Name any industry and its supply chain professionals will tell you they have experienced the toughest three years of their careers. During the pandemic, the well-oiled global transition of goods and services ground to a halt almost overnight as lockdowns kept factories closed and ships in port. Backlogs grew quickly, prices soared, and just as ‘normality’ seemed to be back on the cards, war broke out in Ukraine and global tensions escalated, further disrupting supply chains that were still suffering the impact of Covid-19.
To compound these issues, supply chains were also put under pressure by an explosion in demand for some components and materials, increasing competition for limited stock. For example, the gathering pace of growth in the electric vehicle (EV) market saw demand for batteries, electronics and semiconductors rise rapidly, just as other markets were building stock so they would be ready to react once lockdowns eased. This led to an unprecedented 52-week lead time for some vital electronics components. But perhaps more importantly, it highlighted more starkly than ever how challenging it is to predict or control the outside influences affecting supply chains.
Additionally, when war broke out in Ukraine in 2022, this created specific gaps in the supply chain as Russia and Ukraine are big exporters of a range of goods from grain and fertilizer to timber and metals. Outside of Europe, tensions between Taiwan – which is home to some of the world’s biggest semiconductor manufacturers – China and the US continue to disrupt previously efficient supply chains, making all of us wonder if an alternative strategy needs to be developed in parallel in the background.
At ABB, the realization that supply shortages would continue for some time to come was the catalyst we needed to accelerate our investment in digital systems that would enable us to gain a deeper understanding of our own ‒ and our customers’ ‒ risk exposure. By harnessing the analytic power of data, we have increased our ability to predict and respond to supply disruptions ahead of time, making our business more resilient for the future.
Accelerating digital transformation
Procedure-wise, since the pandemic started, we have been striving harder than ever to advance our forecasting activities for vendors. With better forecasting, we can create a longer time window, allowing them to better plan their production capacity in advance. This also ensures we get the components and materials when we need them.
In addition, we also now agree long term commitments for critical items to give vendors even greater visibility of their future pipeline. These commitments are constantly being updated so we can increase stock levels as needed or develop specific vendor-management-inventory agreements.
However, the most important step we have taken, spurred on by the pressures put on our supply chain by the geopolitical climate, has been accelerating the development of a supply chain collaboration tool specifically designed to improve the transparency of the data we share with our vendors.
Currently, a working version of the tool which has already been implemented as a pilot and is now in the process of being rolled out globally, allows our partners to access relevant data so they can make their own plans and adjustments based on what they see. The tool ensures data accuracy and alignment on both the vendor and buyer side, as well as speed of transmission.
Future releases may also go further, showing where bottlenecks exist so our vendors can understand how far in advance they need to place orders, or how to reshape or reshuffle the mix of products they are ordering.
We also plan to introduce specific modules or functionalities that can help with risk assessment by assigning a criticality level to each order. This would allow users to cross-check the product to give them a full picture of their risk exposure.
Leaning on each other
While a technology-driven approach to supply chain management is crucial to minimizing business disruption, it is only as good as the parties that populate it. For this reason, we are encouraging our vendors and customers to share their data as openly as possible. The foundations of data transparency lie in two-way communication and a shared willingness to create it.
Moreover, communication is crucial not just between supply chain actors, but also cross-functionally. For example, if we have a customer tell us they are struggling to deliver on a specific item perhaps because there is a component material or chemical substance that is increasingly hard to source or is going to be discontinued, we can put our heads together to find a solution, bringing in other departments where necessary. Can we find a potential alternative technical solution? How can we help each other? When you are lacking predictability, the only way to minimize surprises is to communicate as much as you can.
As we continue to build our supply chain tool, we will be involving our partners at every stage of the development process to incorporate the lessons learned along the way. The more we can join forces and work together, the more we will be able to speed up the overall transformation program.
The only way to successfully navigate the ever-evolving supply landscape is to lean on each other and collaborate to take stock of data. By doing this, we will counter supply chain vulnerability.
Sara Cattaneo is Chief Procurement Officer at ABB, a leading global technology company that energizes the transformation of society and industry to achieve a more productive, sustainable future. By connecting software to its electrification, robotics, automation and motion portfolio, ABB pushes the boundaries of technology to drive performance to new levels. With a history of excellence stretching back more than 130 years, ABB’s success is driven by about 105,000 talented employees in over 100 countries.