Geopolitical tensions still beset various regions around the world and continue to impact the supply chain.
For example, the ongoing situation in the Red Sea, where Houthi rebels in Yemen have stepped up attacks on commercial shipping vessels travelling through the lower Red Sea in response to Israel’s bombardment of Gaza, has seen leading shipping companies including Maersk, MSC and others halt or reroute traffic, while the US has announced a maritime coalition to defend shipping against attacks.
The Red Sea, one of the world’s most densely packed shipping channels, lies south of the Suez Canal, the most significant waterway connecting Europe to Asia and east Africa. Around 12% of global trade passes through the Red Sea, including 30% of global container traffic and with billions of dollars of traded goods and supplies passing through the Red Sea every year, delays can have a massive effect on sectors like electronics.
Many freight operators are now directing vessels around the cape of South Africa which has added around 10 days to the transit time to the UK not to mention the additional cost of fuel and crew.
Shifting the spotlight
According to Simon Thompson, Vice President of Sales UKI and Nordics at Jaggaer, a digital procurement specialist, these fresh attacks on vessels taking place in the Red Sea, have shifted the spotlight back on to the supply chain and what that means not only in terms of disruption to global trade, but in terms of emissions and inflation.
“Commercial ships transporting goods through the strait of Bab al-Mandab, which is a 20-mile-wide channel that splits Eritrea and Djibouti on the African side and Yemen on the Arabian Peninsula, have been opting for a much longer route around Africa's Cape of Good Hope and that is having a massive impact,” Thomspon explained.
“Longer shipping times not only mean disgruntled customers, or knock-on delays in production where raw materials or components are taking longer to reach destination, but also an increase in Co2 emissions due to lengthier routes and more expensive shipping which in turn will drive up inflation.
“The Drewry World Container Index, which tracks container transport rates on eight major routes to and from the United States, Europe, and Asia, now shows that the costs of transporting a 12-meter container from China to Europe via the waterway have risen to a staggering $4,000.”
S&P’s monthly survey of the manufacturing sector revealed that UK businesses reported 12 to 18 days could be added to some expected deliveries, disrupting their production schedules and adding to their costs at a time when companies are already struggling with weak demand.
According to Thompson, “In addition to the potential diversion through Africa lengthening shipping routes and delivery times and increasing fuel costs, other more expensive modes of transportation, such as air freight, would worsen the situation by increasing financial and operational pressure on organisations and further overload their supply chains.”
Evidence, however, suggests that some companies have paid attention to many of the hard lessons of the past four years and are generally better prepared to respond to the disruptions currently being experienced in the Red Sea.
“Forecasts indicate that the crisis will continue to increase financial and operational pressure on organisations and their supply chains, so identifying low-cost and efficient alternative transport options is key.
“Companies that can identify and quickly secure alternative sources and transportation capacity are better positioned to address this particular situation and any future disruptions. Therefore, procurement teams will need to rethink how to conduct trade to drive resilience, mitigate risks, optimise costs and efficiencies if they are to help their companies react flexibly to unexpected changes in their business environment,” said Thompson.
Procurement
But while the challenge of sourcing components is immense technology is providing a variety of tools, whether that’s Application Programming Interfaces (APIs) or artificial intelligence (AI), to help.
Commenting Nathan Pray, manager, digital technology office B2B, Digi-Key, said, “Automation can be used to turbocharge manual, time-intensive and monotonous business processes. Not only does automation help people work more efficiently and more accurately, but it also frees up team members to focus on what matters most: strategic, value-added projects that fall by the wayside when professionals are buried under the weight of day-to-day manual tasks and responsibilities.”
In terms of electronics procurement which involves sourcing a complex maze of parts, prices and partnerships, manufacturers are increasingly using technology to better source a steady, reliable flow of the right components to meet their production goals.
“Manual processes are inefficient, but the digital revolution has produced a wave of tools that help streamline procurement and unlock major benefits,” said Pray.
“If your company is still working from printed paper or spreadsheets, now is the time to shift to a digital-first approach.”
Pray points to APIs that act as “messengers” between two different software solutions and which have had a profound, positive impact on procurement departments that want to digitise.
“These robust tools work in the background as platforms communicate and exchange data with one another in a very standardised and predictable manner.
“Another, steady-state technology that’s been around since the 1960s, electronic data interchange (EDI) is an equally strong partner for procurement departments that want to streamline their operations. The technology not only handles many otherwise manual processes, but it also allows departments to scale up quickly without the need for more manpower or effort.”
