The Fundamentals of the Digital Supply Chain: Awareness and Visibility
The key elements to a successful supply chain operation include awareness and visibility, responsiveness and resiliency.
As I write this post, I’m using a desk lamp from Restoration Hardware. For most, it’s a simple lamp that turns on and off and dims if the mood is right; it looks good and it works. It was designed, sourced, manufactured, shipped and sold to many satisfied customers, the majority of whom remain happily clueless about how their lamp came to be.
But for those of us in the supply chain business, that lamp represents a manufacturing triumph. We know that any little hiccup in the process can have an adverse effect on the bottom line. Did the lampshade fabric from my source in India get delayed by a monsoon? Did my wire vendor have a production issue that resulted in product quality issues and a lower than ordered quantity?
When will I find out about this, and will I be able to manage this issue without incurring large costs or delays to my shipments? These complexities can keep us up at night, worrying about what could go wrong.
I believe we can use the complexities of the manufacturing industry to our advantage. We can integrate customers, front office and supply chain operations, and ultimately understand our customers and operations as never before. But how?
When you hear the term “Internet of Things,” you might picture a self-regulating thermostat or the possibility that someday you’ll control your stereo’s speakers from your watch. These scenarios are becoming more commonplace.
In fact, Gartner recently forecasted that an estimated 25 to 30 billion devices would be connected by 2020; a conservative figure given that it excludes PCs, tablets and smartphones.
Though the IoT will impact us all on some small, personal level the big data it produces is poised to make a tremendous impact on the business world, whether that data is hosted by the enterprise or in the cloud. It’s already reshaping manufacturing supply chain strategies and enabling them in ways never previously considered.
The Gartner study cites manufacturing as the leading vertical to adopt IoT, poised to gain 15 percent of its predicted $1.9 trillion across sectors in 2020.
Companies are rightly excited about the possibilities of big data, but it’s becoming clear that just analyzing terabytes of data from business processes and transactions can deliver stale facts and trailing guidance, with a “rear-view mirror” view of your supply chain.
I mentioned awareness as one of the keys to manufacturing supply success. I define awareness as always having the ability to obtain the data you require, regardless of its point of origin, at the right time, which is the time needed to manage exceptions and capitalise on opportunities.
It also includes understanding the relationships between supplier tiers, production and supply chain processes and visibility to customer demand signals. Simply put, awareness and visibility provide a critical platform that serves as a building block for innovation.
This means that your Indian lampshade fabric supplier can provide data in standard message file formats, manually upload the same data via a mobile portal, or provide streaming sensor data from real-time production sensors.
This brings you right-time awareness and visibility at the process execution level — the lampshade vendor is experiencing a monsoon which delays his process and disrupts my production.
By integrating all these varied relationships, the IoT makes awareness possible through real-time, end-to-end visibility into your supply chain. It is a critical enabler of obtaining real-time production performance understanding, giving you the power to identify exceptions and resolve them with minimal cost and disruption.
One example of a company that is leveraging awareness and visibility to maximum effect is GE Transportation. As detailed in “The Digital Enterprise,” “GE Transportation sells locomotives to a number of railroad companies around the world.
For example, Norfolk Southern Railway displays optimisation opportunities at the network level. It uses GE’s RailEdge Movement Planner to integrate railroad logistics with traffic control systems.
This software can deliver real-time overviews of network operations from a single display. Rail operators can monitor trains using GPS, track circuits, equipment identification readers, and time-based tracking. In addition, built-in traffic management applications enable operators to manage train schedules and to respond to exceptions.
Norfolk Southern estimates that every 1 mph increase in the average speed throughout their network saves an estimated $200 million in annual capital and operating expenses. A phenomenal saving when you look at its entire fleet and its operations over the course of a year.
So while your lampshade fabric vendor and possibly his suppliers bail themselves out after the monsoon, you’ll have a backup vendor ready to go, with no time lost. In closing, it is evident that data is being harvested to give us real-time information, enabling us to make confident, informed business decisions. Suddenly, that desk lamp is looking more remarkable.
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.”