Leveraging digital tools in the age of supply chain disruption

CEOs are in broad agreement that supply chains today experience near-constant turbulence and that disruption is the norm.

Such an extended period of instability and insecurity is best described as a “permacrisis”, as outlined by former Stanford Business School dean Michael Spence and co-authors Gordon Brown and Mohamed El-Erian in their book of the same name.

Looking at the current state of affairs, trade tensions, geopolitical conflict, climate events, cyberattacks, inflation and high capital costs have come hot on the heels of a global pandemic, as outlined in the World Economic Forum’s Global Risks Report 2024.

Then add in other factors that will profoundly alter the business landscape for decades to come: the demands of the energy transition, weakening of key international institutions, emerging labour and skills shortages, and the arrival of technology that upends traditional business models.

Indeed, McKinsey says that supply chain disruptions lasting longer than a month now occur every 3.7 years on average, and that they can cost businesses up to 45% of a year’s profit over the course of a decade.

Amid repeated supply chain shocks and market volatility, business leaders have spent the last few years trying to build organizational resiliency.

We are seeing businesses diversifying sourcing, shortening supply chains to bring them closer to home, or realigning supply chains through more geopolitically neutral “connector” economies like Vietnam, Poland, Mexico and Indonesia.

Businesses are also accelerating digital transformation to improve visibility and generate the insights they need to anticipate and navigate through turbulence. On the digital front, however, evidence suggests there is still a long way to go in three interconnected areas.

There are signs that the revolution in supply chain resilience is losing momentum. Investment in supply chain digitization levelled off in 2024 after surging from 2020 to 2023, according to McKinsey.

Meanwhile, only about a quarter of supply chain professionals believe their companies have completed the digital transformation of their supply chains, according to a 2024 survey by the American Productivity & Quality Center.

The potential for further digitization in supply chains remains enormous because much of the benefit remains untapped. Even after four years of unprecedented shocks and instability, more than 40% of organizations say they have limited or no visibility into Tier 1 supplier performance.

Companies that aren’t driving their digital transformations to the next level are leaving potential productivity gains on the table: a recent study suggests that 43% of total working hours in supply chain roles can be transformed by generative AI, while in operationally intensive sectors – such as manufacturing, retail, food service, mining and construction – 39% to 58% of work could be automated.

There is a consensus that a digitally savvy and AI-enabled workforce is the future for most businesses. But do companies have the skills to take advantage of the technology they’re investing in? Most admit that they do not.

Some 90% of supply chain leaders in a McKinsey survey say their companies lack sufficient talent and skills to meet their digitization goals – a figure that has not changed in a significant way since the firm’s first supply chain leaders survey in 2020.

Organizations are desperate for data competency and broader digital skills, yet four of five are experiencing a shortage of skilled workers. That is hindering their ability to use AI to spot patterns in supply, operations and demand data, and improve their forecasting, planning and scenario analysis.

As companies assess their digital needs, some are too focused on filling areas of deep specialization and narrow technical competence. Instead, many businesses might gain more by working to elevate digital proficiency across their entire workforce.

The real benefit of broad-based digital upskilling, Accenture says, is in growing the percentage of employees who are able to operate at the “seams” of technology and business problems by understanding how to leverage the capabilities of AI, machine learning and other technology for the greatest benefit of the business.

Organizations that face complex problems and want to make data-driven decisions need to build digital “fluency” across functions. Digitally fluent organizations are three times more likely to have had high revenue growth over the past three years and tend to be seen as more desirable places to work, Accenture says.

Companies with traditional, siloed structures often have difficulty developing and cultivating the flexibility they need to blend analytical and statistical skills with an enterprise-wide focus. That’s why harnessing technology requires not just digital investment and upskilling – but rethinking the organizational model.

In an age of constant disruption, the advantage goes to companies that see their supply chains as end-to-end networks. Networked organizations plan, respond and coordinate in an integrated fashion rather than operating as a group of independent functions or sets of transactions.

Cross-functional teams with a view of the entire enterprise are likely to be better at using powerful tools and data – such as digital twins – to connect the dots between planning, sales, customer service and other critical functions.

In fact, digital twins are emerging as one of the most valuable tools for companies that are looking both to safeguard supply chains against risk and exploit potential new opportunities. Market analysis indicates the global market for digital twins will grow 30%-40% annually, reaching $125 billion to $150 billion by 2032.

These virtual models of a company’s systems and processes use real data and enable users to plug in different variables to optimize operations, test scenarios and help with decision-making. They’re also helpful in building a “self-monitoring and self-healing” supply chain.

As former International Monetary Fund Deputy Director El-Erian, one of the co-authors of Permacrisis, says: “I tell my daughters, we’re leaving you with a world with a climate crisis, a debt crisis, a growth crisis, political crises. That’s the bad news. The good news is you have tools that we never had, and they’re really powerful.”