The supply chain is beginning to master a volatile world

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By James Stirk, CEO, Tradeshift.

Global trade should be on its knees, just as it was in 2020. The only real difference from then is that Covid has retreated, only for the war in Ukraine to reach near-existential intensity. Yet signs of recovery are unmistakable in the supply chain.

Tradeshift’s latest Index of Global Trade Health charts a surge in order volumes in Q1 2024, building on strong performance at the end of last year.

Green shoots are apt to be throttled or frozen by sudden changes in the macroeconomic or geopolitical temperature, so we must of course be cautious about predicting a permanent return to fair weather. But after two years of dwindling demand and tepid growth, there is real reason to be optimistic, with strong indications that the supply chain is starting to undergo long-postponed, much-needed systemic change.

Resilience becomes the yardstick

Certainly, more favourable conditions such as falling inflation, cooling oil prices, and US / China government subsidies have contributed to the recent growth in trading activity, but they don’t fully explain the uptick. It’s clear - both from the data and the conversations we’re having - that businesses’ efforts post-pandemic to reorganise their supply chains are beginning to bear fruit.

 It’s now becoming clear that the pandemic was a catalyst for the most significant and sustained period of supply chain recalibration since the introduction of containerisation. For decades, supply chains prioritised speed over strength; the inexorable move towards “just-in-time” was reminiscent of the run-up to the subprime loan crisis, with participants believing the tide would never go out.

Still, credit where it’s due: the supply chain has pivoted with impressive speed and recalibrated for resilience, which is now the yardstick by which successful organisations are measured. So how are these businesses building resilience back into their operations?

Investment in digital pays dividends 

Digital transformation used to be a buzzword, but the pandemic made it a priority. Recent research found that 84% of supply chain executives have ‘significantly’ increased their use of digital technology, while analysts predict the market for these technologies will reach almost $14 billion by 2030 - higher than pre-Covid estimates.

Process automation is one example of technologies that eliminate potential pinch points, enabling businesses to accelerate and scale operational processes that would otherwise break in the face of sudden changes in trading or other macroeconomic conditions. It also demonstrates that resilience need not come at the cost of speed. Increasing the speed and accuracy of business processes like invoicing and payments is exactly the sort of lubricant that’s been missing from the engine of the global economy. It promises to eradicate the cash flow crisis of the last few years, ensuring suppliers get paid on time and unlocking vast amounts of liquidity that’s traditionally been tied up in the supply chain.

And that’s just the start. Digitalization provides the platform for a new generation of technologies like embedded financial tools and B2B marketplaces, which are just coming on stream. These in turn will support new models of buyer-supplier relations that enhance the speed, resilience and liquidity of global trade yet further - in bad times as well as good.

Revolution in the head

The revolution in supply chain models also requires a change in mindset, away from speed-for-its-own-sake and towards the health and diversity of supplier relationships. Marketplaces are a great example of how single-sourcing models are giving way to a much more networked set of relationships between large organizations and diverse groupings of suppliers. Technology has played a central role in facilitating this transition, enabling businesses to identify, vet, onboard, and manage suppliers on a scale that would have been impossible just a few years ago.

Next-generation technologies like AI and machine learning are also poised to spark a revolution in our understanding of what’s possible in the supply chain. Their impact goes far beyond improving processes and extends into the realm of organizational strategy. The most valuable applications are those that enable the shift from static or reactive models to ones that identify or even anticipate emerging risks. 

We’re right at the cusp of convergence between AI and fintech, where the insight generated from digital trading network data can be used for a range of predictive applications, including predictive finance,  that harness real-time data about emerging issues or pinch points that could lead to cash flow issues. Before very long, AI will even be able to provide suggestions on financing you may need, before you even know you need it, together with the relevant supporting data to show you why.

There is still some way to go before global trade gets an ‘early warning system’ that would mitigate all but the most cataclysmic events - but at the same time, that’s clearly the direction of travel. So while global businesses should not expect another 12 months of stellar growth, it’s clear that the much-needed, long-delayed structural revolution in supply chains is picking up unstoppable momentum. Whatever storms lie just over the horizon, we’re in better shape to weather them than for decades - and will only grow more resilient with each passing quarter.

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