Building resilience into a Supply Chain 4.0 strategy
Building resilience into a Supply Chain 4.0 strategy
Supply Chain Digital May 2021
By Ian Terblanche
Disruption is the new normal, and digitalization is the solution to strengthen and support the future health and success of supply chains, says Sigfox’s Ia.
Companies are looking to streamline and improve supply chains but are also under pressure to manage supply chain disruption and meet corporate social responsibility requirements associated with their supply chains. All of this has only been heightened by COVID-19, but companies can build resilience into their supply chains by digitizing their infrastructure with IoT.
Disruption is here to stay
Technology is rapidly changing every element of industry and enabling the agile adaptation of supply chains for challenge after challenge, from tsunamis to trade-wars and now a global pandemic. Today, disruption is the new normal, and it is affecting supply chains more frequently. The magnitude and frequency of this disruption has been escalating, partly due to the globalization of supply chains, and new risks presented by geopolitical and climate change issues.
Disruption is here to stay, yet those that take advantage of disruption and changing demand are more likely to succeed. While manufacturers have suffered with supply chain disruption, online retailers such as Amazon have profited. The shift online has required many businesses to hastily adapt their business processes to ensure survival.
Prioritizing supply chain investment
Supply chains have proven, especially with COVID-19, that if they are resilient and flexible, they can be instrumental if not vital to recovery. More than ever before, supply chains are on boardroom agendas due to their impact on global businesses and CSR. Traditional supply chain modelling and optimization are changing and old assumptions, such as prioritizing cost reduction, are becoming less important.
Companies are actively looking to mitigate risk. In the past suppliers were kept at arm’s length and supply chain improvements were deprioritized as they were not regarded as critical for the profit and growth. Today the focus is investment to mitigate risk and increase resilience for rapid recovery, and profit restoration. COVID-19 has been the catalyst to more businesses understanding the magnitude and importance of investing in a supply chain. Costs may increase, but so too can the chance of business survival.
Resilient supply chains not only recover from destruction, when done correctly, with the right level of investment, a robust plan and systems in place, supply chains become a source of competitive advantage and open up new and interesting marketplaces or valuable segments.
Agile, digital, connected, responsive and able to rapidly recover
When companies proactively invest in supply chain resilience, they typically manage to reduce risk exposure. However, investment in building resilience must be well planned, with resilient supply chains having five common characteristics, agility, digitization and connectivity, insight, and the ability to rapidly recover.
An agile supply chain network has a flexible ecosystem of suppliers and partners where materials can be swapped, and a dual or triple sourcing strategy is adopted. There is evidence of a shift to this strategy as companies move manufacturing away from China. Companies moving capacity creates smaller more nimble manufacturing sites, which are more agile, and more able to adapt to challenges and change.
Industry 4.0 connectivity and digital transformation are creating agile operations that are more capable of responding to disruption and recovering from it. Warehouses and production lines can be fully automated, while autonomous vehicles can be used for short distance deliveries; these and other technologies, especially those based on digitization & IoT, are providing supply chain flexibility.
This agility can help efforts to manage market volatility, especially in industries that track assets. These firms are moving towards more outsourcing or pooling, which releases capex and reduces the risk of volatility of demand.
Critical to building a resilient supply chain is the adoption of cloud-based supply chain applications, with plug-and-play interfaces for connectivity. Regardless of the manufacturer, if apps and devices are interoperable, they can be used widely to drive deeper data. Anything from raw materials through to finished product, and the vehicles that transport them, can be digitally tracked and traced, providing complete supply chain visibility of product and asset movement, to identify and respond to disruption faster.
Connectivity, or full visibility, is achieved in supply chains that are totally digitized, even operating a ‘control tower’ model, where companies have control centers to manage their supply chains. The set up resembles an airport control tower with screens flashing with continuous updates about raw and finished material, orders and production levels at manufacturing sites. Whether you own this control tower or a third party manages it for you, this model provides complete local visibility, even of global supply chains, resulting in faster reaction times when problems occur. This visibility is critical to ensure companies respond quickly to avoid being affected detrimentally. But with digitization comes cyber risk too, so security needs to be firmly factored into a resilient supply chain strategy. The data derived from full digitization has deep tactical and strategic value so defining a clear evaluation model is critical.
Using data analytics is critical to resilience, as it provides insight into the supply chain and enables teams to build forecasting, scenario planning and early warning systems. As the pandemic evolves, the use of continuous scenario simulation ensures that supply chains are clear on next steps in a number of different situations.
Finally, by empowering teams to problem solve wherever they are, we build company cultures that decentralize decision making. Teams on the ground decide how to deal with a situation while feeding data back into a central command, helping a business understand and manage crises quickly.