Shifting Paradigms of Global Supply Chains

Share on

Global Trade

Shifting Paradigms of Global Supply Chains

The overall supply landscape is undergoing a significant change today with multiple unforeseen events and changing consumer mindset that expects product availability at much higher speeds. The mantra for supply chains is to transform itself with agility, flexibility & resilience, which would differentiate itself in the marketplace tomorrow. A key enabler to catalyze the transformation would be the effective integration of data assimilation and analytics and embedding efficiency improvement in each step of the value chain, write Prof. V G Venkatesh, Associate Professor, EM Normandie Business School, France, and Rohit Menon, GlaxoSmithKline, Switzerland.

In the last few decades, the focus on an end-to-end supply chain involved a global network of low-cost origins supported by inter-continental logistic networks that fed into regional distribution networks to help bring customization closest to end consumers.  However, a few black swan events in recent years have significantly tested the resilience of the supply networks and exposed those weakest links across multiple industries and geographies. 

Prof. V G Venkatesh

A combination of headwinds such as the Russia - Ukraine conflict, pandemic-driven backlogs, commodity price inflation, and imbalance in sea-freight capacity across continents puts significant pressure on maintaining the cost to serve end consumers, be it technology, consumer goods, or the pharma sector. Not long ago, there was a point in time when the supply chain function was viewed as an organizational cost center. However, today's perfect storm of global challenges has catapulted the supply chain from a supportive function role to boardroom discussions as more and more consumers experience empty shelves, increased prices, and unsure delivery timelines. There are various examples today where innovative and first-mover actions by supply networks, be it demand-supply planning, inventory management, or logistics, have been decisive who attaining the pole position in meeting consumer needs.

From a classic supply model, there is ongoing transformation among value streams to digitize processes to organize & collaborate from the source to delivery stages. Adopting IT as a driver helps automate production processes, improve vendor engagement for materials, embed smart warehousing, and optimize logistics planning for end consumers.

Rohit Menon

As part of navigating the headwinds, the e-commerce giant Amazon took some long-term decisions during the pandemic year that witnessed up to 14% of its portfolio out of stocks and cost increases as high as 25%. On the logistics space alone, chartering of own ships and manufacturing own containers has helped reserve dedicated capacity for its product movement when container availability across US & Chinese ports has extended the standard sea shipment lead times by an additional 3-4 weeks' horizon. Congestions among ports, such as the scenario witnessed at Long Beach with higher cargo dwell times, spiked the out of stocks across PlayStation to consumer healthcare products. The logistics spend for Amazon observed a year-on-year spike from $ 38 Bn in 2019 up to $ 61 Bn in 2020. To ringfence the logistics spend, the reliance on its shipping fleet increased to 72% in 2021 versus 49% in 2019. Real-time data availability of container spot rates and carrier capacity across global transit lanes helps organizations make highly informed decisions on the movement of high-value and priority products.

Outsourcing logistics services to 3PL / 4PL providers have helped optimize the workforce for multiple global corporations, which was considered a norm in the recent decade. However, when container spot rates spiked to $20000 from China to Los Angeles in mid-2021 from £1200 in the pandemic era have raised food for thought on the need to integrate logistics data analytics into global supply chains.

It is quite interesting to note that container shortages, the main driver for shipping cost increases, had a situation ten years ago when an oversupply of boxes led to conversion into make-shift houses & business parks. Combining these measures helped evade the backlogged ports where cargo ships haul multiple companies' products within the same containers. The most prominent ocean vendors, such as the leading global retailers, were also quick to follow suit to minimize the logistics cost impact being passed down to end consumers.

Besides, the Brexit event impacts the European and UK leg of global transport. The movements across European and UK spaces are becoming very restrictive due to the work permit regime for drivers. The industry faces an acute driver shortage, which may hamper the global supply chain performance. This major problem may hit the last mile delivery and land transportation in many geographies, even though large corporates design incentives to attract and retain the resources.

