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This article originally appeared on Forbes.com
The supply chain industry – and transportation logistics in particular – has long been known for its ‘boom or bust’ cycles. Fluctuations in supply and demand cause ripple effects that impact every link in the chain, often in radically different ways.
Demand exceeds supply and we see a capacity crunch, with attendant spiking freight rates – a ‘boom’ for carriers and container suppliers and a ‘bust’ for shippers. Supply exceeds demand, and suddenly capacity constraints ease and rates fall – good times for shippers, while transportation companies and brokers take a hit. A contributing factor to this cycle is the roughly 500,000 owner-operator trucking companies who will enter the market as demand spikes and exit as it fades.
It’s a vicious cycle, and it’s continued to play out in an exaggerated fashion over the course of the pandemic. Now we find ourselves in an uncertain economic environment, with rising inflation, decreasing demand, declining transportation rates and excess inventory. Many in the supply chain industry are left scratching their heads: are we seeing early warning signals of a recession, or are we just seeing the cycle continue to play out?
At the end of the day, I’d argue it doesn’t really matter. Whether we’re experiencing a nascent recession, or just the supply chain’s age-old, inexorable cycle of dramatic ups-and-downs, the industry no longer has to accept just ‘riding it out.’ In fact, thanks to major advances on two fronts – technology and attitudes – the supply chain industry has newfound abilities to better manage their businesses through periods of market volatility.
First, collaboration is increasingly commonplace, instead of contentious. Before the pandemic, you’d be hard pressed to find many people who would call the supply chain industry collaborative by nature. Global supply chains are almost incomprehensibly complex, with tens of thousands of companies jockeying for advantage across a vast web of countries, cultures and regulatory environments. Manual systems and workflows were predominant. Business partnerships were largely transactional and contractual, and more often than not, contentious when issues arose. The prevailing attitude? Look out for number one.
The pandemic flipped this attitude on its head: if we don’t collaborate, we don’t survive this.
Second, technology is making collaboration easier, and fostering trust between trading partners. As the industry increasingly embraces digital transformation, invaluable supply chain data are being generated and harnessed by a new generation of solutions and tools that leverage AI and machine learning to provide insights that improve business processes and keep goods flowing to their final destinations.
What’s more, adherence to strict data protection and privacy protocols – such as Europe’s General Data Protection Regulation (GDPR) and SOC 2 certification to ensure security, confidentiality and privacy – has made it possible for trading partners to control and confidently share data. Now, instead of arguing about which way is up, they can access a single source of truth for joint problem-solving.
As an industry, standardizing data across platforms is critical to making things truly interoperable and collaborative. And to be clear, we are still at the relative beginning of the digital transformation of global supply chains, and there are years of innovation ahead. But the world’s largest enterprises are looking for technology to deliver greater value, today.
A recent conversation with one of our customers — a top-10 global food and beverage company — reinforced this very idea. The company’s SVP of Product Supply Planning and Sales told me that his team needs more tools that can analyze large data sets and provide a real-time “red alert” specifying what the team needs to fix immediately so that they can keep the shipment on track and prevent additional issues from arising. The ongoing labor shortage makes it all the more imperative that we look for ways to provide deeper insights into the anomalies that need remediation.
But real progress is being made. And as these new attitudes and technologies proliferate, the supply chain industry is empowered as never before to tackle previously intractable issues. For example, with visibility into the location of inventory anywhere along the chain, and insight into the health of partner, supplier and customer networks, trading partners can improve forecasting, demand planning, inventory management and many other critical aspects of supply chain operations.
Consider a retailer squeezed by plummeting consumer demand and the crippling cost of carrying excess inventory stockpiled during the pandemic. They understandably need to shore up the balance sheet, so they approach their suppliers to negotiate new payment terms. But what if those payment terms prove to be too one-sided, and drive critical suppliers out of business? In the short term, the retailer might benefit. But in the long-term, demand picks back up and the retailer can no longer turn to its former supplier. Everyone loses.
This is the kind of knee-jerk, siloed decision-making that we can relegate to the past. And with legitimate concerns of recession and market volatility on the rise, it’s more important than ever that the industry harden its resolve to not go back to the old ways of doing business.
Instead, we have the data and technology to identify ways to eliminate fees, improve on-time performance, drive down costs with more precise planning and monitor key performance indicators accordingly. To this effect, Gartner’s recent Recession Playbook for Supply Chain Leaders wisely advises companies to make the right trade-offs to improve profitability – while funding faster digital acceleration.
To start, organizations should identify one or two areas where digitization can make a meaningful impact — we call this the “crawl, walk, run, fly” approach. By targeting the greatest return on investment, you ensure buy-in and a successful implementation. Once the people, process and technology are in place, companies are able to build on the momentum and easily scale to tackle additional problems. Consider Gartner’s Maturity Journey for real-time transportation visibility.
This is no time for the supply chain industry to let up – neither on digital transformation, nor the new spirit of collaboration that is every bit as powerful and transformative. Together, we can create a smoother ride for everyone, even when times are tough.