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The factors of interruption in global supply chains continue to increase. Instead of fewer, the impacts seem to be becoming more and more diverse. This extends beyond current crises to strategic access to key commodities. It is getting to the point where entire countries are beginning to geostrategies access to supply chains and ultimately to key resources. However, access to resilient supply chains is critical for key technologies. Therefore, the question is, what are the success factors for resilient supply chains and how can they be achieved? One important success factor can be provided by the company 21strategies, which uses artificial intelligence to reduce risk along the supply chain through AI-based decision optimization.
The "Research Network Sustainable Global Supply Chains", an association of researchers from renowned research institutions and international organizations, including the OECD, regularly share their research results. In the "Sustainable Global Supply Chains Annual Report 2022" [Ref.1] the current results are shown. In the report, Marion Jansen from the OECD also points out that even after the end of the corona pandemic or other current crises, the risks along supply chains will remain. Accordingly, there will always be factors of disruption and impact on supply chains, with greater or lesser consequences depending on the extent of the impact. The question is not whether organizations should hedge against risks, only how hedging can best protect against future risks. For this purpose, 21strategies offers an important AI-based technology for optimizing decisions and thus hedging currency, interest rate and commodity price risks.
The success factors for resilient supply chains: companies should act
According to Ms. Jansen from the OECD, the need lies primarily with policymakers on the one hand and with the companies themselves on the other. The OECD sees one success factor in the anticipation of risks. This is where politics is needed above all. The main thing here is to reduce the probabilities of exogenous effects on supply chains. This involves a comprehensive diagnosis. Vulnerabilities should therefore be identified in time, monitored and reduced where possible. The second success factor is to reduce exposure to risks at the national level. This includes, for example, the provision of adequate infrastructure. One example here is liquefied natural gas terminals to ensure broad access to essential commodities. Regulatory measures are also part of this. The regulatory framework should be designed to allow a flexible response in the event of an exogenous shock. Possible effects of shocks must be anticipated. Corresponding buffer mechanisms should therefore be set up in advance. In the event of a crisis, these can be activated and potential damage averted. The third success factor is found at the corporate level. In this context, the OECD sees the need for efficient risk management with companies according to Ms. Jansen. Companies need to establish internal processes so that they can react flexibly. And also introduce measures or have implemented efficient risk management that can protect against corresponding risks. It is not only important to have a risk management system that works. It is much more important to identify, minimize and monitor risks in advance. The OECD sees the fourth success factor at the international level. Here, it is a matter of keeping access to markets open through intelligent international cooperation and multilateral, even bilateral, agreements.
Hedging supply chain risks with Third Wave AI
21strategies offers AI-based decision optimization for decisions under uncertainty. For this purpose, the deep technology company uses Third Wave AI. Using data from non-commensurable data sources, specific market developments and changes can be identified and forecasted with a certain probability. Optimizing algorithmic control strategies can be deployed in such a way that advantageous purchase times of commodities are suggested, depending on inventory level, demand, and price movements. Changes in foreign currency positions can be anticipated in this way and the optimal hedging strategy in FX cash flows can be strategically determined. How does it all work? 21strategies' technology is based on Third Wave AI. This is a Cognitive Artificial Intelligence. It provides decision support to the user. In this way, 21strategies' AI technology offers the possibility to transform the way organizations make strategic or tactical decisions. As a result, 21strategies offers efficient and predictive technology to respond strategically to supply chain risks and act tactically. Would you like to learn more about how this works? Then feel free to contact us.
Jansen, Marion (OECD, 2022): Four keys to resilient supply chains, in: Altenburg, Tilman / Inga Carry / Frauke Steglich (eds.), Research Network Sustainable Global Supply Chains (2022), Sustainable Global Supply Chains Annual Report 2022, Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), page 82-86. https://www.die-gdi.de/buchveroeffentlichungen/article/sustainable-global-supply-chains-annual-report-2022/ [01.06.2022].
Author: Tanja Zimmermann