When we’re munching on asparagus in winter or sourcing hi-tech automotive components from the other side of the world, it’s easy to get the feeling that we’ve defeated distance and gained mastery of the globe. And then the pandemic hit.
All of a sudden, the supermarket shelves we’ve long expected to be groaning with surplus were standing empty, and production lines ground to a halt for a lack of manufacturing materials. What went wrong with our much-vaunted, highly-agile, digital supply chains?
The problem is less with the technology underpinning international logistics, and everything to do with the relationship models between buyers and suppliers. Put simply, businesses are still cleaving to pre-digital, one-to-one relationships, and merely adding a veneer of digitalization on top.
The pandemic has shown how far this model has failed, depriving businesses of the agility and insight they need to respond to disruption. The solution is not to pursue expensive and ultimately futile efforts to digitize individual relationships but to embrace online platforms that enable them to build a worldwide partner network - one where relationships are fully digitized right from the outset.
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The digital dilemma
Digitalization may be the key to the agility and insight needed for responsive supply chains, but it’s inherently difficult for businesses to do themselves. Most enterprises make several failed attempts before they hit upon a system that works for them - for submitting invoices or POs, say. After so much costly trial and error, it’s in their interest that their suppliers adopt it too. What’s more, buyers have the financial clout to demand that they do.
But “doing digital” isn’t a guarantee of success. In fact, more often than not, even the enterprises who develop and mandate these systems get few meaningful benefits from them - and certainly far short of what digital could achieve. Instead of bringing smoother processes and greater efficiencies, businesses end up relying on manual processes to query, clarify, amend or cancel a significant proportion of invoices, making a mockery of the effort spent on creating a digital portal in the first place.
The problem is compounded when businesses try to apply digital to their longstanding hub-and-spoke models of supplier relationships. Instead of creating a new golden era of digital-assisted, round-the-world business networking, organizations find themselves focused on digitalizing every 1:1 relationship, each of which becomes a project in itself. It's costly, cumbersome and inherently inefficient; what’s more, it rarely if ever delivers the benefits digitalization is supposed to bring: greater accountability, enhanced regulatory compliance, transparency, real-time insight, or a holistic view of relationships.
Digital wasn’t supposed to be like this. It ought to be connecting businesses around the world and setting them free to forge new relationships and connections - just like social media does.
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The network effect
If businesses are serious about getting rid of paper, they would do well to take inspiration from social networks, which foster a digitally connective ecosystem that makes it incredibly easy to connect and share information.
Take LinkedIn. This isn’t just a space for people to share their CVs: it’s really a place to build and grow your own professional network. What’s great about LinkedIn is that there is no barrier to entry: you just need an email address and away you go. That’s exactly how supply chain relationships should be. No need for investment or new infrastructure; just plug into a universal platform and start digitizing any and every aspect of your relationship, from invoicing to purchasing to payments.
This easy, low-cost and modular path to digitalization might be “carrot” enough to encourage suppliers to join a digital supply chain ecosystem, but it only scratches the surface of what such platforms can bring. Just like LinkedIn, businesses can build their own trading networks, recommending suppliers and buyers to each other, offering preferential payment terms and other incentives to trusted partners.
Digital ecosystems mean businesses no longer have to spend 100 percent of their time onboarding and managing the 20 percent of their relationships that bring in 80 percent of their revenue. Instead, they can take a far more holistic view of their entire supply chain ecosystem, including ‘long-tail’ suppliers, without adding an unmanageable amount of extra work.
Meanwhile, these supplier ecosystems will finally bring all the long-promised, never-delivered benefits of digitalization. Buyers and sellers alike, will gain unprecedented transparency and visibility throughout the entire supply chain - not just their Tier 1 suppliers, but their suppliers’ suppliers, enabling them to prove their sustainability or Environmental, Social and Governance (ESG) credentials beyond doubt. They can create online marketplaces, and even pioneer new methods of supply chain finance: with between $7-9 trillion worth of payments outstanding at any one time, businesses can spin this into new lines of credit, to the benefit of every company in the global supply chain.
Sometimes it feels that for all our technological progress, we’re actually heading backward. When the rise of the Ottoman Empire cut off the markets of the Orient, for example, intrepid explorers discovered the route round the Cape of Good Hope. Today, a pandemic or a blocked canal can throw complex international supply chains into complete disarray. We’ve always needed flexibility and choice in our supply chains, but by applying digital technology to old-fashioned relationship models only exposes us to more risk. But using digital as it was intended - to create worldwide networks of buyers and suppliers - is the one way we can make international trade fit for whatever the future throws at us.
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Gert Sylvest, Co-founder and VP Network Products, Tradeshift