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Has the pandemic changed global supply chains forever?

As the pandemic brought the global economy to a halt, it exposed vulnerabilities in the production strategies and supply chains of firms across the globe. At the same time, it spurred a seismic shift to find more innovative ways of working. Three years after COVID-19 placed the global economy into shock, Sara Cattaneo at ABB explores the lasting and hugely positive legacy it has left for modern supply chains.

When Covid-19 swept across the planet, it brought the economy to a grinding halt, exposing vulnerabilities in the production strategies and supply chains of firms across the world. Backlogs grew quickly, prices soared, and then, just as ‘normality’ seemed to be back on the cards, war broke out in Ukraine and the geopolitical climate changed, further disrupting supply chains that were still suffering the after-effects of the pandemic.

To compound these issues, supply chains were put under further pressure due to unprecedented demand for some components and materials, such as batteries, electronics, and semiconductors for electric vehicles. This increasing competition for limited stock led to an unprecedented 52-week lead time for some vital components, which is only now starting to improve.

However, while this proved a huge challenge for businesses around the world, there are already signs of a positive legacy emerging from the pandemic. The unprecedented disruption spurred a seismic shift to more innovative ways of working, including digitalization, which is building efficiencies into previously cumbersome supply chains and allowing businesses to respond to supply changes ahead of time.

At ABB, we have taken the opportunity to revisit our approach to supply chain management. The realization that, for one reason or another, the unpredictability, unstable environment, and possible supply shortages would become the new norm, was the catalyst to accelerate our investment in digital systems that would enable us to gain a deeper understanding of our own ‒ and our customers’ ‒ risk exposure and protect us for the future.

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. In addition, we are placing greater emphasis than ever on sharing best practices with our customers and vendors; why should all of us make the same mistakes when we can learn from each other and build a stronger approach across the value chain?

Accelerating our digital transformation

One of the key benefits has been a greater focus on forecasting. With better forecasting, we can now create a longer time window for vendors, allowing them to better plan their production capacity in advance. This also ensures we get the components and materials we need, when we need them.

In addition, we now agree on 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 deals.

However, the most important step we have taken, spurred on by the identification of the vulnerabilities in our previous production and supply chain strategies, has been accelerating the development of a digital supply chain collaboration tool specifically designed to improve the transparency of the data we share with our vendors.

Our working version of the tool, which has been implemented as a pilot project and is currently 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.

In addition, it allows us to assess the emissions of every component in the supply chain and improve productivity. The more processes that are automated, the more consistent they are and the less chance there is for human error.

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.

The main challenge all businesses have ahead of us is unpredictability. Information sharing is a surefire way of helping players across the supply chain minimize business disruption, at the same time as promoting sustainability.

Cultural transformation

While a technology-driven approach to supply chain management is crucial to minimizing business disruption, the pandemic also helped us realize that any digital solution is only as good as the parties that populate it. For this reason, we are continuing to encourage 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 between different departments within businesses. At ABB, we are working closely with many different departments to develop the right strategies and technologies to improve the resilience of our supply chain.

It’s all part of a greater cultural transformation that places collaboration at the heart of everything we do. Our new, improved ‘Innovation Days’ are a great example. Led by the supply chain team, we work jointly with R&D and external vendors in manufacturing plants to discuss topics like efficiency, productivity, cost savings, and how to increase data transparency.

By bringing everyone together to discuss our challenges and how to tackle them, we give ourselves the greatest chance of coming up with workable solutions.

At the end of the day, we are all in this together. It’s a shared challenge and a global challenge. If we can join forces to propose creative ideas of how to move forward, everybody will benefit, including society and the planet.

In such a complex environment, if we don’t share common goals or a common direction, it will be impossible to make a meaningful change. There is no doubt that the pandemic caused a huge amount of disruption, but it is this disruption that has moved us to collaborate and embrace new ways of working to make future supply chains more resilient and adaptable to events outside of our control.