Building resilience into a Supply Chain 4.0 strategy
Companies are looking to streamline and improve supply chains, but are also under pressure to manage supply chain disruption and meet corporate social responsibility requirements associated with their supply chains. All of this has only been heightened by COVID-19, but companies can build resilience into their supply chains by digitising their infrastructure with IoT.
Disruption is here to stay
Technology is rapidly changing every element of industry and enabling the agile adaptation of supply chains for challenge after challenge, from tsunamis to trade-wars and now a global pandemic. Today, disruption is the new normal, and it is affecting supply chains more frequently. The magnitude and frequency of this disruption has been escalating, partly due to the globalisation of supply chains, and new risks presented by geopolitical and climate change issues.
Disruption is here to stay, yet those that take advantage of disruption and changing demand are more likely to succeed. While manufacturers have suffered with supply chain disruption, online retailers such as Amazon have profited. The shift online has required many businesses to hastily adapt their business processes to ensure survival.
Prioritising supply chain investment
Supply chains have proven, especially with COVID-19, that if they are resilient and flexible, they can be instrumental if not vital to recovery. More than ever before, supply chains are on boardroom agendas due to their impact on global businesses and CSR. Traditional supply chain modelling and optimisation are changing and old assumptions, such as prioritising cost reduction, are becoming less important.
Companies are actively looking to mitigate risk. In the past suppliers were kept at arm’s length and supply chain improvements were deprioritised as they were not regarded as critical for the profit and growth. Today the focus is investment to mitigate risk and increase resilience for rapid recovery, and profit restoration. COVID-19 has been the catalyst to more businesses understanding the magnitude and importance of investing in a supply chain. Costs may increase, but so too can the chance of business survival.
Resilient supply chains not only recover from destruction, when done correctly, with the right level of investment, a robust plan and systems in place, supply chains become a source of competitive advantage and open up new and interesting marketplaces or valuable segments.
Agile, digital, connected, responsive and able to rapidly recover
When companies proactively invest in supply chain resilience, they typically manage to reduce risk exposure. However, investment in building resilience must be well planned, with resilient supply chains having five common characteristics, agility, digitization and connectivity, insight and the ability to rapidly recover.
An agile supply chain network has a flexible ecosystem of suppliers and partners where materials can be swapped, and a dual or triple sourcing strategy is adopted. There is evidence of a shift to this strategy as companies move manufacturing away from China. Companies moving capacity creates smaller more nimble manufacturing sites, which are more agile, and more able to adapt to challenges and change.
Industry 4.0 connectivity and digital transformation are creating agile operations that are more capable of responding to disruption and recovering from it. Warehouses and production lines can be fully automated, while autonomous vehicles can be used for short distance deliveries; these and other technologies, especially those based on digitisation & IoT, are providing supply chain flexibility.
This agility can help efforts to manage market volatility, especially in industries that track assets. These firms are moving towards more outsourcing or pooling, which releases capex and reduces the risk of volatility of demand.
Critical to building a resilient supply chain is the adoption of cloud-based supply chain applications, with plug-and-play interfaces for connectivity. Regardless of the manufacturer, if apps and devices are interoperable, they can be used widely to drive deeper data. Anything from raw materials through to finished product, and the vehicles that transport them, can be digitally tracked and traced, providing complete supply chain visibility of product and asset movement, to identify and respond to disruption faster.
Connectivity, or full visibility, is achieved in supply chains that are totally digitised, even operating a ‘control tower’ model, where companies have control centres to manage their supply chains. The set up resembles an airport control tower with screens flashing with continuous updates about raw and finished material, orders and production levels at manufacturing sites. Whether you own this control tower or a third party manages it for you, this model provides complete local visibility, even of global supply chains, resulting in faster reaction times when problems occur. This visibility is critical to ensure companies respond quickly to avoid being affected detrimentally. But with digitisation comes cyber risk too, so security needs to be firmly factored into a resilient supply chain strategy. The data derived from full digitisation has deep tactical and strategic value so defining a clear evaluation model is critical.
Using data analytics is critical to resilience, as it provides insight into the supply chain and enables teams to build forecasting, scenario planning and early warning systems. As the pandemic evolves, the use of continuous scenario simulation ensures that supply chains are clear on next steps in a number of different situations.
Finally, by empowering teams to problem solve wherever they are, we build company cultures that decentralise decision making. Teams on the ground decide how to deal with a situation while feeding data back into a central command, helping a business understand and manage crises quickly.
Ian Terblanche is Strategic Sales & Channel Director at Sigfox
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”