Setting up the engine room to drive responsive supply chains
Gustav Mauer, EY UK Associate Partner and consumer products supply chain lead, discusses ways in which companies can create responsive supply chains.
Consumers today have moved from being passive recipients of company brands and products to more connected, conscious and participating communities. This shift has introduced a whole new world of requirements for the supply chain. Successful companies are working hard to attract and retain consumers by creating a community or ‘tribe’ within which loyal customers can participate and belong. Ultimately companies’ supply chains are required to convert their understanding of their customers’ buying patterns and product needs to provide high quality and services.
Serving the customers of tomorrow
However, recent EY research suggests most companies are still behind when it comes to digitising their supply chains to deal with this changing consumer environment. Supply chain leaders are relying too much on inventory and external capacity to respond to demand volatility. They are also only just starting to invest in more innovative data driven and effective ways to improve their services. For example, to date, digitisation has been mostly focused on the areas where efficiencies can be improved using simpler technologies, such as Robotic Process Automation (RPA). But they should be moving towards using technologies with predictive and self-learning models that can anticipate and orchestrate the supply chain on a more dynamic and real-time basis.
Organisations that will thrive to serve the consumers of tomorrow need to embrace digital technologies to help their supply chains become more responsive. This means they will need to focus more on the customer they are serving, rather than overly focus on driving cost reduction.
There are three ingredients that organisations can use to set up the engine room for effective responsive supply chains of the future:
Embrace data and digital
Leaders need to create a “bottom up” digital movement, where employees are equipped with knowledge of core analytics and digital technologies to help them to digitise their own environments and work processes. For example, a leading consumer products company that encouraged a digital employee culture had an employee who created a self-learning model that improved the quality of planning parameters. This drove a 50% reduction in effort, as well as improving the quality of the company’s planning results. Ultimately, data and digital is becoming much more of a part of how we do business, rather than just something IT helps us with.
Connect external partners
Digital technologies not only help companies improve their internal processes, they also provide a more realistic way to connect with the suppliers and industry peers. Leaders should embrace digital technologies to make full use of the eco-system of their external partners. For example, a leading alcoholic beverages company has connected their manufacturing and logistics planning systems to fully incorporate their glass suppliers’ furnaces. This means that rather than having to place forward orders every three months, which results in poor service or high inventory, they can now schedule their suppliers’ capacity on a weekly basis to synchronise with real customer demands.
Nurture a culture of continuous innovation
To truly transform a company’s digital supply chain, the nature of work must change. The workforce needs to be able to influence and be involved in how they do their work and how they use digital tools to continue to improve it. If they do this properly, they will have more time to focus on creating value for their customers and consumers. With more information and better insight, businesses can drive a new wave of innovation. Take the example of a leading consumer products organisation, which recently set a goal to have 25% of time spent on structured innovation, funded by the improvements generated through their digital initiatives. Its employees wholly embraced this concept, as it offers them more time to step out of their day-to-day activity to engage in a creative and purposeful team activity which makes a difference to their business and the way they work.
If leaders embrace digital tools, they can cut down inefficiencies and create an intelligent cognitive supply chain which can orchestrate itself. This in turn will allow supply chain professionals to spend more time focusing on understanding and serving their consumer and ultimately getting more satisfaction out of their daily work.
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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.”