Odesma: how far can the digital transformation of the supply chain take us?
Digital transformation is all about overcoming traditional business obstacles with modern technological solutions. The phrase covers everything from going paperless to Artificial Intelligence (AI), and aims to reduce costs and time spent on a wide range of business operations.
The pace at which digital transformation is happening varies greatly between industry and region, but there is a strong case to be made for modernisation of this kind in all workplaces.
Why is it important?
In an increasingly competitive business landscape, the smallest improvements in efficiency can set you apart from the competition and make a real difference to your bottom line. Digital transformation aims to make traditional processes faster and less costly, and is an important factor in maintaining a modern, competitive and forward-thinking workforce.
There are three key themes to digital transformation: Robotic Process Automation (RPA), AI/Machine Learning and analytics in procurement. AI can augment and speed up decision making, whilst analytics can assist in making more well-informed decisions and taking the right actions. All of these enable a faster pace at lower costs.
Who is using it best?
The automotive sector, pharmaceuticals, FMCG and manufacturing are all ahead of the procurement curve when it comes to reaping the rewards of digital transformation. This is mainly due to streamlining supply chains via innovation, particularly by virtue of moving upstream to tier 1, 2 and 3 suppliers. However, the digitalisation agenda is still patchy and far from being fully integrated.
In terms of companies at the forefront of digital transformation, it is difficult to say, but the likes of GSK, PepsiCo, Goodyear, GM and Nissan appear to be ahead of the curve. Other industries have a long way to go though, especially public sector, logistics and distribution, as their digital focus is on the customer. Best of breed procurement offers significant revenue and bottom line benefits, however sectors focusing on procurement excellence have thin margins and are annually driven to improve.
The pharmaceutical industry is leading when it comes to AI, using the technology to help react faster to emerging diseases and imminent outbreaks. For example, with AI’s trend-led approach, companies have the ability to identify that a large number of people in London are complaining of flu-like symptoms on social media. This could predict an imminent large-scale outbreak, allowing the local authority and associated healthcare bodies to react quickly to what may become an epidemic. They can ensure that enough vaccines are manufactured and delivered to the areas of greatest concern, dealing with the potential problem much faster than a traditional approach based on historical data would allow.
Manufacturing is also way down the line in terms of progress, with RPA already removing the human element from decision-making. Many factories are now adopting a ‘lights out’ approach, requiring no human presence on site, and as a result are seeing increased levels of agility and leanness in business operations.
What’s holding us back?
Of course, introducing more technology into a historically human workforce brings about its own cultural challenges. One of the primary concerns surrounding technology like RPA is that it will result in large-scale employee lay-offs. In some cases this may be inevitable, however studies by London School of Economics suggest that, if RPA is deployed in the correct manner, more efficient work can be achieved by workers operating alongside technology.
As with most new technology, a lack of understanding by c-suite executives is still holding back digital transformation. Such decision-makers are, by nature, apprehensive of costs, with many thinking digital transformation is too expensive to deploy and deliver sufficient ROI. However in reality, there are impressive long-term cost savings to be made via initial investment, and this needs to be a key point of discussion.
There is also the lack of actual numbers when it comes to technology such as AI. Its trend-led approach is a stumbling block in itself for financial directors, who are much more accustomed to historical data and hard stats. Couple this with the overall lack of understanding when it comes to the digital revolution, and it’s no surprise that some leaders are shying away from the whole idea of digital transformation.
How can we realise its full potential?
Before any kind of digital transformation begins, a major educational campaign must be a priority for the c-suite. This will help key stakeholders demystify the concept and understand what they’re dealing with, getting them onboard with the idea of investment in this area. It’s also up to procurement consultants to recommend the best approach for each business based on its unique pressures and targets.
There’s no doubt that adopting a well-thought-out, targeted digital transformation strategy is imperative for succeeding in today’s challenging business landscape. Yes, there are barriers to overcome and important operational factors to consider, but the potential to achieve such substantial efficiencies should be the biggest motivation of all.
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.”