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supply chain resiliance

Inadequate tech means 95% of companies will fail to enable end-to-end supply chain resiliency by 2026
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Most companies will remain locked into an outdated model that will prevent them from achieving end-to-end (E2E) resiliency in their supply chains by 2026.

Analysis by Gartner indicates that few companies have accepted the necessary paradigm shift from being forecast-driven, and primarily focused on accuracy, to instead focusing on managing uncertainty in their supply chains.

Until this occurs and technology providers align solutions specifically for achieving resiliency, rather than simply increasing decision speed or digitizing the supply chain, true E2E resiliency across most organizations’ supply chains will remain elusive.

“Companies are scrambling to add resiliency to their supply chain programs today, but ironically they are taking actions that may lead to more fragile and rigid supply chains based on outdated ‘steadier state’ models,” said Tim Payne, vice president analyst with Gartner’s Supply Chain practice. “A current focus on ever improving accuracy results in supply chains unable to cope with today’s uncertainties and simply reinforces their vulnerabilities.”

Payne said that current marketplace confusion surrounds the concept of resiliency and results in a technology buying environment consisting of solutions that are often “remarketed” to address resiliency, but they will not help companies achieve the needed flexibility and adaptability that marks true E2E resiliency.

To start down the path of achieving E2E resiliency and avoid falling prey to ineffective “resiliency-washing” solutions, organizations need to first reinvent their strategies. Gartner recommends organisations:

  • Drop forecasting-based models and enable the company’s supply chain to take full advantage of its uncertainty mitigation tactics by not constantly propagating its demand signal through the supply chain. Change the planning focus onto uncertainty rather than exclusively on the plans’ accuracy.
  • Drive from unknown uncertainty toward known variability by utilizing AI and ML for different, multiple predictions.
  • Begin to build a digital supply chain twin (DSCT) by identifying key model parameters that would help to improve the resiliency of decisions.
  • Assess supply chain decisions using uncertainty metrics rather than accuracy metrics, by deploying KPIs that describe the supply chain’s capability to tolerate uncertainty and the “probability of execution” of relevant supply chain decisions.

Calls for task force to tackle supply chain resilience
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Britain’s manufacturers are calling for a cross-industry and Government taskforce to assess the UK’s current and future supplychain resilience and capabilities, as well as establishing an action plan to protect the economy from any future significant disruptive event.

The call was made on the back of a report by Make UK and Infor, ‘Operating without Borders – Building Global Resilient Supply Chains’, which shows the stark impact on UK manufacturers from the economic shocks of the last two years and the knock-on effects to supply chains from increased energy, transport and raw material costs, as well as transport availability.

The findings also indicate that the longstanding strategies manufacturers have adopted to off-shore in response to globalisation, operating a ‘just in time’ process with virtually guaranteed transport links and low-cost production, have been turned upside down with disruption and increased volatility fast becoming normal.

As a result, this has led to companies significantly increasing the number of suppliers so they have more options in the event of disruption, with these suppliers increasingly sourced back in the UK or Western Europe. Looking forward the report shows these trends were already accelerating in the next two years, to which the invasion of Ukraine and continuing disruption in China are likely to have given further impetus.

According to the survey, the biggest disruptor in the last two years was the pandemic with 93% of companies saying it had caused some form of disruption (for 47% the impact was catastrophic or major) followed by exiting the EU for 87% (for 32% it was catastrophic or major). Over half of companies also said the Suez Canal incident had caused disruption, even though it was blocked for only a week, highlighting the dependence on Far East supply chains.

In response, almost two fifths of companies (38%) said they have increased the number of suppliers in the last two years. Over two fifths of companies (42%) have increased their UK supply base (for almost a fifth it is a significant re-routing) with over a quarter increasing supply from Western Europe, including Turkey.

This trend is set to accelerate with over two fifths of companies (43%) saying they expect to increase UK suppliers in the next two years, with a quarter predicting an increase in suppliers from Western Europe and Turkey. By contrast, over the same period 12% of companies say they intend to reduce suppliers from the Far East.

As well as changing the location of their supply base, manufacturers have also increased the number. Almost a quarter of manufacturers (22%) have between 51 and 100 suppliers, a further 15% between 101 and 200 and 14% having more than 200. This highlights the complexity of supply chains, but also the need to ensure supply chain strategies are put in place along with technologies to monitor them.

