Industry 4.0 and Future of Supply Chain
Supply chain is increasingly driving competitive advantage. After being obscure for several years, this is now receiving a fair share of attention in driving customer satisfaction and profitability for enterprises worldwide.
Supply chains are only getting increasingly complex with changing customer preferences, demanding delivery times, complex network of suppliers and customers across the globe and the continual demand for visibility and costs. In a traditional world, supply chain and logistics operations are typically driven by fire-fighting, as there is little visibility into what happens outside of a company’s network. Enterprises are constantly looking to differentiate themselves by integrating supply chain into their core strategy and have their operations and technology work seamlessly with their manufacturing, sales, retail and distribution channels.
The growth of Industry 4.0, solutions like IoT, analytics and information management makes it easier to gather real world data, for supply chain executives to start thinking of cost savings and optimizing resource utilization. Here are some of the innovations driving supply chain.
Real time visibility: In a 2017 Geodis Supply Chain Worldwide Survey, only 6% of the respondents reported to have complete visibility across their supply chain. Any traditional supply chain visibility concept is only milestone based. Visibility to status is only when shipments reach a certain checkpoint. Providing visibility remains as one of the top drivers of investments in supply chain. End to end tractability has become top of priority and is almost becoming a non-negotiable requirement of customers. A study by KPMG, reveals that the industry is expected to see a rapid growth of investment into technologies such as IoT to monitor, manage and improve the supply chain operations. Consider what Amazon has reportedly done for real time visibility. Customers are empowered with full visibility from the moment they place an order. Information such as inventory levels, warehouse departure timestamps and full visibility into the status of an order until delivery confirmation is now enabled with Amazon’s own freight solutions. Or consider what Michelin has reportedly done to track sea freight containers in real time. The solution enables significant savings in the form of reduced on-sea inventory, increase in ETA (Estimated Time of Arrival) accuracy and real time management of relevant inventory.
With real time tracking, intermodal shipping containers, cargos, vessels and trailers are connected with enterprise IT systems via sensors, GPS, mobile network and a cloud platform. Visibility during transit ensures that the vast opportunities for optimization of the supply chain is taken care of.
Supply Chain Agility: Agility in supply chains means that enterprises can respond very quickly to sudden changes in demand and supply. It means that manufacturers are not only able to source the raw material when needed and at the right price, but also ensure that customer demands are met in a profitable way. Supply chains are becoming situational and context aware. This allows for visibility and faster decision making. Supply chains are also being integrated with marketing, procurement and finance to make processes seamless and agile. Supply chains are being enabled to predict and respond to demand irrespective of whether in the procurement or sales process. They are being enabled to continuously improve asset utilization and be very responsive to changes in customer demand.
Ability to manage new fulfilment nodes: Inventory is the lifeblood of any supply chain. At each node in the cycle, it is important to balance demand and supply to ensure optimal costs and meet expectations. There are several inventory optimization tools that use data from WMS and ERP systems to determine inventories required for each product at each node in the supply chain. However, it doesn’t end here. Companies plan for items differently based on their targeted fill rates for each item, with the objective to maximise resources on the most profitable products.
To bring down the shipping costs and fulfillment timeline, it is ideal that fulfillment centers are brought closer to customers to take advantage of lower outbound costs. Increasing physical space to do this could be risky in the event of changes in demand. By using real time data and creating various models to determine outbound scenarios based on delivery expectations, enterprises could leverage fulfillment centers on-demand to ensure scalability.
Lower cost to serve: Comparing what it truly takes to serve a customer with what is invoiced to the customer helps enterprises define the customer wise profitability. Supply chain costs form a significant portion of the overall cost to serve. Enterprises are constantly looking to wring out this cost and increase supply chain velocity. Fulfilment cycles are tight as customers don’t want to carry inventories. The strategic act of balancing inventories with ensuring in-time delivery to meet customer expectations, means constantly refining supply chain and logistics operations to ensure timely deliveries while reducing costs at the same time. Consider what Adidas reportedly did to be the first in the industry with their 3D printed midsoles for the mass market to speed up the footwear development process, which is traditionally slow and highly labor intensive. This in turn would also help to move production closer to customers and offer great product customisation with shorter lead times.
Launch of New business models: Digital supply chain is fuelling new business models. We’ve seen several use cases including driver-less vehicles, the sharing economy where goods are rented or re-used or the possibilities with wearable in the warehouse. Or for that matter technology applied to agriculture to create a shorter cycle time from farm to consumer. Technologies like block-chain acts like a track and trace mechanism to ensure that all stakeholders have one view to the data across the supply chain.
Needless to mention, just implementing a great technology is not enough. It is equally important to ensure adequate adoption and manage cultural challenges as well as ensure process improvement. Support from the senior management / CEO is imperative as supply chain becomes the top three priorities on a board’s agenda. The traditional dilemma has been to arrive at a fine balance between standardisation and being able to offer a degree of customization to the customer. In recent times, supply chains have started using platforming strategies to reap the benefits of standardisation while offering variety via an agile assembly process.
The possibilities for driving a leaner and efficient organization is endless with innovations in supply chain. As with anything, this requires a long-term vision that goes beyond just process efficiencies to be able to look at strategic opportunities that brings in scalability and bottom line benefit.