The future of the manufacturing supply chain - Q&A with GT Nexus
Supply Chain Digital speaks to Diane Palmquist, Vice President of Manufacturing Industry Solutions at GT Nexus, who covers such diverse topics as sustainability, the Internet of Things, and re-shoring
SCD: How can manufacturers ensure that the improvements they make across their supply chains are sustainable?
Palmquist: Long term sustainable improvements require a long term strategy, rather than a bolt-on initiative. This means rewiring the connective tissue between trading partners and stakeholders to deploy a network for multi-enterprise visibility and collaboration.
Having ‘sight’ and certainty of what is going on in the supply chain and, ultimately, foresight is crucial. In today’s world of complex supply chains companies have to respond swiftly to sudden changes and unforeseen disruptions and transparency is critical in battling these challenges.
SCD: Could you expand on why it is important that demand-fulfilment is carried out in real time? How can manufacturers achieve this?
Palmquist: Manufacturing is becoming increasingly outsourced, while customer demands are increasing. In many cases, the challenge goes beyond fulfilling, but fulfilling profitably, hence the need for real-time demand fulfilment. Integrating supply chains, logistics, marketing and production are becoming increasingly important. With a single source of truth around orders, shipments, inventory and demand, organisations can make faster moves, driving agility to give competitive advantage. Segmentation strategies will become increasingly important in order to effectively achieve the right level of demand fulfilment. A one-size fits all supply chain does not work with for example, luxury goods should differ dramatically from those products requiring basic replenishment at the lowest possible cost.
The challenge is putting all of that data to use. The IoT and data are useless if they can’t be deployed for optimising decisions and strategies.
SCD: To what extent will there be a move to re-shore manufacturing?
Palmquist: As the cost of labour increases in offshoring hubs, many organisations are realising that re-shoring or near-shoring can have advantages. Often manufacturers will see around 49 to 50 percent reduction on delivery lead times, and about a 30 to 40 percent improvement in overall on-time delivery accuracy. Producing locally to sell locally better serves local markets while maintaining low costs, which means moving closer to home in 2016 will seem like a logical step
SCD: Could you provide examples of how IoT technology has benefitted manufacturers?
Palmquist: A company like General Electric (GE) used to only make stand-alone physical engineering equipment like MRI machines, airplane engines, and oil drills. It sold them, and sold support contracts for them. Now, GE has pushed its IoT initiative, the Industrial Internet, to sell outcomes-based services to its clients, guaranteeing that GE’s smart machines and big data analytics — delivered through its own cloud-aware software platform — will provide specific, measurable efficiencies. GE has evolved from a being more than just a physical asset company. It’s now a data company.
Macy’s recently deployed sensors throughout its flagship stores based on Apple’s iBeacon (Bluetooth low energy) technology. As customers walk around to different areas of the stores, the iBeacons present relevant deals on their smartphones. By seeing what sorts of deals and products provoke customers to respond, Macy’s can make changes to its assortment. In this way, IoT technologies like iBeacons can directly capture customer demand, and as they roll out, they’ll impact inventory and omnichannel strategy, which have their foundations all the way up the supply chain. Companies will need to focus on agility, and the ability to adjust on a dime to changing demand, in order to serve an IoT-equipped retail world.
SCD: What are the challenges facing today’s manufacturing supply chains?
Palmquist: For manufacturers, looking ahead to the IoT is a smart move that can inform the way they solve major problems today. IoT models can feed real-time data into predictive models, aligning production with actual demand. Often, getting ready for adopting a new technology is painful. But in this case, it doesn’t have to be. Preparing your manufacturing supply chain to take advantage of the IoT means getting your centralised visibility platform in place to handle the IoT’s big data. There are already well-established ways to do just that.
Manufacturing today is tough because demand is capricious. Markets saturate. Geopolitical events disrupt commerce. Emerging regions develop. Companies are discovering they need to stay on their toes to eke out a profit. Gone are the days of simply creating a good product and selling it. These days, process matters just as much as product. Supply chains need to be agile and adept in order to deal with volatile demand.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector