Can digital technologies make supply chains more resilient?
The COVID-19 pandemic made it clear that global supply chains must be more resilient. While the temporary shortages in toilet paper may seem to be of minor importance, scarcities in medical supplies for hospital staff aren’t and they underscore a deeper challenge in today’s supply chains.
Traditional supply chain management has focused on optimizing efficiencies with a just-in-time inventory framework that maintains only the stock needed to meet the current demand. And though most businesses have become adept at predicting just how much supply is needed to fulfill orders, those predictive models can fall short when it comes to anticipating unforeseen events such as a worldwide pandemic.
A recent survey found that 95% of companies report that they expect to or have already been impacted by COVID-19 supply chain disruptions, according to the Institute for Supply Chain Management. They also found that the average lead times are at least twice as long for domestically and internationally sourced inputs. As a case in point, several major automakers re-opened their plants after a two-month closure but are still having difficulties obtaining all the parts they need from suppliers.
On the demand side, buyers have largely shifted from in-person to online, resulting in softening demand and a shift toward contactless interactions across many industries. Similar unexpected impacts are happening across the entire supply chain, from manufacturers to distributors and suppliers to retail and more.
Digital transformation provides a path to resiliency
To address risks such as these, organizations must be able to pinpoint risks and potential breaks in the supply chain before they emerge and pivot quickly to maintain operations, whether that means purchasing from another supplier, changing the products and services offered, or selling to another buyer. While nobody can predict the future with 100% accuracy, digital technologies such as artificial intelligence (AI), cloud and edge computing, IoT and blockchain can help improve supply chain resiliency. A digital supply chain makes it easier for businesses to achieve the intelligence, agility, scalability and flexibility needed to adapt to a rapidly changing world.
For instance, Proctor & Gamble (P&G) deployed a cloud-based platform underpinned by AI and IoT to automate supply chain planning. As a result, the company was able to predict which suppliers, plants and distribution centers would be impacted by hurricanes, enabling the company to make the right decisions quickly and avoid the disruption and financial loss that other companies suffered.
This intelligence is also helping P&G plan for demand more accurately, improving productivity and operational efficiency. Recently the company reported its biggest sales increase in the U.S. in many years after rapidly mobilizing its manufacturing resources and supply chain to ramp-up production of cleaning products.
In fact, companies in the Consumer Packaged Goods industry can expect the following benefits from digitizing their supply chain, according to research by the Supply & Demand Chain Executive:
- 50% to 75% reduction in lost sales.
- 30% lower supply chain administrative costs.
- 30% reduction in logistics costs.
- 3% to 5% increment in annual earnings growth before interest and taxes.
Key considerations when digitizing the supply chain
Despite the benefits, many companies are just starting their journey toward a digital supply chain. Only a quarter of the companies surveyed in BCI’s latest Supply Chain Resilience Report embed digital technologies across their end-to-end supply chain management. That being the case, here are a few key considerations to keep in mind when digitizing your supply chain:
- Keep redundancy in mind: Resiliency goes hand in hand with redundancy. For each point in the supply chain, plan for contingent suppliers and partners and IT infrastructure, such as applications, clouds and networks, in other geographic locations. As an example, digital service providers Netflix, Zoom and Dropbox have all encountered unexpected surges in traffic from different locations in recent months. By having hybrid IT infrastructure distributed across different geographic locations, they have been able to scale quickly by adding bandwidth on the fly or re-routing traffic as needed to meet the demand.
- Aim for agility and performance: Digitizing the buyer-supplier relationship is essential for building more robust and agile supply chains. A cloud-based digital supply chain interconnected across a rich IoT ecosystem of current and potential partners makes it easy to recruit new suppliers and IT providers, as well as automatically switch to alternative providers when regular suppliers face disruption. For example, by deploying a hybrid IT architecture adjacent to multiple cloud providers, Fung Group was able to digitize its supply chain ecosystem with the agility of multicloud connectivity while maintaining the performance, reliability and security of on-premises IT.
- Ensure end-to-end visibility: To minimize vulnerabilities in the supply chain, exchanging data digitally is essential. Suppliers may be reluctant to share data for competitive advantage reasons, but trusted data exchange paired with blockchain can help ensure data privacy. However, successful data exchange can usher in its own challenges around data management.
For example, food distributor Sysco Corporation operates 330 distribution facilities in more than 90 countries and serves 600,000 customer locations. The company was faced with having to process a deluge of global data and make it available quickly to its sales and supply chain teams worldwide. By building a high-speed network backbone to interconnect disparate IT resources and gain greater access to the cloud, the company was able to improve data management, analytics, transfer and access for better end-to-end visibility.
Shifting gears for the new normal
While COVID-19 may be the catalyst for accelerating the digitization of global supply chains, some businesses have already been adapting more quickly to the new world. Whether providing new tools and resources to help combat the pandemic or switching production lines from consumer goods to medical supplies, the organizations making these changes understand the importance of instant end-to-end visibility, collaboration and responsiveness.
Digital technologies are enabling them to join forces with their suppliers and partners not only to help save lives, but also to minimize the impact of disruptions across their joint supply chain. And that’s a win-win for everyone.
All IoT Agenda network contributors are responsible for the content and accuracy of their posts. Opinions are of the writers and do not necessarily convey the thoughts of IoT Agenda.