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Resisting supply shocks due to market volatility using data intelligence

Resisting supply shocks due to market volatility using data intelligence (Photo: Jim Allen/FreightWaves)

Within supply chains, visibility across upstream vendors has increasingly become of paramount importance — especially to supply chain stakeholders that look to guarantee their sourcing meets quality standards during times of such volatility. FreightWaves connected with Ophelia Otto, industry relations lead at procurement technology startup scoutbee, to discuss how companies can shift their procurement strategies from being reactive to proactive. 

Otto explained that most supply chains operate on a lean, just-in-time basis, which can be effective and low cost when there are no disruptions. But during a crisis or a black swan event like COVID-19, the impending volatility forces businesses to create short-term procurement solutions. 

“The assumption here was that a secondary supplier could always be sourced when needed, on the expectation that crises would not arise frequently. However, the kind of volatility that we have seen increase in recent years is only going to get worse, and this business strategy is not sustainable anymore. We need to proactively build backup solutions that allow for organizations to pivot more easily when their primary options fall through,” said Otto. 

Though COVID-19 shocked supply chains with unprecedented volatility, especially in fast-moving consumer goods (FMCG), global trade turmoil via hostile standoffs and added trade tariffs had been visible for a few years. However, Otto contended that these events are not the only reasons procurement teams need to be proactive. 

“According to Resilinc’s Annual EventWatch Report, which offers global supply chain risk event intelligence, there is an average of seven supply chain risk events happening every day. This includes natural disasters, like the hurricanes and wildfires we have seen impact the United States in recent years, for example,” said Otto. 

Though procurement teams want to improve supplier relationships and feel confident in their backup solutions, finding and vetting suppliers is a time-consuming process that has traditionally been performed manually from a short list of already-known suppliers. Otto pointed out that this vetting process is unfathomable, considering the millions of potential suppliers worldwide with information embedded in foreign language websites and different terminologies. 

“By leveraging big data and artificial intelligence (AI), these searches become much more manageable,” said Otto. “With the right technology in place, even the smallest procurement teams could pivot more quickly during a crisis and beat out larger competitors that have not implemented digitalization. In time, AI will not replace procurement teams, but procurement teams using AI will replace those who don’t.”

Although foreboding, this observation is not far from reality. Data analytics, coupled with AI, enables businesses to scout from a wide range of suppliers spread across the world — much faster and more thoroughly than traditional approaches. While a conventional search would take months to yield a list of potential suppliers, technology platforms like scoutbee tackle this within a day or two by automating the search process. 

The supply shock brought about by the pandemic exposed the real vulnerabilities of global supply networks, which Otto explained was due to the lack of usable contingency plans, secondary sources and stocked inventory to meet demand at all times. The situation forced procurement leaders to the discussion table, as sourcing strategies impact cash, cost and organization growth. 

“In future crisis situations, businesses must be better equipped to switch to alternative suppliers in a less disrupted region,” said Otto. “Businesses must find ways to automate tasks and let tech tools do the heavy lifting when it comes to manual tasks. That way, their best expertise has more time to help solve the complex, urgent problems and leading discussions on how to handle supply chain shortages and roadblocks.”