Profitable Agility and Resilience in Supply Chain Execution
Synopsis: Imperatives in an Unpredictable World
The Covid-19 pandemic has confirmed what we already knew: modern supply chains must be built on a foundation of extreme agility and responsiveness. The sudden onset of Covid-19 only reinforced what supply chain professionals had already realized: uncertainty is the only real certainty.
In an age of great volatility, agility has become the new competitive differentiator. In their time lean manufacturing and just-in-time were game-changing concepts. In 2021 it is an entirely new game. Sudden demand spikes, precipitous demand drops, supply disruptions, production line shutdowns and other events can only be managed by early prediction and real-time responsiveness.
Detection and Response Challenge
What makes detection and response capabilities harder to achieve?
Supply chains are today increasingly more complex, with global footprints, multiple selling channels and extreme levels of competition. The arrival of unforeseen disruptors, like Amazon, gives an entirely new urgency to the phrase “just in time.” Same-day or next-day delivery is now a cultural expectation!
Product categorization has become much more segmented and differentiated. To meet the growing personalised customers’ expectations, company product lines have grown exponentially. Supply chain execution is required to distinguish between the high runner purchases and the slower-moving products customers are willing to wait for.
Going Digital to Interact with Your Ecosystem
A new hyper-focus to meet customer expectations is creating pressures upstream in the supply chain. Manufacturers need to extend visibility and collaboration beyond their own walls to avoid any disruptions. To improve the entire network’s responsiveness and shortened lead times, trading partners need to work more closely to achieve a seamless product flow throughout the supply chain. This extends across all fulfillment channels, with end-to-end visibility and an eye toward fact-based, profitable decision-making.
Only by creating a new digital ecosystem will these and other changes shape supply chain models. Digital technologies can increase visibility, collaboration, speed and responsiveness ― all of which are critical in enforcing agility and resilience as core capabilities.
But what is the progress with digital transformation? In a study of logistics providers conducted by Fraunhofer IML, only 36% of organizations reported having a clear overall plan for digital transformation. With 52% of respondents working on individual digital projects but lack an overarching corporate strategy. And 9% have not yet begun to actively implement digitalization. For those working on digitalization initiatives, the survey showed that only 25% are leveraging digital technologies to think outside the box and reinvent their foundational delivery model.
Forward-looking companies understand that digital transformation is their means to reinvent themselves, leapfrog the competition, increase agility and establish themselves as strategic, long-term partners with their customers.
In a 2018 article published by McKinsey, the consulting firm, noted that despite inherent challenges, the payoff of digitally enabled agility can be staggering. “For companies that aim well and execute effectively, the resulting cost reductions could be transformational. We estimate that productivity gains and cost savings alone could deliver near-term impact of 200 to 600 basis points of margin expansion across advanced industries, worth $200 billion to $500 billion.”
The journey to Profitable Agility and Resilience
The Secret to Achieving Agility and Resilience
The secret to agility, is to use highly accurate real-time demand. This creates supply and execution insights to form value-add decisions across the end-to-end supply chain. Creating a demand-driven supply chain means ingesting and interpreting large volumes of data. Using advanced cloud-based computing and edge computing, make data-based decision easy and cost-effective.
A Morgan Stanley report highlighted the growing importance of data, leading to the huge investments companies are making as a result. “In the ‘Data Era,’ we see the potential for accelerating IT investment after nearly two decades of underinvestment in technology, driving incremental IT investment to double over the next 10 years to $1.5T+ from ~$750B that was added in each of the prior three cycles on average. In fact, IT spend as a percent of business capex crossed over the prior ~10 year average in 2019 and we see that trend extending in early 2020,” according to Morgan Stanley report in June 2020.
Most manufacturers have ranked increased transparency and collaboration as one the key aspects impacted by the COVID-19 crisis. In a study by IDC, 68% of respondents indicated that they need to revisit their operating models. They would consider more automation, contactless solutions, transparence/greater trust (e.g., blockchain), and video-based collaboration/content sharing. Whilst 50% of respondents agreed that their use of data/analytics/AI/ML will be central to adjusting more effectively to dramatic supply chain disruptions.