In the recent World Economic Forum held at DAVOS, restoring trust in global supply chains was the critical focus. The World Trade Organization also echoed the need to gravitate toward green and digital supply chains supported by modernized rules. During the height of the pandemic, long out-of-stock horizons for critical medical supplies and healthcare products drew the attention of policymakers and senior political leaders across the world. The globalized supply model, which was focused on lower total cost based on economies of scale, is now being challenged to have a more regional presence for critical industries of national interest. However, it is also important to remember that short-sighted moves back to regional or domestic supply models can impact the balance of trade across the globe. In addition, there are multiple bilateral trade agreements across the globe being effectively utilized to reduce cross-border taxes on raw materials or even finished produce. A balanced move between global and regional supply models should holistically consider cost, risk, and trade policies.


As the world is becoming more digitized, the demand has increased proportionally for semiconductors being highest in computers at 32%, followed by communications at 31%, and after that in automotive & consumer sectors.

This one component faced the brunt of heavy shortages during the pandemic, which was already facing demand-supply mismatches. The demand increased by up to 17% in 2021 compared to 2019, and the backlogs are not expected to be cleared immediately but extend until the end of 2022. According to Intel leadership, Just-in-time (JIT) and Just-in-case (JIC) strategies were adopted in a supply chain world obsessed with cost and somewhere lost sight of the balance needed with resilience. There is a specific roadmap to ensure that the sourcing strategy of critical components has less concentration in some geographies of the globe but has more manufacturing sites across US & Europe and Southeast Asian sources. Significant investments in intel, Texas Instruments, and Samsung have been announced across the coming years to de-bottleneck the supply situation.

Supply chain transparency may help allocate supplies based on profitability in the short term. However, in the longer term, the strategic partnership between Ford & Global foundries is an example of how collaborative forecasting and planning may secure the critical supply from shortages.


The advent of online shopping has led to a rapid surge in business-to-consumer shipping in recent years, with a staggering rise from 43 bn units in 2014 to 131 bn units by 2021. The backbone of such a successful model in ensuring a combination of same-day deliveries and inter-continental consumer shipments is a network of multiple smart warehouses that work effectively as hubs and spokes.

Digitalization of the logistics industry has been a critical enabler that has helped track parcels from their source through to distribution centers or cross-dock points and the end consumer in the last mile.

This has been effective by using passive/ active RFID tagging of individual parcel units in warehouses and geo-tagging the long-haul trucks or last-mile delivery vehicles. The supply chain visibility improvement of goods across the supply network has helped build confidence when lead-time reliability is under heavy pressure. For example, one of the leading food service specialists in the UK gains real-time visibility over its supply through real-time information exchange with fleet managers and drivers. The ability to counter freight cost or commodity inflation headwinds has been to explore alternate cost reduction avenues, where head-count reduction in the supply operations was low-hanging fruit. Data analytics is gaining more prominence by the day, where the effective use of the information from a warehouse can support analysis to expose bottlenecks in operations and take timely efficiency improvement solutions to improve lead times. Predictive and preventive maintenance for industrial machinery has been used to plan maintenance schedules by gathering real-time operational data.

This predictive analytics concept has been extrapolated to fleet maintenance management of more prominent logistics companies, thereby minimizing unforeseen truck breakdowns or delivery delays. Route optimization at its onset, which utilized fewer variables of cost, time, and shipment value, is now a further combination of real-time GPS information of route congestions, weather information, and potential docking slot availability/delivery slots at destination points.


A critical step toward end-to-end product visibility or Supply chain traceability is whole track and trace technologies implemented in the pharma or consumer healthcare industries.

There are various stages in how value streams achieve this:

A unique code assignment on the finished pack level by stickering or ink-jetting helps identify the product on a batch manufacturing level and its source within the supply chain. Aggregation is the next stage that involves assigning identifiers further using the parent-child principle for shipper boxes and then further for pallets on which consolidation of product occurs.

The benefits of this are multifold:

  • As the serialization data are further uploaded into common platforms of health authorities or regulators, the authenticity of the medicine or the consumer goods can be verified by the end-users. Counterfeiting of products can be effectively limited and help protect the brand.
  • Furthermore, during a quality defect or product recall, all the affected product units can be traced along the distribution chain.
  • To aid quality investigations for corrective actions, all the manufacturing equipment that came in contact with the product in each stage of production can be tracked in addition to the source of the raw materials or components that were consumed in the production.

