Welcome to the Coronavirus-Inspired Supply Chain Security Showdown


Welcome to the Coronavirus-Inspired Supply Chain Security Showdown

There are the security and commercial risks to regionalizing supply chains but in the age of the coronavirus, some counties are willing to take them.

Thus, diversifying supply chains is critical as regionalized manufacturing along with inventories may be at risk as upstream suppliers, and downstream facilities are disrupted by quarantines in various regions. Furthermore, downstream supply chain facilities may due to reduced economic activity cancel or delay orders from upstream suppliers such as Chinese manufacturers.  

In turn, companies are increasingly adopting new digital tracking technologies such as artificial intelligence and robotic process automation to make supply chains operating in complex distributed networks more transparent which can lead to identifying points of vulnerability and mitigate risk. This will also prevent containers and warehouses from accumulating products that are not selling.  

Steven Didier and Chris Myers have observed that, currently, companies rely upon updating data entry systems that are cost-effective such as Custom Relationship Management (CRM) to monitor cargo throughout the supply chain but cannot identify vulnerabilities across supply chains in real-time. Their effectiveness is reliant upon the thoroughness of data entry. One example of this is when truck drivers use their cell phones to make call-ins from high-risk areas, such as Afghanistan and Pakistan; that data is entered into CRM systems, which may not offer precise information.

In a bid to go beyond traditional data-entry CRM systems, Leah Tedrow, managing director of Evoke, a strategic communications company based in the UAE, developed the Commercial Analysis Software Tool (CAST) for the U.S. government and the private sector. CAST ingests real-time data and multiple information flows such as CRMs, GPS and GDELT, offering a degree of transparency on how supply chains may be impacted upon by geopolitics, policy changes and the environment. This is fed into wider models and algorithms to understand causation, trends and patterns, which contributes to predictive forecasting. As a result, stakeholders have enough information to make contextualized decisions to mitigate risk and, in turn, the algorithms reveal market opportunities that they can capitalize upon. 

These data-entry systems, however, do not identify in real-time the vulnerabilities across entire supply chains. Due to increased disruptions, regulators or insurance companies are likely to mandate for greater transparency within supply chains to identify risks in real-time. New digital manufacturing technologies identify supply chain vulnerabilities in real-time. Steven Didier and Chris Myers note this to be a costlier option than data entry systems, however, these technologies offer real-time monitoring of supply chains that can save significant amounts in revenues for companies. Furthermore, these technologies inform companies on the degree of efficiencies that supply chains offer by monitoring patterns formed after a number of months that inform future trends that are incorporated into business models. These technologies rely upon GPS trackers or telecommunications transmitters that impart information already from the loading at the point of origin to the unloading that takes place at the destination. GPS trackers or telecommunications transmitters are routed through Control Towers and Digital Twins. These technologies require companies to make a considerable upfront investment or considerable reduction in what is already competitive margins for lease programs. 

EY Global Advanced Manufacturing Sector leader, Jerry Gootee, notes that control towers serve as a central hub by using artificial intelligence (AI) and machine learning to gain advanced insight into its supply chain risk exposure. Digital Twins enables supply chains to adjust rapidly to changing customer preferences and production levels, which has a ripple effect on short-term supply and demand forecast, and distribution flows. Digital Twins serves a similar function by providing a digital replica of external parties while drilling down to see inventories from second tiered suppliers. This enables companies to identify waste or production bottlenecks. Jerry Gootee identifies that other digital technologies and approaches include end-to-end inventory rebalancing and procurement-spend analysis into supply chain processes, which can increase the prospects of flexibility at a lower cost. Furthermore, cross-functional teams will access documents such as due diligence of third-party vendors in a central repository. These developments are aligned with the latest wave of digital transformation where increased transparency is promoted across business practices as employees shift from using spreadsheets and needing to rekey information into a holistic landscape where data synchronization and interoperability is the new gold standard. This enables electronic collaborative versions, digital project management platforms or CRM’s to be accessed across the entire business. 