As the planning and execution functionalities converge, the demand data should be shared upstream with suppliers and other trading partners. This creates a unified fulfillment strategy, a unified logistics execution, and a collaborative response to any deviations from plan. The same should also be deployed downstream. In a hyper-connected scenario of the future, entire networks can proactively sense and respond to potential supply chain disruptions. As we have seen, such causes are many – natural disasters, pandemics, even local weather turbulences, port congestions, equipment failure, capacity shortages and labor shortages. Connected via a common technology platform, the end-to-end supply chain can also respond to unexpected demand volatility caused by social media, news reports or special events.
The Improved Way
Companies have struggled to keep pace with increasing product customization and delivery expectations, whilst also managing extreme volatility. Many have been led to make ambitious promises that delighted customers but significantly eroded profit margins. Organizations investing in solutions that offer little more than knee-jerk reactions, resulting in net losses. They do not realize that profitable agility relies on “core capabilities” and not simply “visibility.”
The new concepts require:
• Digital supply chain execution capabilities in transportation, warehouse, labor and fulfillment
• Digital control towers fueled by artificial intelligence (AI), data science and analytics
• Strategic product segmentation, sourcing and inventory management
• Effective pricing and promotions management
A 2018 survey by GEODIS, noted only 6% of supply chain professionals worldwide believed their companies had achieved supply chain visibility, 70% of respondents described their supply chains as “very complex” or “extremely complex.” Network complexity, coupled with lack of transparency, are key reasons that decisions are often made in the name of speed, with disastrous implications for profitability.
The realization that digitalization of complex end-to-end supply chains, can deliver profitable agility, is a visible growing trend. Digital control towers help to increase visibility across the end-to-end supply chain, a significant enabler to make profitable, well-informed decisions.
To enable hyper-connected and complex supply chains deliver profitable agility, a combination of several technologies are required. This can be achieved by unifying logistics and digital control towers, enabled by AI and machine learning (ML), to:
• Create accurate real-time forecasts,
• Sense disruptions at the earliest stage,
• Make intelligent materials and logistics sourcing decisions, and
• Optimize supply chain execution and minimize both delivery time and costs.
“Intelligence-sensing”, will proactively identify disruptions and recommend early warning resolutions to avoid supply chain risks and vulnerabilities. Analyzing real-time insights and historical performance using AI, delivers key metrics on availability and service levels. This impacts positive profit growth, optimised production and delivery costs.
The Role of Trading Partners
Supply chain are often characterized by blind spots, caused by lack of collaboration between trading partners. This is often due to lack of key information – product location, available-to-promise inventory or a realistic customer delivery date. Such blind spots are priorities to be removed.
A survey published by Council of Supply Chain Management Professionals (CSCMP), sighted that systems and/or processes were the single greatest barrier to supply chain innovation and improving customer experience. Also 46% deemed “most innovative” in the study reported having 80-100% electronic connectivity with their trading partners.
Supply chain partners unable to share data, will struggle to find a common ground and respond to customer demand and supply volatility, in an effective and collaborative manner.
Adoption of IoT, AI and ML, gives critical information, to create true visibility and responsiveness across the supply network. Trading partners can see potential product flow disruptions, while gaining alerts of potential impacts. Having upstream supply visibility, partners can also recognize downstream fulfillment issues. The Fraunhofer IML study, 81% of logistics service providers say that market demand for digital collaboration and transparency along the supply chain is a “very strong” (36%) or “strong” (45%) influence on their business.
Real Value-add Actions to consider
Importance of supplier visibility is also illustrated in an IDC study . Generating visibility to the upstream value chain, — an area increasingly considered essential in building resilience and operational agility ― was cited by 45% of participants as a “top five” priority for their organization over the next three years. Investing in business-to-business (B2B) logistic networks and other networks enables improved resilience in the face of inevitable supply disruptions and provides organizations with more time to react.
As hyper-connected supply chains are technologically enhanced, they will support profitable agility. Leveraging on unified logistics and digital control towers, enabled by AI and ML. This creates accurate real-time forecasts, senses disruptions at earliest stage, makes intelligent materials and logistics sourcing decisions, optimizes supply chain execution and minimizes delivery time and costs. Upstream sensing intelligence will proactively identify disruptions and deliver recommended resolutions to eliminate supply chain risks and vulnerabilities. Learn more about how to fulfill this vision.