• Tue. Jan 25th, 2022

The under-considered supply chain: omnipresent and crucial even where least expected

ByOlivia Venn

Dec 22, 2021

As if the disruption of the pandemic had not made it clear enough, we were given the Suez Canal gridlock: a living metaphor for the significance and fragility of global supply chains. Post Covid-19, even the layperson understands that supply chain management is an essential tool, one that shows up even in industries we do not ordinarily consider.

The brittleness of logistics networks has been vividly encapsulated by the ongoing drought in semiconductors. These tiny pieces of hardware underpin the digital world, enabling everything from household appliances and computing to advanced artificial intelligence and innumerable other emerging technologies.

An increase in demand for technology products coincided with Covid-19 disruption at a number of major semiconductor production sites. The ripple effect impacted the capacity of technology companies around the world to manufacture their own dependent products, from the Apple-IBM giants to fledgling technology start-ups.

Transtec Group in Austin, Texas, for example, sells small sensors that are placed where concrete is poured in construction projects. The product takes temperature readings and wirelessly sends data, allowing workers to monitor their materials as they are hardening.

Dan Rozycki, the company’s president, was wise enough to have planned ahead. He has microchip stock for a year’s production, at current levels. But the company’s distributor has warned that it cannot fulfil supply for 2022. The shortage is so acute, and corrective action takes such a long time to bear fruit, that the problem will not have been rectified by then.

While Transtec Group will continue to search for alternative semiconductor suppliers — diversifying the supply chain — in a year’s time, production is likely to be negatively affected.

Just like for many other operators, at a time when the company should be growing its production, it will struggle merely to maintain stable levels. This will cascade into Transtec’s customers too, whose operational efficiency will consequently suffer when their orders for Transtec’s sensors cannot be fulfilled.

The shortage in semiconductors is so severe that the Semiconductor Industry Association, comprised of companies like AMD, IBM, Intel, Nvidia and Qualcom, has been lobbying the Biden administration to make changes to US manufacturing capacity. At present levels, 80% of semiconductors will be produced in Asia by 2030.

The value of the intangible

Wherever one looks, the supply chain impacts company processes, with no industry immune to resultant disruptions when these links are tested. Indeed, the importance of the supply chain, even in industries such as software, was highlighted after the catastrophic SolarWinds hack that compromised swathes of the US economy.

When major US IT company SolarWinds was targeted by hackers, the shockwaves reverberated down chain to 250 influential private companies and government institutions, from Microsoft to the US Department of Homeland Security and Treasury Department.

The cyberattack was particularly challenging to detect and respond to as the hackers infiltrated automatic processes, infecting companies along the supply chain during routine software updates.

The incident developed into one of the farthest-reaching supply chain cyberattacks in history, one that only came to light after elite cybersecurity firm FireEye came forward to admit that it too had been compromised as a result.

Once again, the importance of the supply chain in relation to security was emphatically demonstrated, even if it is not a subject that jumps to mind when one contemplates cybersecurity.

Transparency and trust

The financial and reputational consequences of supply interruption can be staggering. That is why it is vital companies have confident and assured control over their supply chains. And yet, with such complex networks of interdependence, many companies do not understand every step of their own sourcing processes.

“The biggest hurdle is lack of knowledge. Most supply chains today are so complex that companies don’t know exactly what’s happening in them. In other words, their supply chains lack ‘visibility,’” according to Kathrin Bohr, Director of Sustainability Advisory Services for Intertek Sustainability Solutions.

In fact, experts suggest that 93% of most companies’ supply chains are invisible.

Transparency and certainty are also becoming increasingly important for regulation and have begun to influence the decisions of consumers. In some sectors these considerations are even more vital.

For example, in security printing, a significant proportion of industry controversies stem from issues rooted in supply chain management or transparency. Money might not be the first thing that springs to mind when one thinks about supply chains, but even here clear, transparent vertical integration has its advantages.

The banknote printer Oberthur Fiduciaire, for example, maintains its two factories in France and Bulgaria, with both facilities following the same norms and processes. The company then ensures next to no reliance on subcontractors, guaranteeing certainty about standards. The security printer also made the strategic acquisition of VHP Paper in 2017, safeguarding control of its supplier of the security paper on which it prints its banknotes.

Not only does this alignment anticipate and avert supply shocks, but it is a source of competitive advantage in an industry centred on trust, dependability, and reputation.

Finding opportunity in the chain

Getting vaccines to billions of people around the world is a grand logistical undertaking, but the compounding difficulty of maintaining the cold chain necessary to keep drugs and treatments operative in transit may be overlooked by the public

Sweden’s Envirotainer is a specialist in secure cold chain solutions for air transport of pharmaceuticals. The demands of the pandemic have led the company to begin expanding its network capacity for RAP e2 containers in the United States by 57%.

The introduction of four new RAP e2 stations in New York, Miami, Philadelphia, and Seattle, will increase the capacity to securely ship both COVID-19 vaccines and other medicines that require high-quality temperature-controlled solutions across the US. Furthermore, the company added Beijing to its network stations to support the rapidly growing pharmaceutical export market in China.

This is an example of how an operator can dynamically capitalise on changes in the needs of the supply network. Clearly, the supply chain can represent an opportunity, not just a source of complications.

As we have seen supply chains permeate everything. They are omnipresent, always evolving, and absolutely essential — even within domains many people might not anticipate. Guaranteeing their certainty, security, and flexibility is increasingly imperative in today’s mercurial globalised economy.

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