May 17, 2020

What is a bimodal supply chain strategy?

Bimodal supply chains
JDA
Admin
5 min
Supply chain transformation - having the competitive edge
Following the industrial revolution, over the last 35 years the supply chain has gone through a linear evolution process, spanning material requirements...

Following the industrial revolution, over the last 35 years the supply chain has gone through a linear evolution process, spanning material requirements planning (MRP), manufacturing resource planning (MRP II), distribution requirements planning (DRP), lean, vendor managed inventory (VMI), collaborative planning, forecasting and replenishment (CPFR), and business-unit centric planning. These improvements were successful and appropriate as supply chains evolved, but companies today are operating in a new world. The very backbone of the supply chain has been shaken by the digital revolution, which is characterised by innovations such as the Internet of Things (IoT), 3D printing, robotics, machine-to-machine communication, and demand sensing, among other things. As supply chains merge with IoT and big data, the one-size-fits-all, linear supply chain that “buys, makes, moves, stores and delivers” products to all customers and channels in the same lean and operationally efficient way (referred to as Mode 1) is becoming archaic and no longer adequate for future success.

The core tenets of Mode 1 are centred on operational excellence, efficiency, eliminating waste and reducing non-value added activities. This worked well in the linear supply chain when low demand fluctuation helped ensure smooth production, and a network of local suppliers helped support short lead times and just-in-time deliveries. These assumptions no longer hold true in today’s dynamic and global environment with increased demand and supply volatility.

Stability has given way to agility in business. Current political, environmental, economic events like Brexit, flooding in Thailand, and the geopolitical instability in the Middle East, have exposed the shortcomings of being lean and operating only in Mode 1. For example, Toyota, which used to epitomize the Mode 1 concept of efficiency, waste elimination and lean strategy, was caught off guard by the April 2016 earthquake in Japan. The company had a history of single sourcing a lot of components from Japanese suppliers, as well as carrying minimal inventories and spare capacity for greater flexibility in the supply chain. Yet this operational stance became a liability, forcing Toyota to shut down production lines due to parts shortage in the wake of the natural disaster.

Supply chains of the 21st century are becoming exponentially more complex due to increased mergers and acquisitions, rapid proliferation of product configurations, shrinking product lifecycles and market volatility. The outsourcing and globalisation culture has resulted in an explosion of the number of supply chain nodes, creating a multi-dimensional supply grid that represents a highly diversified and complex network of connection points in terms of physical assets, processes and stakeholders. And on top of everything, today’s consumers are increasingly demanding a personalised, consistent and seamless experience across retail, online and mobile.

To be able to serve this diverse spectrum of customers, products, markets and channels, and at the same time do so in a win-win profitable manner, organisations need the ability to act with agility, responsiveness and flexibility (referred to as Mode 2). In today’s day and age of Amazon-impacted workplace, speed and agility will make or break success. Mode 2 complements the lean strategies of operational excellence, efficiency and waste elimination that are the hallmarks of Mode 1. Mode 2 also includes the capability to control and manage the impact of variability by establishing appropriate inventory and capacity buffers in the supply chain to cushion against market volatility. This enables the organisation to be more agile and less fragile when faced with unanticipated supply chain risks such as natural disasters, currency fluctuations and geopolitical situations. Capacity and inventory flexibility acts as the risk shock absorber at the strategic planning and tactical planning level.

Adopting a bimodal supply chain strategy (by combining Mode 1 and Mode 2) will enable organisations to not only deliver a seamless omni-channel experience that accommodates customers’ rapidly changing preferences on pricing, delivery options and service levels, but also meets Wall Street’s rising financial expectations around higher revenues and margins. Hence, the combination of Mode 1 and Mode 2 provides companies with a powerhouse combination of capabilities, including lean management, operational excellence, cost savings, efficiency, waste elimination, agility, responsiveness, flexibility and risk management.

What is a bimodal supply chain strategy?

A bimodal supply chain strategy delivers profitable yet expected service for each segment of the business. Segmentation is the process of grouping a combination of channels, customers and products that have similar requirements, patterns and characteristics. This can be achieved by marrying the cost to serve for each cluster with the customer value proposition (responsiveness, flexibility, quality, price, etc.) of each segment.

Being “customer-centric” is at the essence of the bimodal supply chain strategy. For example, Mode 2 could be used to serve Tier 1 customers, which demand higher service levels and increased agility and responsiveness for the same product, relative to Tier 2 customers. Whereas Mode 1 could be used for Tier 2 customers, who want a lower price relative to Tier 1 customers. Therefore, the cost-to-serve for Tier 1 customers (leveraging Mode 2) might be higher, and would need to be compensated by a higher selling price.

No matter which mode is used, it is important to align the different supply chain processes with the overarching corporate business strategy. Let’s say the company has a business strategy that focuses on innovation and revenue growth. Mode 2, which focuses on innovation, agility and responsiveness, would be used to execute this strategy by launching new products in a particular region in order to capture market share. All the underlying Mode 2 supply chain processes — including demand planning, inventory planning, master planning, allocation planning, order promising and sales and operations planning (S&OP) — would need to be aligned.

Now that we’ve outlined the benefits a bimodal supply chain strategy can bring, the second part of this article we will explore how best-in-class organisations are making use of bimodal supply chain strategy.

By Salim Shaikh, Sr.Director, Global Industry Strategy at JDA

 

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

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.

The Challenges

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.”

 

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