Advanced technologies are being deployed to tackle mounting global disruptions in the urgent battle for resilience.
Catastrophic weather events, wars in Ukraine and the Middle East, trade conflicts, global pandemics—the forces disrupting supply chains are multiplying at a rate few could have anticipated.
Since Covid-19 swept the globe, risks have spiraled, forcing governments, industry groups, nongovernmental organizations, and corporate CEOs and CFOs to rethink supply networks from the ground up. And the current threats show no sign of slowing.
As global supply chains brace for escalating tariffs, rising shipping costs, and an expanding regulatory landscape, companies are scrambling to adapt to demands for greener, more-resilient networks. Technologies like artificial intelligence (AI) and distributed ledger technology (DLT) are bringing new tools to bear, but the fundamental challenges and growing fragility of globalization will remain, experts tell Global Finance.
“We’re certainly in a new era of global supply chains, but it’s not that today’s risks were entirely unseen before,” says Tinglong Dai, professor of Operations Management and Business Analytics at Johns Hopkins University’s Carey Business School.
Extreme weather has always been a threat, but its frequency and intensity are now unparalleled, Dai says. Similarly, risks such as the Houthi attacks on Red Sea shipping have increased.
“The real shift,” Dai explains, “is in our recognition that the global supply chain model of the past 30 years is no longer sustainable, especially in light of new geopolitical realities. The US can no longer count on a China-centric supply chain structure to operate smoothly. We’re moving toward what I would call a ‘Supply Chain Iron Curtain.’”
Rising Shipping Costs
“The world has very much changed, and the risks of global manufacturing and transportation have increased tremendously,” says Zach Zacharia, associate professor of supply chain management and director of the Center for Supply Chain Research at Lehigh University’s College of Business. “The large shipping lines are all not going through the Red Sea, and again that has changed the cost and time required to transport goods.”
Events have forced companies to look more closely at shipping costs. Russia’s invasion of Ukraine dealt a blow to globalization, Zacharia continues. Before, it made sense to produce something at the lowest cost and then efficiently transport it.
“However, once Ukraine was attacked and Covid happened, you had to look at not just producing it cheaply but transporting it back safely at a low cost, which became much more critical,” he says.
“We do see more volatility in maritime supply chains,” says Jan Hoffmann, head of trade logistics at the United Nations Conference on Trade and Development (UNCTAD). It hasn’t helped that “key chokepoints like the Suez and Panama canals are increasingly vulnerable to geopolitical tensions, conflicts and climate change,” as UNCTAD states in its Review of Maritime Transport 2024, published in September.
Tariffs could soon be a complicating factor, as US President-elect Donald Trump has stated his intention to expand their use. Tariffs were a big issue in the recent US presidential campaign but are viewed by many as a lose-lose strategy. They don’t really make sense, because tariffs invariably provoke retaliatory tariffs, cautions Zacharia. Still, they seem likely to proliferate in the current geopolitical climate.
“A surge in trade conflicts, and especially between the USA and China, is altering traditional trade flows between these leading trade partners,” says Rouben Indjikian, a professor at Webster University in Geneva and former executive director of Global Commodities Forum at UNCTAD. One recent example: China gets soya beans from Brazil at the expense of its traditional supplier, the US.
Elsewhere, globalization itself has brought a certain amount of “just-in-time fragility,” says Evan Smith, co-founder and CEO at Altana AI. Boeing, for example, used to control most of the value chain in the manufacture of its aircraft. “Today it’s doing only the final assembly of its planes,” says Smith.
This means that if there is an interruption, for whatever reason, in deliveries of parts such as seats and engines from one or more upstream suppliers, the entire production line may have to shut down, as happened to Boeing in July.
“This outsourced, … efficiency-at-all-costs supply chain [favored by so many companies] is efficient only under conditions of stability,” which is not what we have today, Smith explains.
Companies and organizations need to embrace a diversified strategy that includes reshoring, nearshoring, and friendshoring, says Dai. “It’s not just about bringing production back to the US. That alone won’t shield companies from risks, particularly those driven by climate change,” he argues. “We need to diversify not only across regions within the US but also by collaborating with allies and neighboring countries.”
Some have already traversed this path. “Apple has been quite successful in de-risking its global supply chain. They’ve built in significant optionality and resilience, taking concrete steps to reduce reliance on any single country or region,” says Dai.
allow for very fast decision-making and mitigation of supply risks before they arise.
A ‘Sea Change In Regulation’
For corporations, managing their supply chains could get more complex—and expensive—given the current global regulatory climate. The EU’s Corporate Sustainability Due Diligence directive is already in force for some companies, yet only 9% of respondents in McKinsey’s 2024 Global Supply Chain Leader Survey say that their supply chains are currently compliant with the new rules, which impose human rights and environmental due diligence requirements on large EU companies and on large non-EU companies operating in the EU.
UNCTAD recognizes that “rapid decarbonization is critical” regarding global supply chains, yet “the transition to greener ships and low carbon fuels is still in its early stages.”
“There has been a big sea change in regulation,” comments Smith. Governments now insist that companies be aware of what is happening across their supply chains to a degree not seen before.
