26 Jan 2021


Profitable Agility: Part 2 of Agility and Resilience in Supply Chain Execution

Terence Leung
Blue Yonder


This blog is based on an article that recently ran in the Journal of Supply Chain Management, Logistics & Procurement, “Supply chain agility: An imperative in an unpredictable world.”

In part 1 of the Agility and Resilience in Supply Chain Execution series, we discussed the secret of achieving these very important aspects. We will now explore the concrete actions to make digitalization and hyper-connected supply chain possible to attain better performance and profitability.

 

What is at Stake?

McKinsey has estimated that the payoff of agility enabled by digitalization can be staggering: 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.[1]

Companies have struggled 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. Some organizations invested in solutions that offer little more than knee-jerk reactions, resulting in net losses.

 

The Improved Way

These companies did not realize that profitable agility relies on a bag of capabilities, not simply “visibility.” The new concepts require:

  • digital supply chain execution capabilities in transportation, warehouse, labor and fulfillment
  • digital control towers fueled by artificial intelligence (AI), data science and analytics
  • strategic product segmentation, sourcing and inventory management
  • effective pricing and promotions management

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.”[2] 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. 

One piece of 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. Another piece of good news is that supply chain execution is trending toward highly digitalized and even autonomous (see for example Blue Yonder’s unified logistics offerings).

During the COVID-19 pandemic, $16 billion medical supplier BD utilized data analysis and digital control tower technology to recognize and manage logistics execution 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.[3]

With the increasing complexity embedded in supply chains, a combination of several technologies is required to make frameworks as seamless as possible, enabling both inbound and outbound visibility and control. 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 machine learning (ML), to:

  • Create accurate real-time forecasts,
  • Sense disruptions at the earliest stage,
  • Make intelligent materials and logistics sourcing decisions, and
  • Optimize supply chain execution and minimize both delivery time and costs.

Upstream sensing intelligence proactively identifies disruptions and deliver recommended resolutions to eliminate supply chain risks and vulnerabilities before they impact profitability. By analyzing real-time insights and historical performance, AI and ML work together to make key metrics like availability and service levels progressively higher, while simultaneously growing the profit margins associated with production and delivery.

 

The Role of Trading Partners

The traditional supply chain has often been characterized by blind spots, which are caused when a lack of collaboration makes trading partners unable to see key information such as product location, available-to-promise inventory or a realistic customer delivery date. These blind spots can no longer be tolerated in today’s environment of extreme volatility and ultra-high customer expectations.

In a recent survey published by the Council of Supply Chain Management Professionals (CSCMP), siloed systems and/or processes were named the single greatest barrier to driving supply chain innovation and improving the customer experience. In addition, 46% of the companies deemed “most innovative” in the study reported having 80-100% electronic connectivity with their trading partners.[4] Supply chain partners that are unable to share data may struggle to find a common ground and collaboratively respond to demand and supply volatility as a single, linked entity.

Fortunately, IoT, AI and ML are converging to illuminate this kind of critical information and create true visibility, and responsiveness, across the supply network. All trading partners can see potential disruptions in the product flow to the marketplace, while also gaining a probabilistic view of the potential impacts. In addition to seeing upstream supply obstacles, all trading partners can also recognize downstream fulfillment issues such as low inventories or labor shortages. In the Fraunhofer IML study, 81% of logistics service providers say that market demand for digital collaboration and transparency along the supply chain is a “very strong” (36%) or “strong” (45%) influence on their business.[5]

The importance of supplier visibility is also illustrated clearly in the responses to an IDC study[6]. Generating visibility to the upstream value chain — an area increasingly considered essential in building resilience and operational agility ― was cited by 45% of the survey’s participants as a “top five” priority for their organization over the next three years. Investing in business-to-business (B2B) logistic networks and other networks enables improved resilience in the face of inevitable supply disruptions and provides organizations with more time to react. Learn more about how to fulfill this vision.

Please stay tune for part 3 on more about networks, new definition of collaboration, and on-demand transportation, labor and warehousing.

 

 


[1] McKinsey Digital (November 15, 2018), “The Next Horizon for Industrial Manufacturing: Adopting Disruptive Digital Technologies in Making and Delivering”

[2] Talking Logistics, ‘3 Stats That Prove the Need for a Digital Control Tower,’ by Martin Verwijmeren, August 13, 2020

[3] “The BD Medical Products Control Tower Powers Their Pandemic Response,” by Steve Banker, Forbes, May 6, 2020, available at https://www.forbes.com/sites/stevebanker/2020/05/06/the-bd-medical-products-control-tower-powers-their-pandemic-response/#3870ea452f70

[4] The Council of Supply Chain Management Professionals (2019), ‘Focus on Customer Experience Research on Supply Chain Priorities and Investments,’ 2019 Supply Chain Market Research

[5] “Fueling Your Logistics Business through Digital Transformation,” Fraunhofer Institute for Material Flow and Logistics in partnership with Blue Yonder, 2019. Available at https://blueyonder.com/knowledge-center/collateral/fraunhofer-report.

[6] IDC Survey Spotlight (June 2020), ‘COVID-19 Impact on IT Spending Survey: COVID-19 Impact on Expected Security Spend Varies by Market Vertical and Size of Business,’ by Frank Dickson

 

 

 








 

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