Manufacturers are going all out to forge disruptive supply relationships
Manufacturers operating in high-value sectors such as the aerospace and automotive industries are going all out to forge relationships with businesses in other sectors in order to secure a clear, competitive advantage.
In today’s fast-developing markets, businesses across many industry sectors realise that continuing to do what they do is no longer enough to achieve sustained growth. To maintain and grow their market share, they need to think laterally about their business structure and, in particular, their supply base. By teaming up with businesses operating in other sectors, some are finding novel ways to align their products or services more closely to the needs of the end user. For example, in the automotive sector, powertrain and chassis refinements are taken as standard and consumers are increasingly looking for differentiators that car makers are unable to produce for themselves such as in-car infotainment systems.
Leading the way, a number of automotive and aerospace manufacturers have recently established some innovative supply partnerships. These relationships are designed to import the expertise necessary to either make existing products or services more appealing to the end user, or to develop new ones.
Toyota’s strategic alliance with technology-led Kymeta Corporation has recently resulted in the launch of a new research vehicle equipped with satellite antennas. The overall design is lighter weight than earlier prototypes and the flat-panelled antenna technology can be easily built in to the vehicle so it doesn’t have to be on the roof. In the aerospace sector, Airbus has also recently teamed up with Uber – an unlikely collaboration on paper – to develop an on-demand helicopter service capable of competing with US operator, Blade.
These businesses are demonstrating how a bit of lateral thinking and a clear sense of what end users want can create some unlikely and yet productive partnerships. This type of cross-sector collaboration is becoming increasingly critical to businesses in sectors where fast-developing technologies are disrupting or threatening to disrupt the marketplace.
In the automotive sector, Apple is already well on the way to developing its own driverless car and Google has already been showing off its latest technology with its own self-driving vehicle. These technology-led businesses could easily steal a march on the more established players if they are first to market. Some are already involved in mainstream production due to their investment in the development of infotainment systems, which have replaced the inferior systems originally developed by vehicle manufacturers.
For all high-value manufacturers operating in these sectors, it is now business critical to establish supply partnerships that will enable them to work together to innovate new products and services and bring them to market more quickly. Moreover, it might be a chance for manufacturers to reclaim the upper hand in the innovation race, having lost ground to their first tier suppliers.
Of course, there are significant risks attached to such supplier collaboration. For example, when inventing new products or services, things may not go according to plan and there is greater scope for failure. There is also a risk that managers take their eye off the ball when it comes to managing existing supply relationships.
When forging cross-sector partnerships, larger, more established businesses have more to lose and this should be taken into account. For example, problems can arise if light-footed tech partners get too involved in the production side of the business. It makes sense, therefore, to separate out R&D from industrialisation and manage them separately. This approach will also help to minimise any risk of disruption to existing supply chains and increase stable revenue streams for tech companies.
Depending on their attitude to risk, some businesses may be reluctant to establish partnerships with organisations that lack market knowledge, or are less established and have different operating systems.
While these concerns are valid, there is more to gain than to lose. In the past, businesses may have become more efficient by consolidating their supply base but this isn’t going to be enough to secure growth in the future. Taking a cross-sector approach to innovation has the potential to deliver value far beyond any current capabilities.
Julien Brunel is senior consultant and automotive sector specialist at Vendigital
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.”