This combined benefit of inventory management, aiding root cause analysis in failures, and compliance with policy requirements, far outweigh the initial cost of investment in the manufacturing lines for consumer-critical product categories. 

A further regulation that tightens the consumer healthcare sector in Europe is the adoption of MDR, a new set of regulations governing medical devices' manufacturing and distribution.


Transformation of supply chain planning processes involves breaking the walls of consumer demand forecasting, manufacturing to supply planning, and logistics services, which achieved excellence in silos but lacked a collaborative birds-eye view to ascertain how the organizational balance sheets are impacted while meeting marketplace demands. As a cyclical process, sales & operational planning was a stepping stone to this transformation. However, there are still disconnects between demand signals, sales generation activities, and supply planning that can be bridged better through real-time information exchange.

Capacity utilization improvement: A more extended horizon demand signal embedding promotional activities and predicted category growth estimates help manufacturing sites schedule shift and maintenance plans. Suppliers can minimize material shortages to have the best feasible throughput. At the market warehouses, the proper judgment between safety stocks & obsolescence on a micro-level is necessary to best support product growth aspirations. It is a demonstrated reality that supply headwinds have exhibited lower agility in production facilities post the pandemic.

However, it is imperative to note that pockets of excellence are very much seen across manufacturing industries that are helping to meet ever-increasing consumer demand.

Improved Inventory Management: At the market warehouses, the proper judgment between safety stocks & obsolescence on a micro-level is necessary to best support product growth aspirations. The visibility brought by digitization helps customer service teams obtain projections of product arrivals on an SKU level in volumes and align the customer orders or promotional plans with sales teams. A portfolio-wide overview of stocks helps identify slow movers before their reach obsolescence. At the downstream leg, point of sale information from key accounts also helps demand forecasters to allocate higher weightage on fast movers.

Healthier balance sheets:  The cumulative impact of aligning the common strategy organization-wide helps to improve the asset utilization at factories, improve inventory rotation and minimize out-of-stock scenarios alongside obsolescence. The efforts become more customer-oriented in the long run and help strengthen the top and bottom lines.


Recent times highlight that customers are willing to pay more for products sourced from a value stream where operations are performed under respectable conditions, raw materials are sourced with minimal environmental harm, and manufacturing carbon emissions are offset.

Sustainability programs are a vital agenda in the organizational scorecards, and dedicated teams are now involved in R&D, packaging technology, procurement, and logistics to ensure the transition of the portfolio to have a higher percentage of recyclable biodegradable waste. A prominent example involves the transition to recyclable tubes in toothpaste developed in close collaboration with the tube supply network and the move to using non-plastic or bamboo handles in toothbrushes. The re-alignment of manufacturing processes and sourcing strategies will pay dividends in the long run, in terms of a broader consumer base.

On the manufacturing side, treatment of process water and its replenishment back to the water table is a minimum requirement, and multiple mega factories today are activating the use of solar energy for plant operations.

In terms of product design, value engineering programs to minimize non-value-adding components in primary or secondary packaging to update product formulations that comply with policy or environmental regulations are ongoing in multiple consumer product organizations.

According to the Zurich climate change report, approximately 14% of global greenhouse emissions arise from transportation. It is also interesting to note that the downstream logistics emissions are 5.5 times a company's direct emission on average. A study by CDP, a global foundation, observed some outliers where such a factor is 24x in food & beverage companies, 19x in personal & household goods companies, and around 11.5x in the retail sector. Re-usable shipper boxes are being explored for specific product categories in the middle mile chain from central warehouses to retailer segments where replenishment turns multiple times during a single month. The transition to electric fleets in the last mile delivery for significant e-commerce companies is an example of how carbon emissions could be offset from the end-to-end perspective. The pandemic taught a lesson or two that has required certain supply chains to develop domestic value streams such as personal protective equipment or critical medical supplies, cutting down logistics emissions by sourcing them thousands of miles away.

(*Disclaimer: Views expressed here are personal)

More on Global Trade