No Comments

How AI and Blockchain Could Fix Broken Supply Chains – The Maritime Executive

Published by The Maritime Executive
Published by ALJ Group
Published by Robert Rice
Published by The Strategist
Published Jan 9, 2022 2:00 PM by Andreea Minca
When the coronavirus crisis erupted in 2020, it became apparent that the medical emergency was accompanied by severe shortages, especially in some medical devices.
The pattern was first observed for ventilators: demand spiked everywhere and the supply chain was disrupted. This was because production of the devices spanned multiple countries, with each part dependent on other parts manufactured in different locations. The longer the chain and the more complex the dependence, the greater the exposure of any point to the disruption of another one, and to mandated shutdowns.
Now, two years since Covid first hit, this pattern has affected almost every sector of the global economy. “Supply chain issues” have become so widespread that they are now a running joke, affecting everything from furniture to groceries. But why has Covid had such a severe effect on how we receive products and goods?
In recent decades, supply chains became lean, and they lengthened as they became more cost-efficient: more and more steps were added in the manufacture and transportation of any given product in the name of speed and cost. This means there are more and more places where something can go wrong between you ordering something online and it arriving to your door.
Today, downstream suppliers – such as those who provide vehicle control systems to your car manufacturer – depend on upstream suppliers – such as chip manufacturers – to deliver on time so they can in turn deliver on time to you.
With long chains, risks are now shared between multiple entities all around the world.
Using AI and blockchain to protect trade
Supply chain problems have a knock-on financial effect known as trade credit contagion. This is where firms delay payments to suppliers because their customers delay payments to them. The pay-on-delivery model can lead to cancelled or delayed shipments which can in turn lead to bankruptcies.
While a high proportion of trade credit risk remains uninsured today, a post-pandemic world may see insurance and reinsurance firms fill in this protection gap.
Researchers are currently working to develop methodologies to identify vulnerabilities in global supply chains and to understand their trade credit contagion risks. The goal is to make these systems more robust overall.
How can we design ways to design insurance and reinsurance contracts in order to effectively share the risk and mitigate vulnerabilities? How can reliable trade credit lead to fewer delays in supply chains and replace the familiar predicament we face now, of paying for something in advance with an unknown delivery date?
Artificial intelligence and complex network theory are helpful in identifying the structures that could pose systemic risk. They help us ask: which patterns of connections are likely to lead to delay and trade credit contagion and which are more robust?
Using these tools, we can create large-scale simulators of global supply chains responding to a wide variety of shocks and then use machine learning techniques to detect the problematic parts of the chain. This knowledge can then be used in market designs that strengthen the system before another pandemic or disaster occurs.
Other novel technologies such as blockchain bring the promise of using high quality data to analyse supply chain dependencies. blockchain technology uses real-time data and transparent verification carried out by multiple parties. In combination with other features, such as smart contracts, this could lead to timely resolution in cases of disputes along the supply chain.
My research involves using blockchain to streamline record-keeping and payments. This problem is challenging because the adoption of blockchain depends both on the specifics of the technology and the cost.
The problem of adopting technology in the presence of positive externalities (whereby firms adopting the technology in turn improve the operations of external parties) is an old one in economics, but now these externalities are systemic in nature: the effects propagate along the chains. The cost of the technology depends on how many firms adopt it, and each one faces business specific costs based on its position in the supply chain, its risk tolerance and its costs to insure these risks.
Real-time recording keeping, the traceability of transactions, and the immutability of blockchain can all help supply chains become more efficient. This is all the more true if we consider the full length of the chain, where transactions need to be verified by several parties: participants in the supply chain, insurance and reinsurance firms.
The future of supply chains
Trade credit insurance is likely to grow after the pandemic. It may rely on private-public partnerships – the pandemic has shown that governments become important players when they impose shutdowns in certain areas.
These funds can be used to make up for payment delays, reduce losses and jump-start critical production where necessary. But not all links in a chain can be insured, and an important challenge is to identify the most important stages under different shock scenarios.
Supply chains can also be rewired – large-scale algorithms can identify which suppliers need to be replaced and which new ones need to emerge.
In a few years, supply chains may look different, as the overall goal shifts from minimizing costs, as was the case before the pandemic, to minimizing delays and trade credit risks. The end consumer will drive the need to rewire the network, as demand shifts. Ultimately, the flexibility of the customer determines the resilience of the supply chain.
Andreea Minca is an Associate Professor in the School of Operations Research and Information Engineering at Cornell University. She holds degrees from Sorbonne University (PhD in Applied Mathematics) and Ecole Polytechnique (Diplome de l'Ecole Polytechnique).
This article appears courtesy of The Conversation and may be found in its original form here.
The Conversation
The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.
Published Jan 10, 2022 1:04 PM by The Maritime Executive
Maersk is contracting for four additional 16,000 TEU container ships from Hyundai Mipo shipyard as part of its order for new vessels capable of operating on methanol originally announced in August 2021. In possibly one of the worst kept secrets in the shipping industry, Maersk is confirming the reports that it exercised the options for the four vessels. Hyundai Heavy Industries, the publicly traded company that owns the shipyards in South Korea, also made a brief filing with the Korean…
Published Jan 10, 2022 12:49 PM by ALJ Group
On June 21-22, 2022, the 3rd Decarbonizing Shipping Forum will gather major shipowners, service providers, research, and government bodies for two days of knowledge sharing and networking in Hamburg. The forum will cover a variety of topics and welcome speakers from different segments who are united by a shared goal – lowering carbon emissions and the long-term greening of the maritime sector.  In 2022, ALJ Group will host a single maritime event and all company’s efforts are devoted to building…
Published Jan 10, 2022 1:17 AM by Robert Rice
It’s well-known that reliable condition monitoring had a difficult childhood. In many respects, the practice developed on its own over the years, much like a child who matures without parents or without a specific set of tried and tested guidelines for what to do and how to do it. But those of us in the field know better, and difficult childhoods often make the most interesting adults. When equipment breaks down, it’s costly to get it running again. For that…
Published Jan 10, 2022 12:09 AM by The Strategist
[By Vanessa Geidel] After 16 years of Angela Merkel’s leadership, a tight race on election night and almost two months of coalition negotiations in Germany, the Social Democratic Party, or SPD, returned to power with Olaf Scholz the new chancellor. With the Greens and the Free Democratic Party, they’ve formed the Ampelkoalition (traffic light coalition)—the federal republic’s first ever three-party governing arrangement. The new chancellor is widely expected to largely continue Merkel’s legacy, but the coalition agreement outlining policy plans for the next…

© Copyright 2022 The Maritime Executive, LLC. All rights reserved.


You might also like

More Similar Posts

Leave a Reply

Your email address will not be published.

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed

This site uses Akismet to reduce spam. Learn how your comment data is processed.