May 17, 2020

Comment: Industrial supply chains continue to evolve

Supply Chain
supply chain finance
spend analytics
Supply Chain
Peter Cook, PrimeRevenue
4 min
Companies are implementing supply chain finance or supplier early payment programmes
In this age of ever-increasing competition, trade wars, tech-driven disruption and sustainability considerations there is more urgency than ever for com...

In this age of ever-increasing competition, trade wars, tech-driven disruption and sustainability considerations there is more urgency than ever for companies to strengthen their supply chains. One of the ways in which companies are increasingly looking to achieve this is by implementing supply chain finance or supplier early payment programmes.

These programmes typically allow companies to optimise their own working capital whilst simultaneously injecting liquidity into their supply chain ecosystem. The programme provides suppliers access to cash earlier than they might otherwise achieve, at a discount typically less than the cost of financing their receivables on bank facilities.

The challenge, however, is to ensure that the programme is as dynamic and scalable as the ecosystem in which the company operates. The key here is to understand and appreciate that the supply chains of multinational businesses are rarely static and rather tend to evolve in response to, amongst other things, organic growth strategies, acquisitions, changes in regulation and legislation, shifts in global demand and moves to lower cost production sites.

A good example of where shifting dynamics in a global supply chain ecosystem can be observed is in the automotive sector. The rapid pivot to e-mobility (as well as the shift to outsourced mobility) is forcing automotive OEMs to reconsider their strategy from several angles.

The disruption caused by niche manufacturers such as Tesla, mobility players such as Uber and tech companies like Google, means that traditional OEMs are increasingly focussed on re-tooling their production lines, investing in R&D, taking cost out of the business and becoming as capital efficient as possible in order to remain as agile as possible.

So how can companies respond to these challenges by implementing supply chain finance programmes that are adaptable and scalable? The answer lies in the capabilities of the provider.

Traditionally supply chain finance is too inflexible to cope with the change

The supply chain finance space has historically been dominated by bank providers. These providers had the advantage of easy access to liquidity, a proprietary platform to facilitate supplier trading and a network of clients, which helped in the proliferation of supply chain finance as a concept amongst both buyers and suppliers. In certain circumstances this model still works well today, and many banks continue to offer competitive supply chain finance products.

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However, when faced with a rapidly evolving supply chain ecosystem, supply chain finance provided by banks has its limitations. The first issue is that, in my experience, banks still tend to operate in silos when it comes to credit assessment, appetite for supplier on boarding, legal agreements and even technology platforms. Furthermore, supply chain finance within a bank is usually one product competing for airtime and investment amongst many other products, rather than an end-to-end solution.

Secondly, banks operate under increasingly significant regulatory constraints. This can affect their ability to offer certain products in certain markets, particularly where those regulatory changes or constraints affect the capital treatment, meaning a bank is more likely to take the decision itself to pull out of particular products and/or markets.

Finally, most banks have limited capabilities when it comes to covering the jurisdictions, currencies and number of suppliers demanded by companies faced with rapidly evolving and expanding supply chain ecosystems. International banks tend to work predominantly with corporate and institutional clients outside of their home markets and have limited capacity and appetite for smaller suppliers. Conversely, local banks are better at covering medium and small suppliers, but lack the ability to offer global or regional visibility meaning a fragmented structure which is not scalable.

There is a better way

All of these factors necessitate a better solution for providing supply chain finance. Companies should now have an expectation that SCF providers will take a broader view of their supply chain ecosystem, not just looking at their own client, but also to that client's suppliers and customers. They should also expect to be able to offer supply chain finance in multiple jurisdictions without having separate logins to different technology platforms.

Companies should expect that they can work with one global solution and bring in the optimal mix of liquidity, currencies, supplier coverage and jurisdictions. Not only that, but when the supply chain ecosystem materially changes, as it undoubtedly will, companies need to know that their solutions will flex and scale to accommodate those changes.

When companies are assessing supply chain finance as a mechanism to strengthen the supply chain, it is important that they have a plan for how they will address the challenges of a rapidly evolving supply chain ecosystem. Choosing a provider that is agile enough to adapt and scale the challenges of tomorrow could make all the difference.

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

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.

The Challenges

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.”

 

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