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2025 Outlook: Re-thinking the supply chain

The global chip shortage has several causes, one of them are problems in the supply chain. As shown in the graphic the chip shortage is affecting car production impacting 1 million vehicles in the North American market Image credit: Auto Forecast Solutions

Most of what we take for granted, like picking up a banana at the grocery store, filling up our car, sipping a Coke on board a plane, is the magic of modern supply chains. It is not just about having what we want, it is also -most important- having a price that is independent on the “origin” of the product. In other terms, the supply chains deliver at almost no cost!  Let me rephrase this: the supply chains can move around so much merchandise that the actual cost per item is negligible. When the shipping cost of a t-shirt taken from Taiwan to Italy is less than 10 cents you can very well disregard that cost.

It is not just the marvel of the supply chain, it is the magic of an overall system (components > assembly/production > delivery) that operates like a clockwork. What the factory needs get to the factory door at the exact time it is needed. That requires synchronising the whole value chain. Warehouses have disappeared for good (there are still “hubs” for packages interchange but everything keeps moving, nothing sits idle).

The problem with clockwork mechanisms is: what does it happen when the “clock” gets stuck? That was the case in March 2021 when the giant container ship Ever Given got stuck in the Suez canal blocking 15% of the world shipped goods.

In a way the lockdown that forced to a halt (almost…) the production of sensors and other basic components was even worse because it lasted longer. The problem in sectors like automotive (see the graphic) was even worse because car manufacturers placed their orders on hold and sensors manufacturers hastily changed their production to keep their factories working by serving different markets (repurposing some of their product lines). Once the automotive sector bounced back and car manufacturers asked to resume sensors shipment those factories were no longer able to meet the demand. This is the current situation and the forecast is gloom. The pre-pandemic smooth availability of electronic chips for car will not be reinstated till the second half of 2022.

As a matter of fact the landscape is complex and any glitch is likely to percolate and affect many players. Take the automotive again: currently the shortage of chips (there may be up to 3,000 of them in a single vehicle) is not generalised, that is most chip production is fine. However, if one chip type is missing the car cannot be produced. That leads to an over production of the other 2,999 chips! I was talking to a CTO of a company in Italy that is providing sensors controlling exhaust fumes to several car manufacturers. Because of reduced car production they had to stop the production of their sensors. Hence the shortage of one component (a specific chips) results in overstock for hundreds of other components.

All of this is forcing industry to re-think the supply chain. Whereas the focus was on “just-in-time” now the focus is on “resilience” even if that means an increased cost. In the longer term, obviously, the target is to get both lower price and high resilience.

Artificial intelligence may play a crucial role both in patching up the current situation as well as in reshaping the supply chain organisation and orchestration in the second part of this decade.

Digital Twins are also expected to play a significant role both in the dynamic management of the supply chain and in the simulation/forecast of events that might affect its efficiency.

Clearly, resilience will require a multi-supplier multi-path supply chain to ensure a “plan B” when a disruption occurs.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the New Initiative Committee and co-chairs the Digital Reality Initiative. He is a member of the IEEE in 2050 Ad Hoc Committee. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.