Forget the new normal. Think instead of a new beginning to transform supply chains.
This article was originally published on Logistics Management.
The COVID-19 pandemic has put supply chains simultaneously under more scrutiny and more awareness like no other phenomenon before it. It has highlighted the truly global nature of our supply chains and the interdependencies between them as disruptions in one locality immediately reverberated to others across the world.
In unprecedented fashion these disruptions have rapidly buffeted all aspects of the supply chain leaving few industries unscathed. As many companies shifted workforces to their homes and travel to densely attended events came to a standstill, communications with clients, customers and colleagues internally and externally went virtual.
Our interactions with clients have likewise gone virtual. Over the past eight months, we have virtually connected, participated in and conducted innovation events and forums across the globe.
In this column, we will share a prevailing theme emerging from our discussions; that responding to the disruptions is less about what the “new normal” will look like and more about the opportunity from a “new beginning” to transform our supply chains to become more purpose-driven, resilient, agile and sustainable.
Global commerce disrupted
Among the industries represented in our virtual experience, we saw stark contrasts. For example, essential healthcare predictably spiked as did the need for logistical aid. On the other hand, fashion, aerospace and other elective or discretionary industries fared significantly worse than normal.
Across all industries, demand patterns for products and services and typical buying channels have dramatically shifted. Supply, capacity and order fulfillment flows stalled or required rapid re-configuration as normal facility operations ceased and transportation lanes were intentionally closed. We saw constraints based on availability of distribution nodes, transportation logistics and labor.
One interesting phenomenon was that as intentional lock downs and closures were enacted, and only “essential” production was open, essential product companies discovered that their products were comprised of “non-essential” components resulting in production and distribution delays.
For many companies, resilience, agility and adaptability of the supply chain will be a key to their economic survival and future successes. Due to the pressures it has applied, the pandemic in many respects has served as a catalyst for strategic action and for further transformation and innovation. One such transformation is a shift in mentality of the whole concept of supply chains to supply networks operating in “market ecosystems.” Largely as a result of the digital age, individual enterprise supply networks have become a market ecosystem of inter-connected enterprise supply networks involving suppliers, manufacturers, logistics providers, distributors, customers and enabling partners.
Ecosystem commerce goes mainstream
The crisis has accelerated the importance of the development of an ecosystem mentality, with all members operating and responding to shifting conditions in concert using federated data and cognitive automation deployed on ecosystem commerce platforms and control towers.
Not only will this help alleviate the bullwhip effect and other phenomena caused by basic lack of communication, but in an uncertain future characterized by the events of the past several months, ecosystem-thinking will be the only way for supply networks to weather storms, share value and remain competitive in a Business 4.0-driven environment.
Digital twin advances
One important enabler to creating a networked ecosystem is the concept of a digital twin to digitally represent the ecosystem—or as much of it as possible. Digital twins are digital representations of physical processes, assets or activities. The digital twin models the data flow and interactions between these components to emulate the crucial pacing and latency found in the real world. A twin can be built from any part(s) of the end-to-end supply network. Once built and validated, the twin becomes a powerful tool that can be used to simulate alternative source/make/deliver scenarios, to reduce risk, to optimize a constrained problem, to improve performance, and, in short, to create insights that spur faster and more informed decision-making.
Digital twins are becoming even more important as ecosystems increase complexity. They are relevant not just for managing the high uncertainty from the COVID-19 crisis but for other supply chain trends such as mass customization and incorporation of advanced cognitive, robotic and autonomous tools.
Many of our discussions revealed how the pandemic has thrust new priorities to the forefront of supply chain improvement initiatives; some of these may have already been in progress but received a renewed sense of urgency because of their relevance. One such priority was investing in better data and analytics capability, especially when used in conjunction with a digital twin.
Having access to accurate, granular and current data, along with the ability to rationalize and filter it to create insights through advanced dynamic reporting significantly raises business intelligence and provides better visibility along with more informed and timely decision-making.
What’s the risk?
Another vital area receiving more attention is supply chain risk management. During our discussions, participants admitted that risk monitoring may not be a priority until it is too late, and is often not inclusive of other ecosystem partners, limiting the aperture through which risks can be accurately identified and assessed early enough to matter.
In extended times of high uncertainty, it’s easy to understand the renewed importance of this function. Companies also demonstrated a new commitment to philanthropy and social responsibility, especially in industries that are “non-essential.” This could range from redirecting manufacturing lines to producing PPE to providing logistical help to simple monetary donations.
The long-lasting nature of the crisis has also led companies to make structural, physical changes to their supply chains. Several virtual forum participants described the shifting calculus in determining sourcing locations, storage locations and transportation modes. Proximity to plants and customers, likelihood of remaining open, availability of transportation lanes, lead time reduction (and corresponding supply-side uncertainty) all became driving factors that are prompting organizations to re-examine earlier decisions and make changes.
Redefining procurement strategies
Consideration of suppliers’ physical locations (global vs. regional vs. local) is also driving a re-evaluation of sourcing strategies, including whether and where to consolidate sourcing, and conversely where to mitigate risk and selectively dual source. Overall quality of supplier relationships has come to the fore as partnerships are strengthened for the sake of increasing upstream risk visibility and developing mutually acceptable contingencies in case operations are disrupted.
For example, the question of safety stock setting is being increasingly answered collaboratively with suppliers. Assets are being re-purposed in how they are used; for example, retail space has been cleared of slow-moving items and used as excess storage for faster moving items. Transport vehicles used for shipping bulk product to warehouses may now be used for last-mile deliveries based on the rapid increase in e-commerce.
It ain’t over ’til it’s over
At this juncture the crisis is far from over and uncertainty will continue to dominate the foreseeable future. One of the resounding themes emerging from our discussions was that companies must equip themselves to not only be able to respond to uncertainty but to leverage it as a way of strengthening, innovating and ultimately gaining competitive advantage.
The pressure to excel bi-modally (through efficient, lean core operations and through innovation across the ecosystem) is tremendous. [Process] automation was identified to drive improvement in both areas—for example, automating warehouse operations to reduce operating costs in one mode and automatically flowing pricing adjustments through ecosystem partners to shape demand in the other.
Investment in digitizing the flow of information through the ecosystem was seen as paramount. A digitized ecosystem can process higher information volume (breadth or granularity) and more rapidly rationalize and consume it which increases visibility, reduces latency and ultimately leads to a more resilient, agile and adaptable network.
People are the most valuable asset
Another emergent priority that emerged from discussion was that the emphasis on social safety will likely endure in the longer-term and the importance of people health and well-being extending to both employees and customers is paramount. This will likely mean greater emphasis on remote work and virtual assistance, curbing large meetings or gatherings, tightening controls on store occupancy and traffic flow even at the expense of lost revenue or efficiency.
Seize the moment
The greatest imperative, however, was the need to “seize the moment” and recognize this crisis for what it is—an opportunity to drive long-intended supply chain improvements that have suddenly been made even more necessary, visible and with a stronger business case than ever before.
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