“The societal and economic spasms of the early 2020s highlighted the crucial role of world-spanning supply chains in the modern global economy, as well as the growing role of digital technology, including A.I. and automation, in the future economy,” wrote MIT professor Yossi Sheffi in the Preface of his new book The Magic Conveyor Belt: Supply Chains, A.I. and the Future of Work. In the Preface, Sheffi succinctly stated that “The central purpose of supply chains is to fulfill the needs and wants of humanity — delivering all the food, medicine, energy, apparel, and other worldly goods need by the eight billion people in the planet.”
The 1990s ushered a golden age of globalization. The world seemed to be coming together. Thomas Friedman’s The World is Flat became an international best-seller in 2005 by nicely explaining what globalization was all about, including the key forces that contributed to flattening the world, - from the collapse of the Berlin Wall in November of 1989 to the rise of outsourcing, offshoring and global supply chains.
“The golden age of globalisation, in 1990-2010, was something to behold,” wrote The Economist in a January, 2019 article. “Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised.” But, ever since the 2008 global financial crisis, globalization and global trade started to slow down. “Globalisation has slowed from light speed to a snail’s pace in the past decade for several reasons,” said The Economist.
Three major shocks have further reshaped globalization: the increasing trade wars and tariffs of the past five years, especially between the US and China; the disruptive impact of Covid-19 on global supply chains; and more recently, the war in Ukraine, which threatens to further decouple the world’s economy into a Western and a Chinese trading bloc. Mohamed El-Erian, one of the world’s most influential economic thinkers, said in a recent podcast interview, that the rewiring of global supply chains is one of the major drivers of major structural changes in the global economy.
The Magic Conveyor Belt explains the foundations for understanding supply chains, the important role they continue to play in our global economy, their intrinsic and growing complexity, and the impact of digital technologies and automation on the evolution of global supply chains. The book is organized into four main parts. Let me summarize a few of the key points in each of the parts.
The Global Dance. Part 1 explains the intrinsic structure of global supply chains and the challenges of managing the huge networks they comprise. Even seemingly simple consumer goods are composed of myriads of parts or materials from different suppliers. Each of these parts and materials is further composed of many intermediate products from intermediate suppliers, all the way back to the providers of raw materials. “Yet, even a single missing part can prevent the manufacturing of a product from being completed,” wrote Sheffi.
Complex supply chains are generally dispersed around the world. At one end are the localities that provide the required raw materials, as well as the expertise and capital needed to build the end products. At the other, are the widely dispersed markets for the finished goods and the consumers that will buy the products.
“Connecting all these supply chain elements is an intricate set of services and transportation networks that store, move, and service the goods efficiently, reliably, and quickly. The result is that supply chains are actually complex overlapping ecosystems of all the companies involved in delivering products.”
Sheffi illustrates the complexities of modern supply chains, with an example from the automobile industry. “Most cars have about 30,000 parts made around the world, with many of them traveling multiple times across and between continents. … Each of the 30,000 parts must be highly engineered, composed of specific materials, carefully manufactured, and then delivered to thousands of suppliers who assemble many of these parts and send the resulting subassemblies to a car factory. There, all these subassemblies are put together to make a sophisticated, yet affordable automobile.”
Further Complexities and Challenges. Part 2 of the book explains how the increasing demand for goods and the rising consumer expectations for fast, perfect delivery services have increased the complexity of supply chains over the past several decades. Moreover, beyond efficiency and customer service, companies are expected “to minimize emissions, advance social justice, and enhance their resilience,” even while demand is volatile, regulations and geopolitical constraints are increasing, and competition from around the world keeps rising. “Once one understands all that is involved, the miracle is that it all actually works, and usually works very well.”
Resilience is increasingly important. If, for example, an automobile company faces a shortage of even a single one of its 30,000 parts, it cannot build the car. “Consequently, supply chain managers have to ensure that the factory always has enough of every single part and subassembly required to run its operations and make the product.”
To ensure a continuous flow of parts and reduce the risk of supply chain disruptions, companies may need to contract with more than one supplier for a given part. This involves many trade-offs. A single supplier for a part may offer a lower price based on higher volumes, and may give the company preference in the event of a shortage or disruption. On the other hand, depending on a single supplier for a part involves a serious risk should the supplier fail. Relying on multiple suppliers allows the company to continue production when one supplier fails, but also increases the complexity of having to manage a larger network of suppliers.
Vital Link in the Chain: Humans. Part 3 explains the growing role of technology and automation in manufacturing and in supply chains services, which some see as an existential threats to workers.
A number of recent studies have focused on the impact of AI on the future of work. For example, in the spring of 2018, MIT launched a task force on the Work of the Future to understand whether and how our current period of technological disruption differs from prior industrial ones. The task force final report, The Work of the Future: Building Better Jobs in an Age of Intelligent Machines, concluded that:
“No compelling historical or contemporary evidence suggests that technological advances are driving us toward a jobless future. On the contrary, we anticipate that in the next two decades, industrialized countries will have more job openings than workers to fill them, and that robotics and automation will play an increasingly crucial role in closing these gaps. Nevertheless, the impact of robotics and automation on workers will not be benign. These technologies, in concert with economic incentives, policy choices, and institutional forces, will alter the set of jobs available and the skills they demand.”
Sheffi argues that “human strengths make people natural complements to machines.” Collaboration between people and technology can outperform either one on its own because “robots and humans have complementary capabilities. Robots can take over tasks that require repetitive processes — even intricate, multi-step ones — and perform them with high levels of precision and consistency. Humans can apply judgement regarding complex contextual factors in order to evaluate the merits of using the machine, direct the machine to change when needed, correct the machine’s failures, or replace it.”
Looking Forward. Part 4 explores the multiple trends driving the evolution of global supply chains, and the skills people need to succeed in a rapidly changing future filled with advanced technologies, digital tools, and automation.
The future of supply chains will likely be determined by the interplay of three major trends:
- Supply chains and economies face increasing levels of volatility, uncertainty, complexity, and ambiguity;
- The world’s population is undergoing significant geographic and demographic changes which are expected to accelerate in the near future;
- A growing array of information technologies will provide data, decision, control, and functionality that are useful in such a fast changing world.
These trends will have two major impacts. As has long been the case, new technologies will automate some of today’s tasks and jobs while creating new types of occupations. But, notwithstanding the growth of automation, organizations will continue to have a need for highly capable people “to design, manage, and execute all the activities in all the supply chains that underpin the world’s economies.”
“New digital tools are set to help people make productive use of technology and bring more value to their jobs and to the economy. However, the allocation of tasks between people and machines will change dynamically as new and better machines become available and as companies adopt them and workers adapt to them. To be employable and succeed in both blue-collar and white-collar jobs, workers will require new skills.”
“Automation can help handle routine tasks so that people can concentrate on the more fulfilling parts of their jobs,” wrote Sheffi in conclusion. “AI and digital tools can augment the power of people, enabling them to handle jobs they could not in the past. Timely and affordable education and knowledge can help workers, managers and citizens cope with technological change, volatility and disruptions. … Managers and workers can make the most of AI and automation by collaborating with the technology to create fulfilling and well-paying jobs, affordable products and services, and a bright future. It is up to civil society to ensure that such a vision materializes.”
Fantastic insights!It's intriguing to see how Human+Machine interaction and interoperability play across systems and applications impact the value chain of supply chain
Posted by: Swaraj Mukherjee | May 26, 2023 at 10:35 AM