While Digital Transformation of supply chains had already emerged since 2010, Covid-19 has kicked it into top gear. The pandemic brutally exposed the shortcomings of a near-complete dependence of single-sourced supply chains for raw materials and finished goods. Organization supply chains were ill-prepared and faced total stoppage of raw material and finished goods supply due to facility closures. Customer demand also precipitously dropped for many products while sky-rocketing for others, such as, sanitizers, cleaners, and paper rolls. Thus, an already precarious capacity-limited supply system was hit with enormous demand variability. The steep drop in demand data also upended all demand management models, including AI/ML based ones.
The Now
In response, companies continue to do the following:
- Multi-sourcing: finding alternative sources globally, evaluating different manufacturing methods, modifying designs to reduce parts, and identifying replacement materials.
- Investment in alternative materials and manufacturing processes: manufacturers are continuing to collaborate with international suppliers on lower-risk alternative manufacturing, identifying “at-risk” components, evaluating and refining manufacturing capacity and capability, efficient distribution, all for the purpose of de-risking supply to the fullest extent possible.
- Respond to trade wars: current trade wars have also impacted supply chains by limiting goods flow. This is synonymous to a drop or variability in demand. Manufacturers and suppliers that have cultivated markets for years leading to a stable supply, face a sudden drawdown in demand and are being required to explore and build newer markets. This tremendously strains the existing supply chain with uncertainties, from production to final delivery, while companies simultaneously scramble for new markets with fewer resources.
- Focus on flexible and resilient supply chains: organizations are striving towards enhancing flexibility and resilience of their supply chains. Organizations are actively exploring means to attain flexibility by eliminating redundant processes, automating processes wherever possible, improving both automated and non-automated processes, electronically linking with suppliers and distributors for near real-time status, among others.
- Technology use: the industry continues to adopt cloud-based collaboration, incorporating tools for on-demand cost and manufacturing knowledge in product design phase, alerting customers and networks about sudden observed variability in operations across a regional supplier base, using technology to map and link tiered supplier networks, among others.
While Covid-19 has catalyzed the need for swifter, focused action, the transformation was already underway pre-pandemic due to:
- Raised customer expectations: The internet and Amazon, Uber, Airbnb, have raised the bar on personalized customer experience. Various retail fulfillment models – buy on-line pick-up at store, buy on-line deliver to home or store – are requiring quicker coordination between retailers, wholesalers, distributors, and manufacturers. Thus, the entire supply chain is being driven by customer shopping preferences leading to increased focus on digital capabilities.
- Technology: The availability of faster, cheaper processing, SaaS cloud capabilities, and large data modeling and analytic capabilities, are enabling closer and faster coordination and communication between the supply chain partners. Supply chain software providers are also focusing on enhancing application capabilities in various areas, such as, automation of shipment tracking, data integration at shipment hand-off points at ports, providing alerts and information about supply disruptions locally, tiered supplier network mapping, supply chain visibility for short and long-term actions, etc.
- Commodity pricing and delivered cost price: Continuous focus on lowering commodity pricing seeking alternative materials and total delivered product cost is driving frequent review of available supply and suppliers for materials, shipment, and distribution. This is leading to further enhancements of supply chain applications for better availability of supplier information and pricing.
- New products/services introduction, speed-to-market: The product life-cycle is continuously being shortened wither faster speed-to-market. Thus, supply chain capabilities providing accurate material, manufacturing, and service costs and process information are critical during product design. This leads to quicker and accurate product design, superior demand management, and smooth-out of the downstream supply processes.
- Global volatility and trade uncertainty: In the last decade and now, the world has faced extensive geo-political uncertainties, including Brexit, China-US trade conflict, VAT/GST reforms in India, intellectual property theft effects with Huawei, with continuing spills from Covid-19 such as, China-Australia trade embargo. Supply chains continue to be impacted by the events as various systems, processes, regulatory frameworks, and technical maintenance have to be continuously monitored and updated when necessary. This increases overall supply chain management costs and the use of digital capabilities will help minimize them.
The Next
What should be call to action to build supply chain resilience to cushion effects of global disruption, while also countering quick shifts in customer demands and expectations, technology changes, and global volatility? The following are some areas:
Supply chain mapping: Does supply chain maps exist for the organization? Is it complete and to what tier? It is well known that this is a very labor-intensive process but when done right can significantly aid in recovery, rebuild, and normal business. Technology can assist here by automating the mapping process itself.
Supplier alliances: The objective here is to develop a keiretsu or a chaebol type of supporting manufacturer-supplier alliances, not only for normal production activities and support, but for crisis management as well. For example, supplier rebalancing if one supplier is impacted or production re-purposing during a pandemic, can be quickly and effectively achieved if there is a working structure in place. To develop and operationalize these alliances require time, effort, and a collective will, often supported by the government or local organizations.
Supply chain digitization: Aggressively utilize digital transformation capability to digitize the supply chain. For example, (i) use digital to map, manage, and maintain supply chains; (ii) create digital tools to provide near real-time visibility of alternative suppliers; (iii) create digital twins or processes and automate them to the fullest; (iv) connect digitally with suppliers and create a supplier community/ies by using existing supply chain collaboration networks embedded with EDI VAN solutions; (v) create a supply chain control tower to provide near real-time visibility to shipments, inventory, processing status, current and impending risk levels.
These are all challenging, but necessary, tasks. However, once done, this environment will be the crucial shock absorber supply chains desperately need.