How Covid-19 Could Accelerate the Digital Supply Chain
Supply chain services are getting more creative as the Covid-19 pandemic stresses global commerce and businesses prioritize the safety of their workforce. Online tools and services are becoming more popular with vendors offering free assistance and emphasizing their utility in times of crisis.
Tradeshift, an open-source transaction platform, notes buyers, suppliers and their partners all struggle with communication — or the lack thereof. “To mitigate troubles that have surfaced amid Covid-19, there are ways organizations can improve communication,” said Tony Alvarez, vice president for the TradeShift network. “First, form a digital relationship as soon as possible, if you haven’t already done so. Right now, engagement on all fronts is important for smooth transactions and business continuity in general.”
Cash flow has become a significant supply chain problem as partners across the spectrum have closed or cut back operations. Many small and mid-sized suppliers to global manufacturers are strapped for cash. Experts say not all of those companies will survive. “[We saw] supplier bankruptcies during the 2009 crash and is worse,” said Bindiya Vakil, founder and CEO of Resilinc, a supply chain risk management consultancy.
Paper-based processes have become unworkable overnight, said Alvarez. “If you’re one of the 50 percent of businesses that rely on paper invoices to pay suppliers, then it’s going to be hard to keep things running.”
If accounts payable is unable to access invoices, they won’t get paid. Case flow becomes a bottleneck. “We’ve spoken to a number of large enterprises who hadn’t been able to process a single paper invoice in the past month,” he added. “If businesses want to keep the communication lines flowing then digitizing these processes needs to be a priority.”
Supplier communication and supply chain transparency – problems in the best of times – are key to maintaining smooth business processes during a crisis. Communication sets expectations among business partners, and digital processes enable transparency; data-sharing; and payment-tracking.
In fact, the coronavirus outbreak may accelerate the supply chain’s efforts toward digital transformation. “The massive scale of Covid-19 outbreak and lockdown in some form across many countries significantly impacted businesses regardless of their size, said Kiran Raj, principal disruptive tech analyst at GlobalData. “Diminished demand from confused customers has worsened the global supply chain shock. At this point, where it is critical for enterprises to rapidly respond and remain sustainable, digital transformation has emerged to be the silver lining.
Liquidity is one of the most significant challenges that all businesses are facing right now, said Alvarez. “At the top of the supply chain we’re seeing businesses enact a range of cost cutting strategies designed to build or maintain reserves of cash. Among these measures, businesses are looking at options to delay or defer payment of invoices. As a result, cash flow is drying up in the supply chain as suppliers wait longer to get paid. If we want supply chains to survive intact after the pandemic, then we need to look at ways to get working capital flowing out to suppliers again.”
Manufacturers face the very real possibility that a key supplier will go bankrupt, according to Beroe Inc., a supply chain intelligence provider. Risk management experts recommend paying supply chain partners immediately, or even in advance of a scheduled project.
If that’s not possible, Alvarez recommends arrangements such as supply chain finance. “This can help you keep hold of cash flow whilst ensuring suppliers get access to predictable and timely payments.”
Logistics activity has also been highly disrupted by the coronavirus as air freight has been reduced, seaports have closed and front-line workers put themselves at risk. “With so much going on and so many depending on trucking and freight transportation organizations during this global crisis, fleet managers and owners need to be extremely organized to handle current and future industry needs,” said Marco Encinas, senior product manager at Teletrac Navman.
Syed Aman, CEO of HwyHaul, a platform that connects truckers to shippers, has complied some high-level data associated with Covid-19. Load/truck ratios have increased 26.1 percent; refrigerated-unit spot rates have increased by 7.5 percent; and users of the platform have achieved 99 percent on-time delivery rates.
Communication with drivers via messaging and dedicated contact forms—as well as knowing their locations at all times—allows fleet managers to make informed decisions, said Encinas. “With things being so hectic right now, knowing where your assets are, who is available for the next load, who is nearest to the depots, and who has encountered longer detention times is critical in a time when efficiently maintaining your fleet on the road is more important than ever.”