Real-time digital technologies that make supply chains transparent will be critical in light of disruptions caused by the strategic decoupling between the United States and China. Due to both being producers of raw materials, the United States and China are likely to undergo great-power competition and global tug of war over value and supply chains which will overlap China’s Belt Road Initiative (BRI) in central nodes for trading in international markets such as the UAE. This will lead the United States to increase its presence in the Middle East in order to strengthen value chains and trade routes such as the Jebel Ali Port in the UAE through the Persian Gulf and the Middle East. 

The Jebel Ali port has served as a central shipping and logistics hub and a central node for supply chains across the entire region, which in turn offers access to trade in international markets. This has led the United State to invest in Jebel Ali Port as a component in the United States underpinning the GCC security architecture. This also offsets China’s BRI that seeks to control maritime trade routes of which the Jebel Ali Port would enhance its influence in the Indian Ocean and the Middle East.

In an attempt to bypass the UAE’s Jebel Ali Port, China has also explored investments in the Doha ports and Chinese companies have won contracts to work on port projects. China’s BRI though the Doha ports would serve to rival U.S. influence in the region and in international markets as it would extend China’s sphere of influence throughout the Middle East, Levant and Central Asia. 

Currently, China’s access to the Jebel Ali and Doha ports enables it to protect 60 percent of its oil imports from the Middle East. China is investing in both ports to have greater control of ports, sea transit lanes and in turn, global value and supply chains.  

China, whether directly or indirectly, had in the past sought to establish a presence near the Strait of Hormuz by supplying a broader import/export capability through Chabahar seaport in the southeast of Iran. This served as a way to bolster their existing presence in Ghawdar Sea Port in Pakistan, which for all intents and purposes is owned by China but does not offer the scope necessary to compete with Karachi Port to the east. Beijing sought to use this to move supply chains away from the main port in Pakistan, leveraging China’s One Belt, One Road efforts in the region to secure a trade route to and from Afghanistan, Central Asia, Russia and Europe. This was disrupted by the Trump administration’s reinstitution of Iranian sanctions.

Control of ports could entail China having dual usage for trade purposes as well as serving as military naval bases. The Defense Department has noted that China is likely in the future to preposition logistical support for an expansive Chinese naval presence at Gwadar. The Defense Department in its 2019 Annual Report to the U.S. Congress, titled, Military and Security Developments Involving the People’s Republic of China 2019, noted that China’s BRI maritime trade routes and access to foreign ports could create military advantages for China. Furthermore, China could use these ports to circumvent WTO regulations and avoid government-to-government trade agreements, while accessing secondary markets from a business-to-business level. China could also circumvent sanctions by opening a free zone in international hubs from which it continues to do business.  

Both the United States and China are likely in the long-term to seek to buttress their respective access to ports and maritime routes by increasing their naval presence. This may disrupt value and supply chains and increase the risk for international trade along sea transit lanes. The Defense Department has raised the concern that China could “pre-position the necessary logistics support to sustain naval deployments in waters as distant as the Indian Ocean, Mediterranean Sea, and the Atlantic Ocean to protect its growing interests.”

Technological innovation that promotes increased visibility in real-time across supply chains and changing business practices are fueled by and in turn fuel disruptions in the international order. The British historian, Professor Pippa Catterall contends that conflict in economic terms constitutes competition that can resort to violence when it appears to be the most effective or only option left. In that sense, violence is always a form of political communication, as well as a sign of communication breakdown. This was supposed to be averted as globalization had envisaged that economic interconnectedness could mitigate conflict in the rules-based international order. The decoupling between the United States and China has put an end to that fallacy with the return of regionalism, great-power competition, and assertion of U.S. primacy on its own terms in a series of bilateral agreements and rerouting of global value chains.

Barak M. Seener is the CEO of Strategic Intelligentia and a former Middle East Fellow at the Royal United Services Institute (RUSI) He is on twitter at @BarakSeener.