Sudhir Gupta
The pandemic and more recently the Russia Ukraine war has disrupted supply chains across the world and has brought unprecedented attention to this topic. Therefore, all businesses are focusing on long term strategies to improve the resilience and efficiency of their supply chains.
Industry 4.0 disruptions require companies to rethink the way that they design their supply chains. Several technologies have emerged that are altering the traditional ways of working. On top of this, mega trends and customer expectations have changed the game as well. Besides the need to adapt, supply chains also have the opportunity to improve their operational effectiveness, to leverage emerging digital supply chain business models, and to transform the company that they are a part of.
From a technology perspective this means that using advanced technologies, such as the Internet of Things (IoT), big data analytics, and autonomous robotics, is transforming the model of supply chain management from a linear one, in which instructions flow from supplier to producer to distributor to consumer and back, to a more integrated model in which information flows in an omnidirectional manner. As a technology evangelist I find this truly exciting.
While large corporates have the wherewithal to undertake this transformation, in my experience, the SME sector is hamstrung by a lack of resources at multiple levels. But the creative use of low-cost technology solutions does provide the SME sector with an opportunity to start this journey. I have seen several examples of this, and the purpose of this article is to share some insights that can be helpful in this task.
Supply chain maturity levels
It is helpful to visualise supply chain maturity in terms of the four-level model.
Level 1: Reactive supply chain management. Paper based and manual.
Level 2: Internal supply chain integration with planned buffers. Stand-alone digitization.
Level 3: Collaboration across the extended supply chain network. Full digital integration including partners.
Level 4: Dynamic supply chain adaptation and flexibility. Use of advanced digital technologies.
Business advantages
I have seen that many times businesses make the mistake of approaching a transformation exercise purely from a technology perspective. However, it is important that any transformation effort must, first and foremost, be guided by clear business needs. An example will help illustrate this point better. As recently as February 2018, supply chain problems caused two-thirds of the 900 Kentucky Fried Chicken restaurants in the United Kingdom to close because they had run out of chicken. Another example, which is my favourite in the Indian context, is that of Asian Paints. They supply directly to dealers and do not have any distributor in between. This allows them to keep 97% of the MRP as compared to their competitors who are able to get only 60% of the MRP because they rely on distributors. So, it is important to understand the business benefits that must be attained. Here is a framework to evaluate this.
The digitisation of the supply chain enables companies to address the new requirements of the customers and the challenges on the supply side as well as facilitating them to work towards efficiency improvement in the following ways,
Speed
New approaches to product distribution can reduce the delivery time to a few hours. This can be achieved by using advanced forecasting and predictive analytics of demand based on factors like market trends, weather, school vacations, festivals etc. Forecasts are not carried out on a monthly basis, but are done so on a weekly one, and for the very fast-moving products, even every day. In the future we will see predictive shipping, for which Amazon holds a patent – products are shipped before the customer places an order. The customer order is later matched with a shipment that is already in the logistics network (being transported towards the customer region) and the shipment is rerouted to the exact customer destination.
Flexibility
Ad hoc and real-time planning allows a flexible reaction to changing demand or supply situations. Planning cycles and frozen periods are minimized, and planning becomes a continuous process that is able to react dynamically to changing requirements or constraints (e.g., real-time production capacity feedback from machines). Once the products are sent, increased flexibility in the delivery processes allows customers to reroute shipments as needed.
Business models
New business models, such as Supply Chain as a Service for supply chain planning functions or transport management, increase the flexibility in the supply chain organization. Supply chain can be bought as a service and paid for on a usage basis instead of having the resources and capabilities in-house. The specialization and focus of service providers allow them to create economies of scale. We will see an “Uberization” of transport, a crowd-sourced and flexible transport capacity, which will lead to a significant increase in the agility of distribution networks. Also, new transport concepts such as drone delivery, allow companies to manage the last mile efficiently for single and high-value dense packages.
Customisation
The demand of customers for more and more individualised products is continuously increasing. This will mean a move towards micro segmentation and mass customization. Customers are managed in much more granular clusters and a broad spectrum of products will be offered.
Performance management
The next generation of performance management systems will provide real-time, end-to-end transparency throughout the supply chain. The span of information will encompass the synthesized top-level KPIs, such as the overall service level, to the very granular process data, such as the exact position of the trucks in the network. This range of data provides a joint information basis for all levels of seniority and functions in the supply chain. The integration of the data of the suppliers, the service providers, etc. in a “supply chain cloud” ensures that all the stakeholders can steer and decide based on the same facts.
In digital performance management systems, clean-sheet models for warehousing, transport, or inventory are used to set targets automatically. To keep the aspiration of targets intact in case of supply chain disruptions, the systems will automatically adjust the targets that cannot be achieved anymore to a realistic aspiration level. We will see performance management systems that will “learn” to automatically identify risks or exceptions and will change the supply chain parameters in a closed loop learning approach to mitigate them. That enables the automatic performance management control tower to handle a broad spectrum of exceptions without human involvement and to only leverage the human planner for the disruptive new events.
Efficiency
Efficiency in the supply chain is boosted by the automation of both physical tasks and planning. Robots handle the material completely automatically along the warehouse process – from receiving/unloading to putting away to pick, pack, and ship. Autonomous trucks transport the products within the network. To optimize truck utilization and increase transport flexibility, cross-company transport optimization is applied to share capacities between companies. The network setup itself is continuously optimized to ensure an optimal fit to business requirements. Ideas like special offers for delivery time slots with low truck utilization will be tried out.
I have personally observed the amazing success of Grey Orange and Addverb in the warehouse automation space in India.
Business benefits
In financial terms, the business advantages of a digital supply chain can be expected to result in significant business benefits. Up to 30 percent lower operational costs and a reduction of 75 percent in lost sales while decreasing inventories by up to 75 percent are the expected benefits. Another benefit that will accrue from this is the significant increase in the agility of the supply chains.
Implementation
The implementation of a digital supply chain calls for an agile approach and requires two key enablers – capabilities and environment. This means building a strong team with the right skill sets and providing them with the appropriate environment. This also calls for a high degree of organizational freedom and flexibility as well as state-of-the-art IT systems to enable rapid cycles of the development, testing, and implementation of solutions. The fast realization of pilots to get immediate business feedback on the suitability and impact of the solutions, to create excitement and trust in the innovations, is also required. I cannot over stress the importance of an agile approach in today’s rapidly changing business and technology environment.
I have experienced first-hand the travails, tribulations and rewards of businesses in their digital transformation journeys, and I do hope that this article provides some useful pointers in this regard.
