Global supply chains seem to offer almost unlimited opportunities for innovation: new cost-effective and ecological transport technologies would have a major socio-economic impact, new IT and Internet of things technologies seem to be on the verge of breakthrough and aligning processes across organizations could streamline processes considerably. We would just need to launch these new, improved technologies and practices rapidly, but therein lies the … standard.
In the context of any “disruptive” activity – be it early stage research or launch of a VC-backed startup – it might be tempting to see standards as anachronistic speed bumps on the innovation superhighway. At a first glance, they may seem to mainly introduce inertia into the system by establishing arbitrary rules that create barriers of entry for new players in the market. This is perhaps understandable when working in the context where the patience of the financial backers tends to be clearly shorter than time it takes to motivate, articulate, formalize and promote a new version of a standard.
However, we would like to argue that with all the limitations standards impose, innovation in global supply chain domain would be impossible without them. The role of standards is important in any trade-related activity, starting from specifying the characteristics of commodities in a way that makes it possible to compare offerings of different sellers and extending beyond the minutiae of payment modalities and dispute resolution that increase the parties trust in the marketplace and makes the trade-related risks manageable. In the global logistic context that e.g. the EC-funded CORE project focuses on, these standards need also to support multi-party cooperation between numerous organizations and interoperability of data processing systems across several language/cultural barriers.
In almost every junction of the value chain, the decision-making processes cannot rely on direct consultations of the other stakeholders. The physical goods and accompanying data needs to be to a large degree “self-contained” entity that can be processed in a standardized manner relying only on a limited, commonly agreed information sources as a reference (e.g. classification of goods, and associated procedural requirements and tariffs). This need for highest possible degree of context independence has driven the standardization process for decades. As an example, the standardization of the layout of trade documents (starting as UNECE recommendation No 1 in 1973) may seem like an anachronistic concern today, but it represented considerable step forward in streamlining logistics operations. The standardized numerical field tags combined with the common layout meant that it was possible to extract pertinent information from a form written in any language.
From the perspective of global trade, being able to interpret information in a language independent manner is a powerful enabling tool for innovation. Mostly eliminating the need to stop a shipment while waiting for an interpreter makes global supply chain much more predictable and efficient. So even a hypothetical solution providing low-cost, supersonic air cargo service would need to comply with modern customs standards lest its end-to-end performance would fall below the current air cargo solutions. Thus, changing processes and approaches is no longer possible in isolation, and the promotion of new innovations needs to take into account the opportunities and constraints of the standards the stakeholders operate with. This issue of inertia is further compounded by the fact that – despite extensive collaboration between standards bodies – there are often several standards and standards families offering overlapping functionalities.
As a summary: in the global supply chain innovation, the developments related to standards represent both risks and opportunities. The uptake of the technical optimization depends not only on the economic and ecological savings that can be realized, but also on providing interfaces and conceptual models that are easy to implement based on the supply chain standards that will have the widest acceptance in the near-future. In the next standardization blog post we will look at methods an innovation activity can use to minimize the risks and aim at influencing standardization processes with limited resources.
CBRA Blog on 24.3.2017, by Mr. Heikkurinen.