The US Uyghur Forced Labor Prevention Act, which was signed into law at the end of 2021, requires companies to take steps to prevent forced labor in their supply chains. The US Customs and Border Protection agency requires that all companies whose supply chains draw upon China’s Xinjiang Uyghur Autonomous Region have to undertake and document extensive “due diligence measures to ensure compliance with US laws and trace their supply chains for potential exposure to forced labor.”
This isn’t always easy. A large US apparel firm might know who is manufacturing its garments, and the origins of the textiles used in that process, but may not have knowledge about the cotton that goes into those textiles. Today the apparel firm must ensure that forced labor isn’t being used to pick the cotton that will be spun and woven into textiles and fashioned into clothes that will appear on US retail store shelves, says Smith.
Can New Technologies Make A Difference?
In this increasingly volatile supply risk environment, how does a company or organization mitigate these risks? Can emerging technologies, particularly AI, provide support?
More companies are now tapping into giant supply chain datasets and using machine learning algorithms to apply predictive analytics, “allowing for very fast decision-making and mitigation of supply risks before they arise,” says Peter Liddell, Global Operations Center of Excellence lead and Global Sustainable Supply Chain lead at KPMG Services in Singapore.
“Embracing AI is a high priority right now for global supply chain leaders across all industries and all jurisdictions,” he continues. In KPMG’s 2024 CEO Outlook, which surveyed 1,325 CEOs surveyed worldwide, supply chain disruption was rated a top threat to business growth.
By comparison, supply chain risk ranked only fifth in KPMG’s 2022 survey. Importantly, Liddell notes, “64% of global CEOs surveyed indicated that they would invest in AI regardless of the economic conditions.”
Many organizations are already using AI-based tools to improve supply chain “visibility”; that is, the ability to track and monitor the movement of products and information throughout the supply network. Of supply chain leaders surveyed in the McKinsey report, 55% said they were using AI for this purpose, making it the technology’s most common use case. And this rate of AI usage backs up the increasing complexity of supply chains, as the survey also reports that “the share of respondents who say that they have good visibility into deeper levels of the supply chain fell by seven percentage points, the second consecutive annual decline in this measure.”
Where AI could prove really useful, though, according to Shawn Fitzgerald, senior research director at a strategic consulting firm, is in developing “what if” scenarios.
Using AI-enhanced predictive analytics to “game out” scenarios beforehand can vastly improve logistics, Fitzgerald suggests. A manager would ask the algorithm, for example, whether it is safer and more efficient to transport goods by air or by water.
Sustainability is a growing concern of governments, and supply chains can expect to come under more pressure to ensure that they are part of the solution, not the problem. Tracking every step in the supply chain process could eventually be a corporate imperative. If so, DLT may prove a useful tool, according to Liddell.
“The ability offered by DLTs for data visibility, to trace every transaction, and to identify the actors involved can enhance the reliability and accuracy of product traceability and tracking, especially in times of greater geopolitical uncertainty and as concerns over trading partners begin to grow,” says Liddell.
“Visibility and traceability are two critical requirements for supply chains to enable ESG Scope 3 reporting,” he adds. Those reporting requirements are a part of the international corporate value chain standard and could boost the adoption of DLTs and of blockchain at scale.
What Can CFOs Do?
Are there concrete steps that all corporate CEOs and CFOs should be taking to make their supply chains safer, considering growing geopolitical risks?
Some supply chain leaders are creating strategies for the next five to 10 years, adopting a greenfield-planning approach, says Liddell—that is, building models from scratch, with a clean slate.
Several organizations are also working on plans to fully automate the supply chain planning function—100% automation—“but this is likely to be far more difficult than many expect,” Liddell comments.
“My view is that organizations want to better understand their own risks, their suppliers’ risks, and their suppliers’ suppliers’ risks, and ask for mitigation plans, but have not significantly increased their own investments in risk mitigation,” says Shawn Muma, director of supply chain innovation and emerging technologies at the Digital Supply Chain Institute, a research organization of the Center for Global Enterprise.
This is the case even as new AI/machine learning tools become available to optimize business decision-making, like optimal machine learning (OML), a process that can handle enormous amounts of past and current supply-and-demand data and make recommendations on such matters as ideal production quantities and the most efficient shipping arrangements, Muma adds.
Digital enterprise resource planning (ERP) software is gaining in popularity among CEOs and CFOs, Webster University’s Indjikian says. ERP permits companies to make supply chain an integral part of the overall planning of production, transportation, and distribution of their goods.
But ERP and digitalization can go only so far. “While digitalization can make early warning systems better, they cannot easily overcome geopolitical risks and especially climate events and their consequences,” notes Indjikian.
“It’s really mostly about diversification,” says UNCTAD’s Hoffmann. “A shipper will try to depend on several carriers, routes, ports, modes of transport, and goods suppliers.”
Companies should also strive to avoid letting supply chains become too deep, with too many levels, leaving them dependent not only on their supplier, but also on the supplier of their supplier and so on.
Overall, supply chain management must be valued by corporate boards and top-level management as no longer a mere back office, logistics type of job, a matter of making sure that goods show up on time in the most cost-efficient way, Altana AI’s Smith argues.
Companies will have to raise supply chain management to an executive-level priority, suggests Fitzgerald. They will need to hire and retain the right talent, invest in ongoing training, and “ensure there is a career track for supply chain professionals to advance and partner with the business over time.”