipping sector, which continues to be impacted by a lack of personnel, available containers in Asia, and port capacity at key U.S. and European ports. The domino effect during 2020 escalated and made its presence felt when many manufacturing factories in Asia closed. Ports were left in isolation as many workers returned home. This nudged another domino which impinged on the complete slowdown of the supply chain, as fewer workers meant more time to unload containers from ships. The semiconductor chip shortage has been a menace to many industries, but none more so than the automotive industry. This automobile industry requires these low-complexity materials to create the end product. As automakers and electronics industries continue to need a greater quantity of chips, semiconductor suppliers are unable to expand their operations rapidly enough to meet demand. Another brick in the wall to completely create the setback has been the lack of visibility in the supply chain at tier-2 and tier-3 levels, leading to disruptions.
To accomplish the goal of Industry 4.0, the majority of business operations must become increasingly digitised. The transition from conventional supply chains to a connected, intelligent, and highly efficient supply chain ecosystem will be crucial. Through marketing, product development, production, and distribution, and eventually into the customer’s hands, the current supply chain consists of a succession of essentially diverse, siloed procedures. Digitisation pulls down these barriers, transforming the supply chain into a fully connected, transparent ecosystem for all participants. Digitisation of information interchange is the only way to establish closer cooperation with tier-1 suppliers. The supply chain ecosystem, however, is never complete without tier-2 and tier-3 suppliers. This is where RFID/blockchain technology is improving and creating seamless cohesion with the tier-2 and tier-3 segments.
AI in supply chains contributes to delivering the potent optimisation skills necessary for more precise production scheduling, higher efficiency, good value, reduced costs, and increased production, all while advocating safer working conditions.
The digital dimension in the supplier ecosystem
Digital transformation in supply chain management increases organisational adaptability, automates corporate processes, and accelerates supply chain management innovation. In order to maximise the benefits of digital supply chain models, businesses must integrate them into their broader business strategy and organisational structure. Traditional OEMs are incapable of democratizing technology at the supplier’s end in the areas of quality, dispatch visibility, and production stage visibility.
Manufacturers are attempting to expand while continually innovating on the product front and satisfying the ever changing demands of customers. Today many tenderfoot companies which have created a niche space for themselves and are being considered one of the big players have digitised ecosystems in the D2C Space but the manufacturing space is on the lookout for similar tech that can help digitalise the supply chain at scale.
Aggregators aggregating all the advantages
Tech-first aggregators are creating an umbrella where they are seamlessly integrating the supplier and vendor ecosystem under its commercial canopy. Overarching in nature, they are able to use discovery, traceability, economies of scale as key drivers to generate value in the supply chain. Given their exclusive emphasis on optimizing the supply, they are developing unique supply chain models that produce value for all tiers of manufacturers. Trailblazing solutions are emerging in the markets today for simplifying the low complexity direct material sourcing and procurement processes. Advance in nature and tech-powered, these companies are becoming the ultimate end-to-end source-to-deliver model for the low complexity direct material spend focused on the Industrial, Automotive and EV industry.
The entire supply chain is being invigorated with the emergence of these novel startups looking to bring innovative solutions to the low-tech supplier ecosystem. This has the potential to capacitate thousands of suppliers in the INR 50–200 crore range category and will help them grow to a 1,000–10,000 crore revenue range over the next few years. With the help of technology, these suppliers will be better prepared to tackle cordial or adverse market conditions and global demand. All of this culminates in pushing India ahead towards its goal of achieving a USD 5-trillion economy tag.
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Views expressed above are the author's own.
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