Whilst an encouraging number (72%) describe their supply chain strategy as intermediate or advanced, those describing their strategy as basic tend to be SMEs with a clear link between the more advanced strategy companies operate and the number of suppliers. Furthermore, when it comes to implementing digital supply chain solutions manufacturers for the most part only have a limited or basic focus (28% for both).

However, at the other end of the scale, a fifth of companies say they have an advanced digital strategy and a quarter (24%) intermediate with two thirds of larger firms (64%) at the advanced stage. On a positive note companies are planning to significantly increase their spend on digital supply chain technologies with over two fifths of companies (42%) planning to increase their investment by more than 10% in the next two years.

For those companies who do increase their investment in supply chain technologies, the benefits are clear in terms of faster response times (34%), lower inventory costs (28%), greater operational efficiency (28%) and greater cash flow (21%).

In response to the major shocks to the economy and, the likelihood of increased volatility for trading networks being normal in the future, Make UK has made the following recommendations to Government to help ensure the UK economy is in a much stronger position to respond to any future disruptive events. (Extra commentary on each in Notes to Editors)

  • Government should establish a cross-industry and government resilience taskforce.
  • Supply chain software management should be included in the Help to Grow: Digital scheme.
  • Develop and publish public data that reports on lead times of raw materials to help businesses plan ahead.
  • Work with industry to explore how larger firms can provide greater visibility of supply chains at higher tiers to share information with SMEs with limited scope.
  • Introduce capital allowances or a form of tax break for businesses that adopt certain digital solutions such as blockchain.
  • Develop regional institutions and establish long-term initiatives to deliver supply chain support.

Verity Davidge, Director of Policy at Make UK, said: “For decades manufacturers have used increased globalisation and supply chains to drive efficiency and create lean manufacturing processes which have helped them grow and remain competitive. However, the economic shocks of the last few years have created a perfect storm which has turned these models upside down and forced companies to re-evaluate their business strategies and seek suppliers much closer to home.

“As a result, we may now be seeing the era of globalisation passing its peak, with disruption and volatility for global trade fast becoming normal. For many companies this will mean leaving ‘just in time’ behind and embracing ‘just in case’.”

Andrew Kinder, SVP International Strategy & Sales Support, Infor added: “Following a succession of shockwaves – Brexit, Covid and instabilities in Europe – supply chain strategists are examining the vulnerabilities of their supply chains. Long held beliefs in lean, Just-in-Time and off-shoring are being questioned, as volatility and uncertainty replaces predictability and reliability. The rules of supply chain are being re-drawn. Resilience trumps efficiency with winners being those who have been able to rapidly adjust their supply chain strategies to accommodate the succession of shocks.

“Digital technologies play a part in building resilient supply chains and this survey by Make UK provides much needed insights from manufacturers on their response to this new norm and their use of digital to navigate the storm. As a sponsor of this research, we support the recommendation that ‘Supply chain software management should be included in the UK’s Help to Grow: Digital scheme.”

The survey of 132 companies was conducted between 2 and 23 February.

How to build resilience into Supply Chain 4.0 strategies
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By Ian Terblanche (pictured), Strategic Sales & Channel Director at Sigfox

 
With the rise in supply chain disruptions during COVID-19, companies may already have an eye on streamlining and improving supply chains but they are also under immense pressure to manage supply chain disruption.

When examining the challenges faced by supply chains today, companies need to build resilience by digitising their infrastructure?  But how can they digitise and track their supply chain assets end to end when they are outside the enterprise boundary for most of their lifetime, often crossing country borders; how do they digitise an asset that has no access to power for months or years; and how can companies digest and make sense of multiple data sources from their own enterprise and external providers? 

Disruption and digitalisation

Today, disruption is the new normal, and it is affecting supply chains a lot more frequently. Examples include earthquakes, tsunamis, sanctions, trade wars, COVID-19 and changing consumer demand. The magnitude and the frequency of this disruption has been escalating, and that is partly due to the globalisation of supply chains, and new risks presented by geopolitical and climate change issues.

The lesson is that disruption is here to stay, but businesses recognising, and taking advantage of, the changing demands that disruptions herald are primed to succeed. While manufacturers have suffered from supply chain disruption, online retailers like Amazon have profited and the unprecedented surge in businesses shifting online to continue sales means that many had to adapt their business processes to ensure their own survival. There is also a blurring of the line between retailer, shipper and pooler, which is itself creating new market opportunities.

