Man vs machine: Digitalisation for resilience

Embracing digitalisation to insulate companies against current and future disruptions is a crucial discussion for supply chain professionals as the survey results, gathered as part of Trade in Transition 2023 programme, indicate.

Increasing use of digital tools for inventory management is the most effective supply-side resilience strategy according to 30% of the executives surveyed (see Figure 1). Among the host of technologies used, those digital platforms that engage with customers and suppliers were the most widely adopted in 2022 (cited by 51% of executives), just as they were in 2021. Such platforms provide one of the most effective supply-side resilience strategies for their companies executives say by offering them greater visibility of inventory levels and distribution networks.

Of those companies surveyed, the highest proportions started using 5G technologies (39%) and Internet-of-Things (36%) in 2022. Whilst both tools offer valuable real-time supply chain insights, their effectiveness goes beyond simple cargo tracking. “It's not just about dashboards and reporting, but [the insights they offer] on the demand side, how we can be better in predicting demand,” explains Anderson Martins, head of supply chain & procurement, Nestle Philippines.

The interest in digital technology is growing. An average of 29% of executives say they are planning to adopt technologies in 2023, 6% greater than last year. A more powerful indicator may be the declining share of executives who believed that advanced technologies were ‘not applicable’—just 2% on average in 2022 compared with 12% in 2021. Increasing numbers of executives are planning to use 3D printing and advanced automation in 2023. As recently as 2021 3D printing in particular was largely considered ‘not applicable’ or had one of the lowest adoption rates despite revealing its importance during covid-19 lockdowns where it helped to overcome disruptions. This was particularly true in the areas of manufacturing units for medical equipment and testing gear that were able to be printed on site when imports were disrupted.¹ The technology is also being used in other industries such as aerospace to provide very accurate parts and components for final goods assembly.² If increasing numbers of facilities produce critical inputs on site rather than importing them from suppliers abroad, the impact on trade patterns could be significant.

In addition to automation and 3D printing, 34% of respondents are planning to use blockchain in 2023, compared with 24% in 2021. Wider blockchain adoption has been hindered by the need for consensus among a broad range of participants within the trade sector —from financiers to customs authorities, shipping lines to cargo owners. The International Chamber of Commerce (ICC) is leading efforts on this front. They partnered with the Singapore Government and major firms from key industries and launched ‘TradeTrust’, which is a platform that uses blockchain technology to allow exchange of trade documents on a public blockchain. The current, largely private-sector led effort is unlikely to develop fully until widespread government involvement and support are available. “I think businesses can solve a lot of it but they can't solve it all if, at the end of the day, you still need to print five copies,” says Dr Deborah Elms, executive director at the Asian Trade Centre. So, whilst technological adoption will help ease trade flow, if governments are slow to adapt rules and policies to fit with technological capabilities (such as abandoning the requirement for physical documents as evidence of trade contents), the full benefits of such technology will fail to materialise. More broadly, questions remain about blockchain’s viability to digitise supply chains effectively. A recent prominent example of these concerns is Maersk and IBM’s decision to discontinue their involvement with TradeLens (a blockchain-enabled shipping solution to promote more efficiency and security for supply chains).³

Technological adoption for healthier growth

Overall, the increased use of advanced technologies is expected to have a positive impact on regional trade and GDP, evident from our GTAP model analysis (see ‘About this research’ for more details). The results particularly stand out in Europe and North America, where year on year GDP growth of 1.79% and 1.29% respectively is forecast over the next 12 months under a scenario where use of technologies in trade operations is increased significantly. Were this to happen, Europe’s economy would grow by an additional US$445bn in 2023, compared with a decline of US$30bn if there was no significant increase in technological adoption.

The lowest forecast gains were observed in the Middle East and South America, with only 0.26% and 0.66% growth in GDP respectively. This reflects the lower rate of technology adoption in these regions and the required need to push innovation and development in their manufacturing and supply chains. In terms of exports and imports, however, all of the geographical regions surveyed present a consistent forecast of growth ranging between 7% and 9.5%.

The person behind the machine

Yet in the excitement around technology adoption, companies must not ignore the people behind the machines. “[People] still remain the main competitive advantage to handle the different challenges we face,” states Mr Martins. Technology adoption, and the services that can be generated on the back of that, are transforming the labour requirements for trade operations. “Low skilled labour is less important than it used to be,” explains David Lawrence, a trade expert at Chatham House. “Actually what's more important is your ability to create your own technology and that depends a lot more on high skilled labour.” High skilled labour is all the more important in markets experiencing labour shortages, such as the UK, where some of the more mundane tasks can be automated. “You could say this is forcing companies to innovate and to use technology in a way that they don't have to in lots of places like India, China, France,” adds Mr Lawrence.

While the benefits of selective technologies overall may be up for discussion, what is clear is the opportunity they present for businesses to grow whilst becoming more resilient in an age of heightened uncertainty and volatility.