The advanced state of supply chain logistics over the last few decades had been one of the most unnoticed and vital innovations of the new century.
Most of this advancement went unnoticed by the majority of the population except in terms of what it allowed as far as consumption was concerned. Although all kinds of credit was given the Internet as far as the rise of on-line shopping, the reality is that none of that “revolution” would have been possible without the massive shifts that took place in the supply chain. The appeal of on-line was that it could deliver quickly – nearly as fast as going to the store to but the item oneself. There has always been delivery, most of us grew up with the Sears and Wards catalogs and the thrill of poring over those hundreds of pages. The problem was that ordering meant planning as it would be weeks and weeks before the item arrived. The on-line promise has been instant gratification and that meant a supply chain that would be able to react that quickly.
Analysis: There was always a way to ensure swift delivery of what people wanted but that came at a cost. If a customer was to get that delivery fast the item had to be available. In order for that to happen there had to be storage and warehousing on a grand scale. It is one thing to have lots of winter clothes available as winter approaches but quite another to have them sitting in your storage rooms the rest of the year. The stores focused on keeping popular items in stock and for everything else the customer had no choice but to wait. That was when supply chain innovation came into its own.
The notion was termed JIT – as in Just-In-Time. This was not limited to the consumer flow either. Factories would be able to reduce the costs of storing parts and materials as they would count on their arrival as they were needed. The consumer enjoyed stores that supplied themselves daily and they shopped online with the assurance their purchase would show up a day or so later. That system relied on technology and strategy but most importantly it relied on a global trading system that was well connected.
This system now shows real signs of breaking down and as it collapses the security of the global supply chain is suffering as well. The COVID 19 crisis is not responsible for this supply chain collapse but it has certainly contributed to it and has hastened the developments that were challenging this system. It is not clear that there will be a return to the system after the COVID 19 crisis comes to something of a conclusion. Over the last several years the global trade patterns that had allowed this diverse supply chain have been under attack.
Ten years ago, the global trade conversation was all about new deals and arrangements. There was talk of a Trans Pacific Partnership and expansion of Nafta, a new deal between the US and Europe, expansion of the EU, development of Pan African trade, expansion of Mercosur and Asean and Cafta and so on. It was a time when open borders and global trade growth seemed assured. Today all of this talk has ceased and global trade has been replaced by protectionism and outright hostility. No business can count on access to any other nation or part of the world for anything. This will bring back the system that was supposed to have been rendered obsolete by the rise of supply chain technology. The future is now back to the world of warehousing and inventory costs. The magic of on-line is suffering already as people learn that products may not arrive for weeks or months.
Source: Chris Kuehl, Armada Corporate Intelligence
Editorial Comment from BIIA: If it is back to warehousing and inventory cost, there will be a need for more trade finance. It will also lead to longer payment terms negotiated between trading partners, which increases credit risk – thus more relevant information will be required to manage the increase in risk.
