Simplifying complexity and strengthening weakness: how technology is improving the supply chain

Robin Bates, Business Development Manager, explores the key technologies that are simplifying and strengthening supply chain management, focusing on their ability to reduce risk

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In an increasingly globalised world, supply chains rely on international movement of goods. The continuous import and export of raw materials has made every stage of the process extremely complex but also weak. With contingencies on not one but many suppliers in multiple countries, companies have made themselves vulnerable.

This has really come to the fore over the past few years. Between the pandemic and Brexit, unstable economic and political environments around the world have not only created challenges in global supply chains but illuminated and exacerbated weaknesses already present.

The pandemic shed light on how intricate supply chains really have become across the world. Between the disruptions caused by travel restrictions and the closures of factories for health concerns, over 94% of Fortune 1000 companies  faced supply chain failures within the first few weeks of the outbreak.

The major disruptions of the last 18-months have been a wakeup call and has spurred on action to not only fix the broken chains but put in place steps for building back better. A study carried out by EY found that supply chain visibility has become the number one priority over the next three years for senior executives, with the report stating that “the supply chain of the future will need to be agile, flexible, efficient, resilient and digitally networked for improved visibility”.

     Managing risk

Supply chains can be disrupted by a range of circumstances, from physical damage such as health and safety hazards and natural disasters, through to the digital realm of data breaches and cyberattacks. A number of these risks are ‘known risks’ meaning they can be tracked over time within a risk management framework. These risks should be identified, scoped and measured to understand the scale of the risk and procedures put in place to trigger if there is any level of change to stabilise and control the impact.

This is particularly important when it comes to managing unknown risks. While data and analytics can give a good indication of future activity, there are some circumstances that are near impossible to foresee. As these are out of our control, a supply chain team must focus on handling that which is in their power. Having comprehensive risk framework for the known risks will give the team the ability to focus on managing the unknown risks when they suddenly emerge.

     Mechanisms for reducing risk

A robust framework for managing risk, supported by a strong data function, will allow for a faster reaction time, increasing resilience across the chain. Companies must aim for full visibility of the chain from end-to-end to be able to account for the entire risk portfolio and spot every potential point of weakness to build a detailed crisis management playbook. The operative word here is ‘aim’ as there may be difficulties gathering all the information on every supplier, especially if they consider their chain proprietary.

The framework should be supported by mechanisms for supporting the stability of the supply chain. The following are ideas for how technology can be used to strengthen the chain and build resilience.

At the centre of conversations around Industry 4.0 has been the Internet of Things (IoT). The possibilities of the interconnectedness of digital tools appear to be endless and this has been reflected in the worldwide investment in the technology. The IDC estimated that spending on IoT will have reached $202bn last year and will continue in double-digit growth through 2025.

For supply chain management, using IoT can enable opportunities for increased visibility over goods by collecting data on everything from traffic patterns to status of refrigeration systems. With a more digitised environment, distribution systems are increasingly transparent and can be optimised to stay on track.

Throughout the chain, immense volumes of data are being generated and can be harnessed for use by technologies such as AI, machine learning and predictive analytics. With this information, companies can automate warehouse operations, reduce delivery timelines, have precise management of inventory, and much more. These efficiency improvements will optimise the business as well as open opportunity for innovation and enhancing customer and supplier relationships.

The rise of ESG reporting, new production standards and regulation have made companies rethink their supply chains. There are now pressures from all angles, investors through to consumers, to prioritise and implement sustainable practices.

To deliver on these promises, companies must have complete transparency. Blockchain makes them accountable for their actions by collecting accurate and incorruptible data. With this, there are new opportunities for tracking and reporting on a vast range of ESG matters from end to end, enabling companies to monitor their activity and identify areas of improvement.

Many companies want and need to maintain good relations with their suppliers, however there can be a degree of uncertainty between the two parties – especially when it comes to high value transactions in a recovering economy. To satisfy the needs of both buyer and supplier, an escrow arrangement can be built into the contract, outlining the terms of the transaction.

The payment(s) are conditional upon achieving these terms, such as receipt of the goods, the timeliness of delivery or the condition of the product. In some cases, there may be staged releases of payments built into the contract to make fragmented payments for the completion of each tranche of work.

While escrow facilities have been in use for years, there is a new opportunity to use a technology-enabled escrow service. Unlike traditional services provided by banks or law firms which can take up to 6 weeks to arrange, Shieldpay offers set up times in just 48 hours facilitated by a digital platform. The streamlined service has meant that escrow arrangements are now far more accessible in both time and cost and can be integrated into the regular contractual arrangements between buyer and seller. The typical workflow has just four simple steps:

Shieldpay uses standardised contracting that can be adjusted to the specificities of the buyer and seller requirements, such as introducing the terms for staged payments. Depending on the complexities of the transactions, such as jurisdictions, currencies and total value, the escrow may be a trust arrangement under Shieldpay Trustee Services Limited (this can be discussed in more detail with the Shieldpay team).

All parties involved in the transaction will undergo robust due diligence checks, including standard AML, PEPs and sanctions checks as well as bank account verification. This KYC process is critical for mitigating the risk of fraud or human error and the checks are regularly refreshed depending on the length of the contract.

Once funds are in held in the escrow account, they are ring fenced for that order and protected against insolvency, giving the seller confidence to despatch the goods. All approved parties are given access to the digital platform to check the status of funds as well as upload and access documents relating to the deal, such as invoices, terms, proof of delivery and more.

Funds will only be released when parties to the transaction agree or there has been a legally binding decision in respect of any dispute. The conditions of the contract must be met for the funds to be paid out of the account.

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Shieldpay's technology-led solution provides Third-Party Managed Accounts (TPMA), corporate escrow and paying agent services across the professional, financial and legal services industries. Get in touch to find out more.