By Kiran Mazumdar-Shaw
The aftermath of the COVID-19 pandemic and the ongoing Russia-Ukraine war have triggered massive disruptions in global supply chains, revealing the vulnerability of networks that were largely built on cost optimisation. Supply chains are critical to global growth, so their reinvention is vital to rebuilding economies in the post pandemic world.
A ‘perfect storm’ of crises have stretched supply chains, making it costlier to procure raw materials, manufacture goods and ship them worldwide. Inflation rates around the world have recently reached an average of 8.7%, according to the IMF.
Distortions in the world’s supply chain system have left countries dangerously vulnerable to economic disruptions and shocks. This has, in turn, prompted knee jerk reactions among governments worldwide in the form of tighter border controls, investments in creating hyper-local supply chains and greater incentives for developing critical technologies indigenously, all on a rising tide of nationalism.
This fragmented, go-alone-approach does not augur well for the global economy. Resurgent protectionism will result in shocks to the global financial system and add both cost and inefficiencies, to the detriment of consumers. There is an imminent danger of swinging from acute scarcity to excessive supplies, which in turn will see alternating waves of price surges and steep commoditisation.
The World Needs Digital, Distributed Supply Chains
Up until the pandemic hit, traditional supply chains were able to manage stable, high-volume production by capitalizing on labour-arbitrage opportunities.
We now understand that business continuity requires resilience and agility more than just cost.
Health crises, changing geopolitics, technological transformation and digital convergence are making it imperative for global businesses to revisit their supply chain strategies.
The world needs to move from a centralized, linear model of supply to digitally enabled, distributed supply networks that are closer to customers and markets.
These ‘future ready’ supply chains will need to be dynamic to meet rapidly evolving, and increasingly volatile, customer and consumer needs. They need to be smart to predict, prepare, and respond to a catastrophe whenever and wherever it strikes. They also need to demonstrate a commitment to improved environmental, social, and governance performance by ensuring business operations are circular, net zero and trusted.
We have a great example of a flexible and resilient system, the Internet, which is based on a highly distributed architecture. The pandemic, for instance, was managed on a cyber backbone that enabled remote working, virtual meetings and digital commerce and kept the world economies interconnected and relatively undisrupted. Leveraging the Internet model to reinvent the global supply chains of tomorrow can lead us into a state of preparedness no matter what the crisis.
Personalised supply chains are what the future will ultimately demand. E.g., e-commerce and e-pharmacies, which will need to cater to individual needs in the shortest time. It will need digital platforms that track, trace and deliver at speed and scale. Hub and spoke models that are both agile and affordable will form the distributed model that will need to have lean and efficient, ‘just in time’, inventory management systems.
Supply chains of the future must be global, regional and local at the same time.
India Has a Key Role to Play
Information technology has a very important role to play in building ‘future ready’ global supply chains, which are smaller, nimbler and better prepared to manage higher levels of complexity. Blockchain will allow the decentralization of processes while Artificial Intelligence will lead to the creation of large autonomous supply chains with the ability to regulate themselves and decide how to react to ‘Black Swan’ events.
Countries with strong digital backbones could act as the arteries of this new global supply chain system. Which is why India will have a key role to play in this digital transformation of global supply networks.
India’s strategic intent to build a robust digital economy and its commitment to universal healthcare have already been initiated in our country at scale from DBTs to CoWin. Digital healthcare that relies on distributed models is a great opportunity for India to build sustainable and resilient supply chains across vaccines, diagnostics and therapeutics for the world.
India produces 15% of the world’s vegetables and 22% of the world’s fruits. We are also among the largest global producers of milk, rice, wheat, sugarcane, cotton, tea, coffee and mangoes. As a strong agrarian economy, India has a huge opportunity to cross-leverage agri-tech to deliver robust and global food supply chains.
Strong competence and capabilities in digital technologies are what differentiates India, and we can use this knowhow to rebuild global supply chains on a bedrock of scale, affordability, reliability and value.
A global model based on digital and distributed supply chains that are agile, resilient and affordable can lead the world into a state of preparedness no matter what the crisis. This is the essence of Globalisation 4.0. Adopting this Globalisation 4.0 model will spur inclusive and equitable growth for all countries in the new economic world order.
The article first appeared in ET Prime on 17th July 2022.
