The Great Simplification

A lot has been written about the novel corona-virus impacts on supply chains. Yet of course much of what companies will do will play out over the next decade because supply chains are rooted in physical facilities and capital investments. The real impacts will be to supply chain strategy, such as facility locations, political considerations, long-term financial trends, and regulatory environments.

It is certain that China's role in global supply chains has permanently shifted. The corona virus has been the perfect opportunity for China to shift its economy from relying so much on other nations to focusing more on serving its own people. Wuhan has a history as the frontrunner for China's efforts to industrialize its interior cities with major centers for biotech, chemical, telecommunications, automotive, and other advanced manufacturing. The corona disruption is bolstering the central government's efforts to centralize control over its economy—government-owned enterprises in Wuhan will come out far ahead of the private enterprises.

The over-riding lesson from the corona-virus is the confirmation of what companies already knew: supply chains are too big, too complicated, and too globally-sprawling. Supply chain management is the science of integrating operations (physical, financial, informational) across all players from mine to consumer and back again.

This means that physical supply chains will decouple to a significant degree—the great simplification that will eventually reverse nearly a century of increasing complexity. Record levels of debt around the world will drive physical simplification. However, informational and financial supply chain dependencies seem likely to increase. Services and knowledge in the form of product ideas and designs have only just begun their ascendance as value creators, and economic recessions have little effect on the massive data flows between nations.

Physical supply chains became complex as the result of increasing specialization. Need anti-lock brake control modules? Only a few suppliers in the world for those! Our current supply chains mean that technologies are frequently three years or even older by the time contracts are signed, factories updated, and sprawling supply chains move inputs and final goods to end consumers.

Fourth Industrial Revolution technologies will mean the end of dominance based on who owns specialized means of production; instead dominance will result from specialized knowledge and innovative capabilities. This is a future where the latest designs and innovations can be instantly shared worldwide with local production facilities that deliver rapidly thanks to the reliance on short, circular supply chains. All of this will have enormous environmental benefits as well.

The corona-virus is the first of several events that will be recalled in hindsight as moving along an inevitable technological shift. Technology isn't a cure-all, but it will drive the great simplification of physical supply chains while increasing the importance of informational and financial relationships between organizations. Start with AI and algorithms to better understand customer trends, and then look for automation and 3D printing opportunities in the supply chain. This year will be pivotal in supply chain history.

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