The importance of prioritizing the supply chain

Resilient and flexible supply chain can be instrumental if not vital to recovery so now, more than ever before, supply chains are on boardroom agendas due to their impact on global businesses and CSR. Traditional prioritises like keeping costs down are becoming less important as companies actively consider how they can mitigate any loss or other supply chain risks. The focus of investment is on risk mitigation and increased resilience for rapid recovery and profit restoration, so COVID-19 has been the catalyst to more businesses understanding the magnitude and importance of investing in a supply chain. While costs may increase, this is outweighed by the benefits of fleet optimisation and the increased chance of business survival.

With supply chain modelling and optimizations changing, the time to make the investments in supply chain resilience and flexibility is now and, during COVID-19, a number of business cases, including Austrian Post from our own client base, have been approved. Industry reports have also forecast significant changes ahead in the supply chain sector with predictions of the global connected logistics market expected to grow during 2017-2023 at a CAGR of approximately 22% with supply chain analytics exceeding US$ 10 billion by 2027.

Resilient supply chains not only recover much faster from destruction, but 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. Resilient supply chains typically reduce risk exposure but only if they incorporate these five common characteristics: agility, digitization, connectivity, insight and rapid recovery capabilities.

Agility

A flexible ecosystem of suppliers and partners where materials can be swapped, and a dual or triple sourcing strategy is adopted, makes a supply chain agile. But so too do companies creating smaller more nimble manufacturing sites that are more able to adapt to challenges and change, rather than relying on traditional manufacturing sources, like China.

Visibility

It is often the case that when a shipment has left the last checkpoint, for example a sea port, organisations do not have visibility of that shipment’s exact location until the next checkpoint, which is often the next port. However, the Internet of Things (IoT) enables all elements of the logistics process from packaging and loading to distribution and storage to be tracked. This makes IoT solutions the ideal tool for supply chain visibility. Attaching IoT sensors to valuable components that need to be tracked gives all interested parties a holistic view of the supplier network so they can obtain accurate and ‘live’ information about shipment location, route and arrival time, amongst other things, as and when they need it. 

Digitization

Digital transformation and Industry 4.0 connectivity are creating agile operations more capable of responding to and recovering from disruption. Aside from warehouses and production lines being fully automated, autonomous vehicles for short distance deliveries are providing supply chain flexibility. When combined with other technologies, based on digitisation & IoT, this helps manage market volatility, especially in industries that track assets. 

Adoption of cloud-based supply chain applications is critical, with plug and play interfaces for connectivity, as regardless of the manufacturer, if apps and devices are interoperable, they can be used widely, and drive more valuable and deeper data. 

Everything from raw materials and finished products to the vehicles that transport products can be tracked digitally to provide complete supply chain visibility of product and asset movement. This then helps businesses identify and respond to disruption quicker, while adhering to compliance needs. 

Visibility is crucial. However, with digitization comes cyber risk too, so security needs to be firmly factored into a resilient supply chain strategy. The data derived from full digitisation has deep tactical and strategic value so defining a clear evaluation model is critical.   

Connectivity

By implementing IoT-connected devices across the supply chain, businesses gain a vast array of data that not only fulfills regulatory requirements, but also offers extremely granular insights into the efficiency and real time operation of their networks. From a full overview of routes travelled, warehouse delays and network gaps to ensuring vehicles deliver best performance limiting downtime and repairs, while ensuring driver safety is of the highest calibre, the opportunities are almost endless. 

Some businesses operate a “control tower” model to connect and manage their digitized supply chains. This set up resembles an airport control tower where they receive continuous updates about raw and finished material, orders, and production levels at manufacturing sites. This model provides complete local visibility, even of global supply chains, resulting in faster reaction times when problems occur, but the critical question is do you own this control tower or build trust in a third party who can manage it for you? 

Insight

Data analytics provide insights into the supply chain, allowing teams to build forecasting, plan scenarios and develop early warning systems, which is key. As the pandemic evolved, the use of continuous scenario simulation has been employed to ensure that supply chains were all clear on what the required next steps would be, no matter what the disruption situation was. 

Rapid recovery

The final characteristic of a resilient supply chain is the ability to recover rapidly. For success here, recognise that it is down to the people involved. Empowering teams to problem solve whether they are at home, in the office or warehouse, means that decision making is decentralised and teams on the ground can get on with deciding how to deal with a situation while feeding data back into a central command. This helps a business to understand and manage crises quickly.

The use of simple and accessible IoT solutions to digitise their infrastructure means that supply chain will continue to flourish, whatever disruptions they face.