What Is Infrastructure In the Supply Chain And Its Challenges?

Infrastructure is a critical component of the supply chain that refers to the physical and digital systems, facilities, and networks used to transport, store, and manage goods from their origin to their destination.

The development of supply chain infrastructure presents a significant opportunity to enhance supply chain efficiency, reduce costs, and increase competitiveness. However, there are also several challenges associated with its development and maintenance.

In this blog, we will explore what infrastructure means in the supply chain, the opportunities it presents, the challenges it faces, and examples of infrastructure in the global supply chain. By the end, we are sure you will have a clearer understanding of the entire process and know where your business fits in!

Supply chain infrastructure includes everything from ports, highways, railroads, and airports to warehouses, distribution centers, transportation management systems, and electronic data interchange (EDI) software.

The infrastructure must be designed and maintained to ensure the optimal performance of the entire supply chain. The infrastructure's physical components include:

• Transportation infrastructure (ports, highways, airports, etc.)

• Storage infrastructure (warehouses, distribution centers, etc.)

• Communication infrastructure (EDI, communication protocols, etc.)

The digital infrastructure includes software and hardware systems that help manage and monitor the entire supply chain.

Improved infrastructure can lead to faster delivery times, better inventory management, and more accurate tracking and monitoring of goods. Infrastructure development presents several opportunities for the supply chain.

Transportation Costs

One of the significant opportunities is the reduction of transportation costs, as well as a decrease in delivery times. For example, the expansion of ports, highways, and railroads can help reduce transportation costs and improve delivery times.

A recent study by the American Association of Port Authorities (AAPA) shows that every $1 invested in port infrastructure results in $4.15 in economic activity.

Inventory Management

Another opportunity is the development of more efficient inventory management systems. With advanced infrastructure, companies can store their products in more efficient locations, reducing their inventory carrying costs.

With better warehouse management systems, they can quickly move inventory in and out of the warehouse, increasing their inventory turns. The RFID (Radio Frequency Identification) technology is one such technology that helps in monitoring the inventory and reducing the supply chain's cost.

The global RFID market size is expected to grow from $13.4 billion in 2020 to $24.5 billion by 2026, at a CAGR of 10.4% during the forecast period.

Digital Communication Infrastructure

The use of digital communication infrastructure, such as EDI, can also streamline communication and data exchange between supply chain partners, reducing errors and delays. It could be a game changer for businesses stuck in the process or those looking for a source of acceleration.

EDI can help automate supply chain transactions, such as purchase orders, invoices, and shipping notices, reducing manual work and increasing efficiency. The EDI market size is expected to grow from $1.2 billion in 2020 to $2.1 billion by 2025, at a CAGR of 10.5%.

Despite the benefits of supply chain infrastructure, there are several challenges associated with its development and maintenance. One of the significant challenges is the cost of building and upgrading infrastructure.

The investment required to develop infrastructure is enormous, requiring significant investment from governments, private companies, and other stakeholders. Often, infrastructure development involves complex regulatory and environmental issues that add to the cost.

According to the World Bank, the infrastructure investment needs in emerging markets and developing economies are estimated to be $4.5 trillion per year by 2030.

Sustainability Challenges

Another challenge is the need to balance infrastructure development with sustainability and environmental concerns. The expansion of ports and other transportation hubs can have a significant impact on local ecosystems and communities.

For example, the construction of new highways or rail lines can affect wildlife habitats, and the expansion of ports can lead to increased air and water pollution. Therefore, infrastructure development must be sustainable and environmentally conscious.

It is essential to conduct environmental impact assessments. This will help your team monitor and ensure that your infrastructure development is in line with local regulations and laws.

Forming a Cohesive System

Another challenge is the need to integrate the various components of infrastructure into a cohesive and efficient system. The different components of infrastructure, such as ports, highways, and warehouses, must be integrated seamlessly to achieve optimal performance.

However, integrating different infrastructure components can be challenging due to differences in technologies, standards, and regulations. It is essential to have standardized protocols and communication systems to ensure efficient and seamless integration.

Potential Cyber Risks

There is also a challenge of cybersecurity risks associated with the digital infrastructure. As more and more data is shared between supply chain partners using digital communication infrastructure, the risk of data breaches and cyber-attacks increases.

It is essential to implement robust cybersecurity measures to protect your digital infrastructure. You can rest assured that your data is safe and ensure the security and integrity of the data shared.

Q: What does infrastructure mean in the supply chain?

A: Infrastructure in the supply chain refers to the physical and digital systems, facilities, and networks used to transport, store, and manage goods from their origin to their destination. The infrastructure must be designed and maintained to ensure the optimal performance of the entire supply chain.

Q: Is infrastructure part of the supply chain?

A: Yes, infrastructure is a critical component of the supply chain. The infrastructure includes everything from ports, highways, railroads, and airports to warehouses, distribution centers, transportation management systems, and electronic data interchange (EDI) software.

Q: An example of infrastructure in the global supply chain?

A: One example of infrastructure in the global supply chain is the Port of Rotterdam. It handles over 400 million tons of cargo each year and serves as a vital transportation hub for goods moving between Europe, Asia, and the Americas. The port's infrastructure includes deep-water channels, container terminals, and digital communication that allows for seamless tracking and monitoring of goods.