Natural disasters. Geopolitical events. Tariffs and trade regulations. The rise of ecommerce. The growing influence of social media. Prior to 2020, every supply chain in the world was challenged by increasing levels of demand unpredictability and market volatility. The sudden onset of COVID-19 only reinforced a lesson that supply chain professionals had already realized: uncertainty is the only real certainty.
The COVID-19 pandemic has only confirmed what we already knew: modern supply chains must be built on a foundation of extreme agility and responsiveness. In today’s age of great volatility: responsiveness, agility, and resilience become the new competitive differentiators. While lean manufacturing and just-in-time were game-changing concepts when they were introduced, agility and resilience must be taken to an entirely new level post pandemic.
There are Also Commercial Reasons
The definition of agility and resilience will continue to evolve. The hyper-focus on meeting customer expectations is also creating pressures upstream in the supply chain, as manufacturers extend visibility and collaboration beyond their own walls to avoid any disruptions. To improve the entire network’s responsiveness to increasingly shortened lead times, trading partners are working together to seamlessly manage product flow throughout the supply chain and across all fulfillment channels ― with end-to-end visibility and an eye toward fact-based, profitable decision-making.
In addition, product categories are much more segmented and differentiated than they were previously.
To meet customers’ growing expectations for personalized offerings, the typical company’s product lines have grown exponentially. This means supply chain and logistics professionals need to distinguish between more frequently purchased products and the slower-moving products customers are willing to wait for.
The Road to Agility and Resilience
The creation of a new digital ecosystem has enabled these and other changes that will shape the definition of supply chain agility and resilience in the 2020s and beyond. Digital technologies will allow companies to increase their visibility, collaboration, speed, and responsiveness ― all of which are critical in enforcing agility and resilience as core competencies.
How is the typical company proceeding with this much-needed transformation? In a study of logistics providers conducted by Fraunhofer IML, only 36% of organizations reported that they had a clear overall plan for digital transformation. Fifty-two percent of respondents are working on individual digital projects but lack an overarching strategy that links all these efforts. A full 9% have not yet begun to actively implement digitalization.
The real secret to agility in the 2020s is first using highly accurate, real-time demand, supply, and execution insights to inform decisions across the end-to-end supply chain. While creating a demand-driven supply chain means ingesting and interpreting large volumes of data, advances in cloud computing and edge computing make data-based decision making easy and cost-effective.
A June 2020 Morgan Stanley report highlighted the growing importance of data, as well as the huge investments companies are making as a result: “In the ‘Data Era,’ we see the potential for accelerating IT investment after nearly two decades of underinvestment in technology, driving incremental IT investment to double over the next 10 years to $1.5T+ from ~$750B that was added in each of the prior three cycles on average. In fact, IT spend as a percent of business capex crossed over the prior ~10 year average in 2019 and we see that trend extending in early 2020.”
And Agility Can Help Improve Profitability Too?
Despite the inherent challenges, a 2018 McKinsey article estimated that the payoff of agility enabled by digitalization can be staggering: “For companies that aim well and execute effectively, the resulting cost reductions could be transformational. We estimate that productivity gains and cost savings alone could deliver near-term impact of 200 to 600 basis points of margin expansion across advanced industries, worth $200 billion to $500 billion.”
As companies have scrambled to keep pace with increasing customer expectations around delivery and product customization ― while also managing extreme volatility ― many have been led to make ambitious promises that delighted customers, but significantly eroded profit margins. Too often, organizations invested in solutions that offer little more than knee-jerk reactions, resulting in net losses.
These companies failed to realize that profitable agility relies on a mixed bag of capabilities ― including digital control towers fueled by artificial intelligence (AI), data science and analytics, strategic product segmentation, inventory management, operations intelligence and analysis, strategic sourcing, and effective pricing and promotions management. The good news is that the digitalization of the end-to-end supply chain is making the complex process of achieving agility over the long term much easier.
Digital control towers are helping to increase visibility across the end-to-end supply chain, which is a significant obstacle to making profitable, well-informed decisions. In a 2018 survey by GEODIS, only 6% of supply chain professionals worldwide believed their companies had achieved supply chain visibility ― while a full 70% of respondents described their supply chains as “very complex” or “extremely complex.” This network complexity, coupled with a lack of transparency, is a key reason that decisions are too often made in the name of speed, with disastrous implications for profitability.
Most manufacturers have ranked increased transparency and collaboration as one of the key aspects permanently and positively impacted because of the COVID-19 crisis. In another recent study, 68% of respondents indicated that they would need to revisit their operating models to consider more automation, contactless solutions, transparence/greater trust (e.g., blockchain), and video-based collaboration/content sharing. Fifty-four percent of respondents agreed that their use of data/analytics/AI/machine learning (ML) will be central to adjusting more effectively to dramatic supply chain disruptions.
A Positive Example
During the COVID-19 pandemic, $16 billion medical supplier BD utilized data analysis and digital control tower technology to recognize and manage exceptions immediately, ensuring its products could be delivered accurately, rapidly and cost effectively to those customers who needed them most. According to a Forbes article, BD managed a number of disruptions seamlessly, including a rudder problem with a cargo ship that resulted in 28 BD containers being thrown overboard. In just minutes, BD was able to see and manage the delivery and order-fulfillment challenges created by this unforeseen event, in real-time.
In the journey to improve, the hyper-connected supply chain will support profitable agility by unifying logistics and digital control towers, enabled by AI and ML, to create accurate real-time forecasts, sense disruptions at the earliest stage, make intelligent materials and logistics sourcing decisions, optimize supply chain execution, and minimize both delivery time and costs. Upstream sensing intelligence will proactively identify disruptions and deliver recommended resolutions to eliminate supply chain risks and vulnerabilities before they impact profitability. We will continue to explore the concrete steps toward a new definition agility and resilience in the next article. In the meantime, go here for more information.
Terence Leung is Senior Director, Solutions Marketing at Blue Yonder. He has a keen interest in digitalization and the value it generates throughout the supply chain. In this role, he leads his organization to drive thought leadership and go-to-market strategy for supply chain execution and logistics solutions. In addition, he works with customers to understand requirements and drive best practices.
Prior to joining Blue Yonder, Terence was the leader in product marketing and value engineering at One Network. Previously, he was in leadership positions in industry management at Savi Technology and solutions and management consulting at i2 and Deloitte Consulting respectively. Terence holds an MBA from the University of Texas, Austin and an Electrical Engineering degree at MIT.