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A strong argument could be made that “Supply Chain Risk” should be the Person of the Year for 2020. A strong argument could also be made that, over time, the newly formed Supply Chain Caucus will be considered the most important body within the U.S. House of Representatives.
Background
While I was preparing to write this commentary, reports began to surface that Russia and Saudi Arabia were heading toward a price war in global oil markets. The two nations failed to agree on production cuts in the wake of the economic slowdown caused by the spread of coronavirus.
When financial markets opened on Monday, March 9, the impact of this news became clear as financial markets all over the world sank. Reports in the financial media described it as the worst one-day loss for the U.S. stock indices since the financial crisis in 2008.
Before that, on March 5, news surfaced that a bipartisan Supply Chain Caucus was launched in the U.S. House of Representatives. According to a press release from the Consumer Brands Association, “Reps. Colin Allred (D-Texas), Angie Craig (D-Minnesota), Rodney Davis (R-Illinois) and David Rouzer (R-North Carolina), will serve as co-chairs of the caucus and are actively recruiting members to join them as they work to ‘strengthen and add resiliency to protect the delivery system, which can be severely harmed by geopolitical events such as the recent coronavirus outbreak that has had significant impacts on global supply chains,’ as stated in a letter to their Congressional colleagues.”
While this is happening, Italy has enacted a lockdown of the entire country as its government attempts to prevent the spread of the coronavirus and COVID-19 among the country’s 60 million people. As this is happening, the United States is still trying to find its footing as coronavirus spreads across the country, and concurrently Europe is formulating its response to the evolving crisis. Meanwhile, a number of African countries, like Burkina Faso and the Democratic Republic of the Congo, have reported their first identified positive tests of the novel coronavirus.
Defining the problem – today’s supply chains are complex and interconnected systems
My co-founder, Lisa Morales-Hellebo, and I have spent a lot of time thinking about supply chains, and how they are evolving as the future unfolds. We synthesized what we learned in a short book, The World Is A Supply Chain, which is available as a free download.
Based on our work, there are two overarching observations worth keeping in mind:
First: All human activity is driven by supply chains. Supply chains may be natural or man-made. Natural and man-made supply chains interact with one another in ways that we cannot always predict or control. Escalating concerns about climate change reflect the effect that man-made supply chains are having on the natural environment and natural supply chains.
Second: Events like the coronavirus, and other natural or man-made disruptions to global supply chains, are likely to become more common in the future as the world’s population continues to grow, straining resources and the natural environment. Such events will call for more coordinated, large-scale and global responses. The success of such responses will depend on international cooperation between governments, and between private sector and public sector organizations.
Developing solutions – what should the Supply Chain Caucus be working on?
Given this reality, what should the Supply Chain Caucus be working on? Here are some suggestions.
Policy: What new policies should the United States consider in order to strengthen the ways in which supply chains function, in the United States and around the world? For example, what policy tools exist, or need to be created, to strengthen the U.S. trucking industry in an environment that promises more extreme weather events, and more episodes like the coronavirus? These issues will require the Supply Chain Caucus to move past partisan divides in order to examine and push for policies that will strengthen the U.S. economy by making it more resilient to exogenous and endogenous shocks, whether global or domestic, while protecting the characteristics that have made the U.S. economy the envy of the world.
Innovation: Domestically, what can the government do in partnership with the private sector to encourage the commercialization of innovations that promise to refashion supply chains for the realities of the world that we live in now, and the world that we will live in tomorrow? Some of these innovations are currently languishing within university research labs that have been funded through federal and state grants, but that subsequently face difficulty in becoming commercial products. One goal of the Supply Chain Caucus should be to make it easier for private capital to find and fund such innovations through a streamlined process that rewards the financial risk-taking that will be required to bring such products to market..
Technology: Between 2020 and 2050 we are going to see an increase in cyber physical systems – where software technology is applied and integrated into the physical world around us. This is an ongoing trend that will continue to accelerate as time goes on. Many of the startups creating such innovations will be tied into supply chains in one way or another. Some of these technologies will be completely new inventions that did not exist in the past, and they will introduce new ways of doing business that will require working with policymakers to ensure that laws and regulations do not unnecessarily slow down their development and progress.
Finance: Financial markets exist to aid the production of goods and services through the facilitation of risk transfer between market participants – producers, investors and speculators among others. As global supply chains are refashioned to confront the challenges the world is encountering this century, it is not clear that the way financial markets have functioned historically is aligned with the new realities of the world that we live in today. It is worth examining if there is a role that federal regulators and other policy makers can play to encourage innovation in financial markets to strengthen the transition from the supply chains of the past to the supply chains of the future.
What will supply chains look like in the future?
The phrase “supply chains of the future” can seem nebulous and vague. It is not. Here are three characteristics of supply chains that we know will become increasingly important as the future unfolds. First, the supply chains of the future must be sustainable, in the sense that they meet the needs of today without sacrificing the needs of the future. Second, the supply chains of the future must be designed with a systems perspective in mind such that they simultaneously satisfy the needs of existing social, environmental and economic systems. Third, in order to optimize for resilience, the supply chains of the future must strike a balance between centralization and decentralization.
Most people think of supply chains only as delivery systems. Supply chains are production systems too. Given how critical supply chains are to the way the world works we should all be rooting for the Supply Chain Caucus to succeed at the task that it has set for itself. The world we have become accustomed to depends on it.
If you have ideas about the areas that the Supply Chain Caucus should focus on, leave a comment, and perhaps I’ll compile the comments into a follow-up article.
If you are a team working on software products designed to transform the way supply chains function, we’d love to tell your story in FreightWaves. I am easy to reach on LinkedIn and Twitter. Alternatively, you can reach out to any member of the editorial team at FreightWaves at media@freightwaves.com.
The reference archive – dig deeper into this topic with FreightWaves
● Commentary: Is 2020 the year of supply chain risk?
● Commentary: Exogenous variables dominate a world with VUCA
● Commentary: Davos 2020 is about supply chains, disguised as climate change
● Commentary: Trucking industry observations heading into 2020
● Why Freight Derivatives Are Here To Stay in the Trucking Industry
● Commentary: What does the National Climate Assessment say about future risks for supply chains?
● Why you should be rooting for startups like Uber
● Big changes looming in the maritime industry – its only just begun!
● VCs: Logistics tech investment boom still just getting started