For a company that’s adding new suppliers it can onboard them and begin transacting quickly with the help of EDI (which does require installed software to function). Once in place, the EDI application can be used to place purchase orders, access ship notifications and receive and pay invoices.
“EDI flourishes on the transactional side, whereas APIs are good at collecting and quickly sharing information across systems (e.g., available quantities, pricing, etc.). An API can do a lot of the things that EDI can do, so it’s mainly just a matter of what fits your system best,” said Pray.
Digitalisation
Digitalisation and new platforms allow real-time collaboration with direct material suppliers, enabling greater transparency and can provide timely intelligence in case a pivot is required.
Similarly, automation helps process huge volumes of data from supplier sources, helping analyse and even predict changes in performance or potential bottlenecks before they happen.
To help contain risk businesses also need to ensure that they are able to manage a diverse portfolio of suppliers, a task that can become complex and time consuming without the support of artificial intelligence (AI) powered technology, according to Thompson.
“Until very recently, AI was mainly focused on specific tasks based on predefined algorithms, a good example of this is predictive analytics. In procurement, specifically, the application of AI could involve the deployment of machine learning and predictive analytics algorithms to make the optimum buying decisions based on pricing, market trends, the risk of disruptions to supply chains and other factors.
"Until recently, this technology was still limited to the performance of tasks previously defined by human beings. Now, however, generative artificial intelligence (such as the popular ChatGPT) has expanded its abilities and can be used to create new content and analysis.”
Mitigating challenges
UK-based distributor Anglia is committed to employing AI and automation as tools to help mitigate evolving supply chain challenges.
“We already utilise APIs with our supply partners which keep us up to date with manufacturing lead-times and shipment dispatch dates. This information feeds back into our purchasing software which automatically adjusts ordering algorithms, thereby ensuring timely delivery of goods in accordance with customer requirements,” said John Bowman, Marketing Director, Anglia.
However, Bowman suggested that it was important to acknowledge the volatility stemming from fluctuating order patterns among customers.
“Additionally, external factors such as raw material shortages, weather-related disruptions, and geological events like earthquakes and volcanic eruptions can profoundly impact supply chains. To address these uncertainties, Anglia hold contingency inventories, effectively serving as a buffer against these unforeseen fluctuations in supply and demand. Notably, distributors lacking such reserve stocks are unable to offer comparable services, underscoring the significance of a distributor's stocking policy in shaping customers procurement strategies.”
Global disruptions have ensured that supply chain security is now uppermost in the minds of UK and European customers, and opting for a locally based distributor with readily available stocks can prove to be a very prudent choice, according to Bowman.
“Our UK-held inventory provides security and swift delivery service, our customers report we are frequently delivering orders faster than international ‘Self-Service’ distributors working from warehouses positioned in different global regions.
"Of course, components delivered locally carry far fewer air miles too: shipping goods from our UK distribution centre in Wisbech to customers in continental Europe produces seven times less CO2 versus shipping the same goods from the US.”
Generative ai
Turning back to the of use of AI, in particular Generative AI, it can be used to conduct dynamic analysis of supplier proposals, "Identifying key parameters including cost-effectiveness, quality, delivery performance, alignment with organisational goals such as sustainability or social value, together with critical geo-political risk factors,” said Thompson.
“By processing a multitude of proposals based on these numerous criteria, the software can then generate supplier rankings and make dynamic recommendations in real-time as conditions in the market change. By analysing market supply and demand, historical pricing trends, cost structures, risk alerts, news items etc., the software can optimise pricing strategies that maximise cost savings for the buyer while maintaining quality and security of supply and ensuring that sudden changes in world markets are accounted for in good time.”
Conclusion
The domino effect of recent or even current crises, such as Covid-19 or the war in Ukraine, on global supply chains can be profound as we have witnessed from their impact on the world economy for some months and, as a result, there is a growing call for more intelligent, predictive, data-led scenarios with technology.
The current situation has also highlighted the need for companies to become more agile and equip themselves with tools that promote transparency and seamless communication with suppliers to help favour problem-solving when an issue does begin to rear its ugly head, according to Thompson.
“The disruption to supply chains we’re currently seeing in the Red Sea is likely to have far-reaching effects on direct and indirect supply chains in the interconnected and global trade world we operate in, so having solutions that analyse data rapidly and effectively can help prevent potentially unexpected knock-on effects down the line from taking their toll,” Thompson concluded.
