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ASCM Insights

COVID-19 Accelerates Technological Change

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Demand for change in the global supply chain is not new. The ongoing trade war between the United States and China already has prompted businesses in the United States to diversify their supplier bases away from China. A recent report by global consultancy Kearney estimates that, as a result of diversification, manufacturing import ratios between the two countries have been pushed to 98% in 2019 — an unprecedented level — and up from -32% the year before. A positive figure indicates net reshoring, and a negative figure indicates an increase in offshoring.

But other factors are driving change too, including the desire to mitigate disruption risk generally, cost savings, greater output agility and closer proximity to centers of demand. COVID-19 has only served to further expose the frailty of global supply chains and turbocharge demand for change. A recent ongoing survey of 50 chief financial officers from Fortune 1,000 companies found that one-third of the companies listed supply chain issues as a top-three concern for dangers facing their businesses.

The needed changes take time and ultimately will rely on technology innovation and implementation, often through the acquisition of technology disruptors by established industry players. Let’s take a look at some of the technology that has a potential to resolve some of the latest supply chain challenges.

Warehouse automation

Just-in-time delivery has been adopted as an effective way to maintain optimum production while also reducing costs. The pandemic has exposed this as a weak link, however, because the practice relies on manual workers.

To address this vulnerability, there is an added drive toward automation. Warehouse management systems matched with developments in artificial intelligence (AI), for example, are helping to optimize warehouse functionality and distribution while also reducing the number of employees required. Even before this year’s coronavirus outbreak, research firm Markets & Markets expected the warehouse systems market to explode to $4.82 billion by 2024, up from $2.06 billion in 2018.

Robotics is another rapidly growing industry, especially now that robots are more affordable and offer longer lifespans. The robotics industry is transforming not just the manufacturing of goods but also their management and distribution. The use of robotics in warehouse management for the movement of goods already is common. Research firm Facts and Factors predicts that the global autonomous forklifts market alone will reach a value of around $10.5 billion by 2025, up from $6.5 billion in 2018.

Autonomous distribution

Advancements in drone and vehicle technology also are enabling businesses to bolster resilience and reduce their dependency on manual labor by automating the distribution of goods from the warehouse to the consumer.

An ARK Investment Management study estimates that parcel drones have the capacity to deliver packages profitably in less than 30 minutes for as little as $0.25, compared with more than $7 for traditional domestic shipping. The study also estimates that, as a result of frictionless and inexpensive delivery, consumers are likely to purchase significantly more goods online, growing e-commerce’s share of retail sales from 14% in 2019 to an estimated 60% in 2030, with drones delivering more than half of the e-commerce volume.

Experts anticipate that most aspects of the supply network will be automated within the next 15-20 years. Autonomous robots will collect goods from the factory and move them to an automated distribution facility. An autonomous vehicle or drone will then collect these goods and deliver them autonomously to their destinations. The low cost of drone delivery also provides manufacturers with the ability to begin circumventing the warehouse entirely and deliver goods directly from the factory to the customer’s door, thus cutting out a key element of the traditional supply chain completely.

3D printing

Perhaps more than any other area, 3D printing’s rapid expansion is revolutionizing the manufacturing and production of goods. Because of its reduced labor costs, 3D printing offers producers greater capacity to make goods cheaply, efficiently and much closer to market. The implications are seismic. They represent the prospect of major service-led economies, such as the United Kingdom, United States and Canada, reclaiming their manufacturing base. The industry already is booming. Last year, the global additive manufacturing market grew to more than $10 billion for the first time, according to Interesting Engineering.

Autonomous shipping

Together, 3D printing and drone technology will begin to have a significant impact on the global maritime cargo industry within the next decade. 3D printing will reduce both supply lines and the demand for long-distance maritime shipping. In the longer term, advances in autonomous cargo drone technology are likely to compete with short- and medium-range maritime freight in terms of cost.

To adapt, the maritime cargo industry will need to embrace innovation to reduce costs and bolster resilience. Even before the pandemic, investment in the autonomous shipping market was expected to grow from $90 billion today to more than $130 billion by 2030, according to Ship Technology. The coronavirus pandemic is likely to trigger an acceleration in that investment. At present, autonomous ships are little more than automated robots, but developments in AI offer the capacity for enhanced decision-making and greater efficiency.

Innovation ahead

COVID-19 represents the greatest single short-term disruption to the global economy since World War II. History teaches us that times of crisis often drive innovation. This pandemic is no different.

Technological innovation to redraw the global supply chain already was underway. This crisis has simply led to an acceleration in that rate of change. The challenge now falls on industry to embrace and adapt to it.

About the Author

Paul Cuatrecasas CEO, Aquaa Partners

Paul Cuatrecasas is CEO of Aquaa Partners and the author of “Go Tech or Go Extinct.”

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