ToolsGroup: The digital supply chain tipping point
Unlike other areas of business that are digitally transforming, supply chains operate in the realm of physical objects. While this makes digital transformation impossible to fake in supply chain, it also means real successes are tangible and visible. At the recent Gartner EMEA Supply Chain Executive Conference I attended in Barcelona, companies and analysts shared their views, success stories and challenges in merging digital and physical supply chains. Their testimonies add to my growing sense that a tipping point is near. These five takeaways from the conference summarise why:
1. You don’t have to choose between cost or service. Conventional wisdom says that in order to improve service levels, your costs need to go up - and vice versa. We strenuously disagree with that having worked with hundreds of companies to raise service levels while lowering their costs. Modern technology that supports advanced, predictive methods like probability forecasting enables planners to hedge their inventory bets and find that optimal ‘sweet spot’ of cost and service. So I was delighted to hear Gartner analyst Paul Lord challenge the conventional wisdom. He shares our view that an aligned, holistic approach to inventory planning, beyond individual sites and functions, can lead to genuine cost optimisation.
2. Winners are thriving on supply chain complexity. A perfect example of a customer of ours finding that sweet spot is MANN+HUMMEL, a leading air filtration products manufacturer, which presented at the conference. It had a tough mandate to maintain a high parts fill rate while reducing inventory levels. Sergio Bellacicco, Vice President Global Logistics, Automotive Aftermarket shared his company’s journey to satisfy both sales and finance amid the complexity of multi-echelon spare parts logistics. It used advanced supply chain planning software to optimise planning for its slow moving items and reduce the complexity of its multi-echelon supply chain. The result was inventory levels slashed by 12 percent in less than four months and end-to-end network visibility for a more efficient operation. In his talk, Sergio credited automation with being a critical ingredient for success. He makes sure his team understands their roles are changing and that it’s critical for planners to “lean on the machines” for better outcomes and greater productivity.
3. As trust in AI-powered automation grows, so does its application. Today, demand forecasting, supply planning and demand sensing and are the top three use cases where machine learning is being applied successfully. This is only the tip of the iceberg as Gartner predicts that, “by 2020, 95% of SCP vendors will be utilising supervised and unsupervised machine learning somewhere in their SCP solutions.”
Several speakers at the conference emphasised the importance of delegating more tasks to the machines in order to make better decisions, faster. Without question automation will replace some tasks and roles, however the ones that remain will be far more desirable and successful. This is confirmed in a report by the Gartner community SCM World called Anticipating the Future of Supply Chain Work, which said: “High value-adding tasks requiring creativity and problem-solving will replace those that are low value, routine and mundane.”
4. One-sized fulfilment strategies don’t fit all customers. Despite all the hype around drones and same-day, or even same-hour delivery, not all customers care mainly about speed. In a particularly interesting session, Gartner analyst Tom Enright posed the question “Is fulfilment speed a ‘race to the bottom’?” It revealed that customers care about other factors including cost and environmental concerns like the use of recyclable packaging and air miles. As a result, fulfilment is changing, including direct to consumer, dark stores, and city hubs. The key, explained Tom, is having the analytical capability to position inventory across the network to fulfil changing demand. You need a richer, more credible demand signal to make it happen. It all comes back to understanding your customer demand, and delighting them by providing the items they want when they want them.
5. Digital transformation requires *serious* change management. Though this may sound obvious, the significant level of aversion people have to change often goes underestimated. We are currently running a research project to measure progress in digital supply chain transformation. Early findings reveal that two of the biggest obstacles are fear of change and the skills gap. This matches Gartner’s revelations at the conference of a huge industry talent gap and the urgent need for planners and other supply chain practitioners to develop strong communications, decision making and change management skills. Gartner also said that more than 50 percent of CSCOs said that having no roadmap is the biggest roadblock to supply chain digitalisation. Fear of change is therefore compounded by having to travel an uncertain path to an unclear destination. The bottom line: businesses must start now to build phased digital visions and roadmaps that take culture, talent, and customer desires as well as technology enablers, into consideration.
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.”