“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 needed by the eight billion people in the planet,” wrote MIT professor Yossi Sheffi in the preface of his 2023 book, The Magic Conveyor Belt: Supply Chains, A.I. and the Future of Work. “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.”
Lately, I’ve been thinking a lot about supply chains. Not only are global supply chains among the most complex of man-made systems, but supply chains are nowhere near ready to be transformed because many of the tasks and processes involved in supply chains are still in the early stages of digitalization. As I think about my personal experience in the evolution of the IT industry, the successful collaboration around standards spurred a new era of productivity and growth. We have yet to see a similar catalyst in the supply chain ecosystem.
I’ve been following the evolution of global supply chains for the past three decades. The 1990s ushered in a golden age of globalization, when the world seemed to be coming together. Thomas Friedman’s The World is Flat became an international best-seller in 2005, nicely explaining what globalization was all about, including the key forces that contributed to flattening the world, from the explosive growth of the Internet to the rise of just-in-time global supply chains. The very nature of the global organization was transformed, with IBM CEO Sam Palmisano declaring in a 2006 Foreign Affairs article that “The Globally Integrated Enterprise” was destined to become the corporate model of the future.
My interest in global supply chains increased significantly in the mid 2010s, fueled by my fascination with enterprise blockchain technologies. In 2016, the World Economic Forum (WEF) included blockchain in its annual list of Top Emerging Technologies. The WEF report compared blockchain to the Internet, noting that “Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built. And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.”
At the time, I was convinced that global supply chains would emerge as a killer app for blockchain technologies. Over the following years, I closely tracked the evolution of blockchain-based supply chain systems. In 2018, I participated in a blockchain panel at a conference of senior supply chain executives from various industries. I learned that these executive were generally skeptical about blockchain’s value to their supply chain systems, though many were experimenting with blockchain. I assumed that, much like the Internet in the 1990s and Linux in the 2000s, it was just a matter of time before they saw the light.
As we now know, things didn’t quite turn out as I had expected. “Blockchain, the technology underpinning bitcoin and other cryptocurrencies, for years has been viewed by some companies as a way to drive industry-transforming projects, among them the tracking of assets through complex supply chains. So far that hasn’t happened,” wrote the Wall Street Journal in a December 2022 article, “Blockchain Fails to Gain Traction in the Enterprise.”
The article noted that 2022 was a tough year for blockchains, marked by the failure of several ventures, most notably the announcement that TradeLens — one of the most prominent blockchain initiatives launched by IBM and Maersk in 2018 — was discontinuing its blockchain-based global trade platform.
Since then, I’ve been trying to understand why, despite their early promise, these blockchain-based supply chain initiatives failed. The WSJ article cited three potential reasons: the difficulty of enlisting companies that compete with each other to collaborate on a common objective; the significant time required to deploy transformative technologies; and the intrinsic complexity of global supply chain applications.
Let me discuss each potential reason.
The difficulty of enlisting collaborating participants
“TradeLens could only work with the collaboration of a host of companies and nations — which never fell into place,” noted the WSJ. This is not surprising. Complex initiatives that require the close collaboration of multiple private and public sector institutions, as is the case with global supply chains, are quite difficult to organize for a number of reasons: the participating firms are competitors often with conflicting priorities and inflated governance expectations. In addition, — unlike research institutions which have a long tradition of collaborating on new innovations — competing firms are typically hesitant to work together unless the business values are clear and proven.
Let me cite two successful examples of collaboration from my personal experiences in the IT industry. In the early decades of the IT industry, vendors brought to market proprietary networking and email systems that worked well if used within the same company or with companies using the same vendor’s architecture, but were cumbersome to use across companies.
The Internet changed all that. The adoption of open internet and email protocols in the 1970s and 1980s by research communities, followed by the rise of web standards in the 1990s, forced companies to embrace open systems. Similarly, Linux emerged as an open-source operating system in the 90s. Initially adopted by research communities, it eventually gained widespread corporate support. Over time, an increasing number of companies have embraced Linux, contributed to its development, and now support hundreds of open source projects in just about all industries.
The considerable time required to deploy a complex new transformative technology
“General purpose technologies (GPTs) are engines for growth,” wrote Erik Brynjolfsson, Daniel Rock, and Chad Syverson in “The Productivity J-Curve,” a 2020 NBER research paper. “These are the defining technologies of their times and can radically change the economic environment.” But realizing their potential requires massive complementary investments, such as business process redesign, co-invention of new products and business models, the re-skilling of the workforce, and a fundamental rethinking of the organization itself. For example, after the introduction of electric power in the early 1880s, companies took several decades to build the necessary infrastructure for generating and distributing electricity, and to figure out how to restructure their factories to harness electric power with manufacturing innovations like the assembly line.
Like the Internet and AI, blockchain is a general purpose foundational technology whose transformational impact will take time. The adoption process of foundational technologies is gradual, incremental and steady, because they must overcome many different kinds of barriers, — technological, organizational, and political.
The intrinsic complexity of global supply chain applications
Not only are global supply chains among the most complex of man-made systems, but supply chains are nowhere near ready to be transformed because many of the tasks and processes involved in supply chains are still in the early stages of digitalization. This was nicely illustrated in “The multi-billion-dollar paper jam: Unlocking trade by digitalizing documentation,” a McKinsey article published in October of 2022.
“Current trade documentation spans many documents and processes, and is a manual, time-consuming, and resource-intensive process for all stakeholders. Documentation for a single shipment can require up to 50 sheets of paper that are exchanged with up to 30 different stakeholders,” added McKinsey. “While the banking and aviation industries have implemented digital standards enabling automated trade systems, shipping has not matured far beyond where it was in the 1400s.”
“The advantages of digitizing supply chains are undeniable: improved visibility, enhanced efficiency, reduced costs, and better decision-making,” wrote Sean O'Malley, co-founder of the supply chain company BlueX, in “Open-Source: The Key to Accelerating Supply Chain Digitalization.” “Despite these benefits, the adoption of digital solutions has been slower than anticipated. The root of this issue lies in the immense complexity and proprietary nature of these global networks. His article cites four key obstacles to the transformation of supply chains:
- Legacy Systems: “Many existing supply chains rely on outdated, fragmented systems that do not easily integrate with modern solutions.”
- Lack of Global Standards: “The absence of universally accepted data standards creates communication difficulties between different systems.”
- Cost and Expertise: “Implementing and managing comprehensive digital supply chain solutions requires significant investment and technical expertise.”
- Trust and Collaboration: “Building trust between supply chain partners is often crucial for data sharing and successful collaboration, yet it can be a slow process.”
Given the promise of AI to help us address highly complex systems, could AI play a role in the evolution of global supply chains? The potential role of AI in supply chain systems was discussed in “Nine questions are the key to AI success in building resilient supply chains,” a recent article in Supply Chain Management Review, by Chris Caine, — President of the Center for Global Enterprise.
Recognizing the central role of data in AI systems, let me mention Question 3: “What data do we have, and is it ready for AI?” As Chris Caine noted, “AI systems are only as good as the data they are trained on. Before you can implement AI, you need to assess the quality, quantity, and availability of your data. Many organizations need to invest in cleaning, organizing, or even acquiring new data to make AI implementations feasible.” Over time, we can expect to see a great deal of work on the impact of AI on global supply chains.
Going forward, as was the case with the IT industry in the 1990s, a focus on open source infrastructures, interoperable data standards, and, collaborative innovation can provide a powerful framework for the evolution of complex supply chains. Such a framework would encourage companies to develop innovative proprietary features atop a common open-source infrastructure that would benefit all stakeholders.
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