The era of “just-in-time” supply chain management will come to an end in 2022, with FinTech start-ups fully poised to exploit this space as global trade is reset amid war in Ukraine, Covid-19 and climate change requirements.
David Hansom, partner, global procurement at law firm Clyde & Co, told delegates at the Trade & FinTech forum hosted by the Arab-British Chamber of Commerce in London that supply chain models as we know them will change from this year.
“From a geopolitical perspective, there are very real threats to the just-in-time supply chain,” Hansom said. And this year will mark the end of companies ordering goods that arrive days later to fulfill an order, he said.
It’s not just because of the Russian invasion of Ukraine, but also the growing physical, financial and non-financial barriers creeping into the market from sanctions, the fallout from the Covid-19 pandemic, from soaring shipping costs, tighter regulations and Brexit complications, he says.
“There are obviously a series of new sanctions. These sanctions, whether we like it or not, have an impact on the trade that we all do. There is the risk of trade routes being blocked and the risk of delayed deliveries,” Mr Hansom said.
However, Brexit and the imposition of financial barriers to trade are also having an effect, he said, despite the introduction of new UK trade deals, many of which are a ‘cut and paste’ of deals existing ones that the EU has put in place.
“Without a trade deal, new barriers are imposed [with] limits on the quantity that can be imported; limitations on when it can be imported and through what channels and the taxes that apply,” Mr. Hansom said.
As a result, the just-in-time model, first adopted by producers of goods and services around the world in the 1950s, may be coming to an end.
The concept came into play when Toyota engineer Taachi Ohno saw the model as a way to eliminate “waste” in the production and movement of goods.
Instead of wasting time, labor and money storing key components in warehouses or next to assembly lines, Ohno’s idea required suppliers to only deliver what was needed, reducing the need for businesses to spend to maintain inventory.
Fast forward to modern times and every supplier is expected to quickly deliver products to the next buyer in the supply chain – an increasingly difficult prospect over the past two years after the Covid-19 pandemic has hammered the global economy and shut down factories and businesses.
As consumers continue to spend, ignoring rising inflation, the just-in-time world is becoming increasingly crisis-prone as businesses grapple with the war in Ukraine, rising fuel prices and rising shipping rates.
As a result, retailers, anxious not to be caught in delays again, are building up inventory to meet expected peaks in demand, juggling “just in time” and “just in case” inventory management.
Add to this increased monitoring of the environmental effects of supply chains, as well as ethical sourcing, and it’s easy to see why today’s supply chain models will need to change.
“So is it sustainable to fly beef from Australia? Is it sustainable to produce 80% of the world’s lithium from a single country, in the context of the electric vehicle? said Mr. Hansom.
“A bright future for FinTech”
With rising inflation – expected to reach double digits in the UK this year – also posing a challenge, businesses will increasingly need to embrace FinTech as a way to revolutionize the supply chain.
“Supply chains need to be robust, sustainable and built for success,” Hansom said.
“It means you have people working together to drive change to tackle global issues head-on…and FinTech in all its many forms is perfectly positioned to tick all three boxes.”
With around 26,000 FinTech companies operating globally, employing 500,000 people and 30% of retail banking customers using at least one service from a non-traditional banking provider, the future of FinTech is bright, said Mr. .Hansom.
Blockchain consultancy Clyde & Co, for example, is already drafting automated contracts for the shipping industry, which prevents people from making decisions about when payments are due or when a premium is due. insurance can be reimbursed.
An example is the insurance premiums for cargo ships traveling to more dangerous waters where they are exposed to the risk of piracy.
IoT sensors report back to the insurer and the premium increases for the duration of the part of the trip where danger lurks, rather than the entire crossing.
With a closer look at corporate social responsibility and needed improvements in audit trail and supply chain accountability, Mr. Hansom predicts “a real growth market in ethical contracts.”
“Over the next five to ten years, I see the trust that can be built in supply chains through blockchain, through the use of distributed ledger technology,” he said.
“It has been absolutely transformational, in the context of building trust, security, accelerating supply chains and reducing transaction risk.”
As customers examine how a company approaches technology and its compliance with global best practices, as well as decarbonization, Mr Hansom said there are so many opportunities to use technology to reduce production carbon emissions and improve supply chain flows.
“The market is ready for these bright ideas, ready for these seed funders, ready for these start-ups, ready for these investors to have a great idea and follow it,” he said.
Updated: March 23, 2022, 12:20 p.m.