Disruption in Supply Networks – How intelligent network platforms optimize for variability and uncertainty
As we know, technology really isn’t what it’s all about. We’re looking for business value, and that ultimately comes from solving endemic business problems in your supply network. Recent events, such as the pandemic and the Suez Canal blockage, have made people realize they don’t really have as much visibility and control over their supply chains as they thought. And as we learned, this leaves supply chains extremely vulnerable to disruption. How do we anticipate, mitigate, and manage disruption to supply chains, while maximizing the value to all parties?
The Problem with Today’s Supply Chains
A big part of the problem is that today’s enterprise-centric software was never really designed for business operations across today’s complex business networks. I used to design enterprise resource systems (ERP) systems, and the first ones weren’t very powerful. We had to break them up into a lot of different modules, such as production management, order management, procurement, MRP, etc. They were designed to be enterprise-centric hub and spoke systems. They were never really designed for network business operations. And that’s a huge problem.
Consider the traditional cab company. It was a hub and spoke model. You could only transact with the dispatch office; you could not see or transact with all the drivers. You didn’t have any visibility. You didn’t have multiparty transactions where you could do financial settlement with any driver. And you didn’t have good asset utilization.
Multiparty Business Networks
What you really needed was a network — a multiparty, many-to-many system, where every rider can see every driver, and every driver can see every rider. That’s what Uber is, and it’s why it has revolutionized the business. It’s why it can assign the driver to the customer, optimize the assets, provide full visibility and control, and have automatic failover. If one driver drops out, it would be an autonomous agent (i.e., the system itself), that assigns another driver, and do it in near real time.
That’s a business network operation. Multiple parties with full visibility and transactability between every member in the network.
It’s a new way to think about business. And if we want to avoid and minimize future disruptions, that’s how we all need to start thinking in the post-pandemic normalisation.
At One Network Enterprises, we’ve applied that type of new thinking to what’s happening in supply chains and supply chain networks.
With today’s disconnected planning and execution workflows, both within the enterprise and across the tiers of supply, you have multiple disconnected algorithms and optimization engines. When we look at the old-style supply chains, there are approximately 20 different optimization engines, where each of those nodes connect upstream and then downstream. They are all localized. They are all trying to find a local optimum. They’re not really working as a network to optimize the entire process and provide benefit for all trading partners in that ecosystem. Yet that’s really where the value lies and that’s what we really need.
The Cost of Doing Business as Usual
If you really want the highest customer service levels at least landed cost, with full control to anticipate and respond to disruption, you’ve got to have a trading partner ecosystem. Disconnected algorithms won’t work, because you lose visibility,
and then to compensate, you need armies of planners and inventory buffers. That’s a very expensive way to operate.
With a network-based strategy, you not only see the logistics, transportation planning, and execution, but you can also see the order. For example, you have visibility into a container on the ship, see what orders are in there, and can reallocate if you need to – so that you can optimize services levels and costs. You can have visibility to orders on a truck, and can facilitate order aggregation and cross-dock if you need to.
It’s much easier to improve your on-time in-full (OTIF) performance, and thus comply with Walmart’s new edict, because you’ve got the OTIF information, so you can benchmark against the perfect order. A network platform gives you the ability to see transportation logistics and orders in the same transaction. With the network approach, you no longer need extra expeditors, planners and schedulers, or
This is the potential value that available with a network platform. You can alleviate disconnects and stale data that results in poor optimization. You also eliminate fake delivery lead times going downstream which lead to poor decision making. It’s very difficult to plan and execute without an integrated network where you don’t have visibility beyond the DC or warehouse.
Legacy systems result in poor visibility, inadequate models for decision making that are over simplified, and they’re using stale data and gross averages. Furthermore, inventory buffering is required to meet demand and service levels, because the supply chain is not real time and can’t respond.
These legacy systems can typically only be configured for a two-party transaction, not a multiparty transaction. Yet the real world is multiparty with 3, 4, 5, or even more parties involved in a today’s multi-leg, multi-modal global transactions, whether we’re doing planning, collaboration or execution. And today’s business network platforms are designed with just this type of capability.
