Comment: Mapping the supply chain in 2018
Carillion hit the headli...
2018 has already been a dynamic and unpredictable time for the supply chain – and it’s not set to calm down any time soon.
Carillion hit the headlines in January for all the wrong reasons, with huge implications for the businesses right the way through its supply network. But it’s not just these headline events that have an impact. New technologies like blockchain and automation are breaking through and businesses from all sectors are feeling the pressure of global and economic uncertainty, while being hampered by legacy technology that prevents them from responding effectively.
Change and uncertainty are the buzzwords of the time, but for supply chains across industries it is incredibly challenging. From evolving trade barriers, Brexit and wider economic uncertainty, 2018 will continue to be a difficult environment to predict when operating a global supply chain.
Here are four areas to watch in the supply chain as businesses look to plan for the rest of this year and beyond:
1. Agile planning for economic and political uncertainty
Supply chain organisations are under pressure from all angles to constantly evolve – whether it’s to cut greenhouse emissions, respond to regional regulatory challenges, or keep pace with technological disruption. These demands place a premium on effective connected planning and the ability to change and adapt those plans quickly. Businesses cannot afford to have siloed sections of their global supply chain.
Most organisations are handcuffed though, unable to act responsively and dynamically because they are lumbered with legacy systems which are still constrained by their on-premise heritage. At the pace that the modern supply chain needs to be able to adjust, they have to be operating in the cloud with solutions that were “born online” rather than trying to force those cumbersome legacy systems to be something they’re not. The cloud allows stakeholders across the business to get real time insight into what is happening on the ground – whether that’s the progress of a supplier, customer demand or the performance of different product types.
2. Breaking planning out of the tech team
One crucial barrier to achieving connected planning that will have to be addressed in 2018 is the functional silos that businesses currently operate in - from finance, to IT, to supply chain and sales. Organisations need to think more holistically when it comes to planning and be more connected in their outlook. Recognising the need to take a more collaborative approach is crucial for success.
From a supply chain point of view for example, networks are no longer linear, but are often sprawling, complicated global spiderwebs of organisations and stakeholders. Part of the problem is that the solutions that are being used to manage these networks were designed for old supply frameworks. If a supply framework changes, the solution being used has to change with it. Otherwise the team can’t properly predict and plan for changes. More importantly, the people working on the front line do not have the power to adapt their supply chain planning models to what they need without involving the IT team or even worse, expensive third party experts. Putting planning tools in their hands will be key for success in 2018, both in the supply chain and across the wider business.
3. Linking the supply chain in blocks
While there has been a buzz in the industry for some time now around the potential of new technologies like blockchain this has, by and large, been met with a degree of caution when it comes to the immediate practical application.
Momentum has been building, particularly in finance and in food and life sciences sectors, but one major challenge is that the technology needs a specific set of technical skills that are in short supply. The nature of the technology also presents a catch-22 for widespread adoption. Because of the platform or network effect it creates, blockchain needs widespread adoption to achieve its purpose of the decentralisation of that transaction process. It will also take time to get the appropriate standards in place. Ultimately, the responsibility will lie with both the technology suppliers and the supply chain businesses to collaborate on these.
As the bigger players in each industry sign on and build momentum – something we could see over the next five years or so – then we will see the domino effect, as adoption ripples through the supply chain. Until then, we are likely to see smaller innovations and applications of the technology.
4. Hot sector to watch: retail
Getting the blend right between online and the high-street will be crucial for retailers over the next few years. That mix will vary with the types of goods the retailer sells and the market they operate in and have wide reaching implications for the supply chain – the difference between supplying one store with a truck and supplying millions of people individually, together with the challenges of reverse logistics. As that network expands, businesses are increasingly looking at virtual inventories and the importance of having that holistic real-time view of stock.
Black Friday 2017 and the festive period did not have the impact hoped for. This has highlighted to the industry that you must be able to respond quickly and be agile enough to manage peaks and troughs in activity. This is not just a reactive principle though as it’s equally important to use connected planning to predict demand signals and respond as quickly as possible to take advantage of opportunities and gaps in the market before competitors.
The supply chain is going through a period of unprecedented transformation. Businesses are having to contend with a huge range of challenges from global and political economic uncertainty, to technological disruption and a siloed supply chain network. Connecting this planning process is crucial to success in 2018 and beyond.
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.”