Core Principles of Networks
A network platform is really all about flow and guided resolutions when flow gets disrupted. There are eight core principles that underpin the network.
1. Full business network representation. With One Network’s Real Time Value Network, every party can be represented – suppliers, customers, co-manufacturers, logistics providers, customers brokers, and more. It spans from the end-consumer (whether that is ship direct-to-consumer or retail), all the way upstream through your manufacturing and tier two suppliers. Now you’ve got full end-to-end visibility.
2. Full actionability. With visibility you also need actionability. There are going to be disruptions to flow, and you’re going to have variations in demand and supply, whether it’s in the S&OP horizons of 12 to 18 months, or on a shipment this afternoon, you need actionability to respond to that. With the help of intelligent autonomous agents, we can spot exceptions and see alerts across our network, we can go ahead and resolve for those in the network and therefore execute for least landed cost at highest customer service levels.
3. Process learning and execution at scale. In many of our network deployments, we have millions of SKU buffers that we’re optimizing autonomously. Like Uber, when a driver drops out, you get an automatic reschedule of a new driver, and you have full visibility to that, so you need autonomous agents working in the background in your supply chain. On One Network’s platform, these autonomous agents are called NEO, and they operate autonomously or by interacting with users, to resolve problems.
4. Full prescriptive resolutions. Autonomous agents can find a lot of potential issues in large supply chains, so we need the system to automate as many of the resolutions as possible, to truly optimize the network. NEO agents give you the ability to look the predicted result of enacting a certain resolution, with the expected financial impact if enacted. The difference with a network-based approach is that these optimizers run at the network-level for the best overall solutions. You’re not solving exceptions one-at-a-time and sub-optimizing.
5. Dynamic “Day in the Life.” Because it’s dynamic, you’re dealing with demand-driven real time data up and down the network across all trading partners. You’re able to make dynamic real-time decisions based on what’s happening right now.
6. Self-adjusting supply chain. If you look at things like inventory buffer policies, over time you can make monthly or quarterly adjustments to policies based on what is driving better and improved results.
7. Benefits all parties. Unlike a hub and spoke system, a network provides value to all organizations, not just a central hub. Consider the new edict from Walmart on OTIF. If you can’t hit 98% on-time in-full, they may charge you 3% cost of goods sold. Most suppliers are only running in the mid 80% range for OTIF, so this is a big problem. A network platform enables companies to hit these targets, without shifting the costs. It’s not all about you having to carry more inventory, more expediting, or more capacity. It’s in the nature of the network that it improves the environment for all parties.
8. Embrace or replace existing solutions. Obviously, companies today have many systems in operation, and these need to be connected to the network platform and leveraged and enhanced, or the network must be able to replace that functionality. One Network’s platform enables your systems to work in tandem with the network services on the platform, or it can perform the needed functions itself. This means you can continue to run legacy systems and then enable services on the network, and then phase out those redundant systems one by one, if you choose.
The Value of Solving the Problem with a Network-Based Strategy
Global businesses are recognizing that enterprise-centric, siloed approaches no longer work, and that network-based strategies are needed to solve today’s network-level problems. Many of the analyst firms have been talking about the problems of enterprise-centric thinking and the benefits of solving it, for years. McKinsey is projecting a 75% reduction in lost sales, 30% reductions in transportation, warehousing, 80% reduction in supply chain administration.
At One Network, we’re seeing these kinds of improvements, though sometimes not as drastic as Uber, where they eliminated all the cab dispatchers, but the impact is still substantial.
We had a large consumer goods company on our network platform. They were typical, carrying 65 days of inventory from retail up through manufacturing. Promotions have a big impact, and 40% of their volume was on promotion, 60% was on base. On promotion, they only had 80% on-shelf availability.
Once they went on the network, that 65 days of supply dropped down to 25 days. The promotion items in-stock went from the mid 80% range to 99%.
So, with a network-based strategy and a true multiparty network platform, you get to have your cake and eat it too, improving service levels while reducing operating costs and ultimately boosting financial performance.