Supply Chain 4.0

                

The Digital Supply Chain

Though the name Supply Chain 4.0 feels like the next edition of some movie sequel, its actually something that's more adventurous and interesting than just a movie sequel. Its the integration of supply chain and technology that is about to shape the future of how companies perform their business operations today. Supply Chain 4.0 is the FUTURE!

Lets get started by watching this video to get a taste of how our future Supply Chains will look like:

https://www.youtube.com/watch?v=nwqROZPi_-0 - Digital Supply Networks by Deloitte: The digital transformation of supply chains - Get a feel of The Future of our Supply chains and how our work functions will transform.

                                             Fig 1 - The digital Supply chain (Courtesy: pwc)

What could possibly be the common strategy the TOP 20 Profitable companies in the world focus on?

Well, its AN EFFICIENT SUPPLY CHAIN that's the most important function in any business today, be it either the manufacturing or Service Industry!! An effective Supply Chain can drive sales, boost profitability, increase customer satisfaction and even get the company's stock value soaring high due to its innovative approaches and collaboration with technology and automation.

In an amazing twist, technology is rendering the old fundamentals of supply chain management obsolete. Check this out -  In Russia, Adidas increased sales in Moscow by double digits in 24 hours, thanks to a supply chain initiative. At the same time Amazon is now looking at using drones to deliver products, a very expensive move, but one the company says will increase sales. 

For Adidas Russia, the supply chain is no longer about reducing costs: It is – more importantly – about increasing sales. All of this is possible thanks to the technology being used in the supply chain. Most of these technologies belong to Industry 4.0. Adidas applies these technologies to the supply chain rather than just to manufacturing. This is why we call it Supply Chain 4.0, a term initially coined by supply chain professional Anne Wyss

Experts would usually claim that supply chain management is about delivering the right quality at the lowest cost, with the agreed service level, right? Well, not anymore. As the two examples above show, it is also about increasing sales and profits; the supply chain is no longer just about efficiency, working capital reduction and inventory management. 

The supply chain today is a series of largely discrete, siloed steps taken through marketing, product development, manufacturing, and distribution, and finally into the hands of the customer. Digitization brings down those walls, and the chain becomes a completely integrated ecosystem that is fully transparent to all the players involved — from the suppliers of raw materials, components, and parts, to the transporters of those supplies and finished goods, and finally to the customers demanding fulfillment.

This network will depend on a number of key technologies: integrated planning and execution systems for a more accurate demand forecasting, logistics visibility, autonomous logistics, smart procurement and warehousing, spare parts management, and advanced analytics. The result will enable companies to react to disruptions in the supply chain, and even anticipate them, by fully modeling the network, creating “what-if” scenarios, and adjusting the supply chain in real time as conditions change.

SUPPLY CHAIN MANAGEMENT + INDUSTRY 4.0 =.     SUPPLY CHAIN 4.0

"Supply Chain 4.0 is the application of the Internet of Things, the use of advanced robotics, and the application of advanced analytics of big data in supply chain management: place sensors in everything, create networks everywhere, automate anything, and analyze everything to significantly improve performance and customer satisfaction" - McKinsley & Company

                                                  Fig. 1: Authored by Alasdair Gilchrist

The history of supply chain management, has always been about information—getting more of it, managing it better and building new capabilities with it. Supply chain management saw its first leap in efficiency with the introduction of materials requirements planning (MRP) software that managed the component information needed to manufacture products. It got its second breakthrough with enterprise resource planning (ERP) software that created information visibility throughout the enterprise. A third leap in efficiency occurred when planning and optimization capabilities were introduced to create insights on top of the new information available from MRP and ERP systems. 

Digital supply chain transformation is following this same path, creating a fourth leap in efficiency. Emerging technologies are enabling both new sources of data (from IoT and blockchain) and insights (from AI and ML) to close information gaps and better match supply to demand and, in the process, transform supply chain management.

                                 Fig. 2 - Traditional vs integrated supply chain (Courtesy: pwc)                

The Supply Chain has undergone tremendous change over the last decade or so transforming from  boring administrative functions into the life blood of the business. Technological advances as well as globalization have enabled this rapid evolution and digital transformation is at the very heart of it. Changing business philosophy from product to customer to demand centric approaches has shaped the way businesses build supply chains and empowered them to represent the company's objectives, ethics and culture. 

The Industry 4.0 revolution and its associated IoT technologies are the solution to global demand volatility, mass product individualisation and soaring customer expectations as autonomous technologies can react to sense and shape demand rapidly, dynamically and autonomously heralding the era of Supply Chain 4.0 where Supply Chains are running the world.

Supply Chain 4.0 is a game changer that will make every organization grow faster, be more flexible in delivering value, thus becoming more granular, more accurate, and more efficient in its process capabilities.

Let me give you a real time example of how Industry 4.0 can boost supply chain efficiencies. Lets take an example of Efficient spare parts management — with 3D Printing

Consider the problem of spare parts. At many warehouses, more than half of all orders shipped are one-time requests for spare parts, and the demand for them is highly erratic, almost impossible to predict. That’s why companies typically maintain huge inventories of parts, many of which must be kept for 30 years or more if customers are to keep operating older machines. Already, digitization is revolutionizing the warehousing and distribution of spare parts. Sophisticated analytics software allows demand for spare parts to be forecast much more precisely, through solutions such as predictive maintenance of industrial vehicles and machines.

Just add 3D printing to the mix: Spare parts can be manufactured as needed at facilities maintained locally — even on-site, if demand is high enough or critical enough. All that’s needed are the printers, software,  a blueprint with the right specifications for each part, and the materials needed to produce it. The specifications for any part, including parts from machines too old to have the specs on file, can be created using  3D laser scanners and automatically translated into code readable by printers 

              Fig. 3 - 3D printing transforming the spare parts supply chain (Courtesy: Amazon.com)

We even have Prescriptive Supply Chain analytics as a SC4.0 enabler.

The goal of the digital supply chain is to fully integrate and make visible every aspect of the movement of goods. The key to this critical element of Industry 4.0 is Big Data Analytics -  the ability to prescribe how the supply chain should operate. The goal isn’t simply to optimize demand planning; or the  supply chain’s distribution facilities, routes, and mobile assets; or the management of inventory and spare parts. Instead, the key lies in the ability to optimize for any number of factors across the entire chain, depending on circumstances, and then be able to actively modify the  chain accordingly.

Ultimately, prescriptive analytics will be able to offer scenarios at a very fine level of detail, describing how shifting to a new supplier might affect product quality, or even whether the introduction of a new kind  of autonomous vehicle would increase safety on the warehouse floor. Prescriptive analytics can provide answers to many questions such as How might a potential disruption such  as a natural disaster affect the supply chain when run to minimize costs? How risky would such a scenario be? How should those risks be minimized? How much would minimizing the risks cost? If Toyota had known the risks inherent in its optimized just-in-time system for delivering parts to factories, it may have been able to avoid production shutdowns around the world when supplies were cut off by the 2011 earthquake and tsunami in Japan.

Fig. 4 - Prescriptive analytics model (Courtesy: pwc)

Digitization of inventory and logistic functions

Fleet management will deploy all manner of driverless vehicles and other robotic innovations that will play an increasing role in moving goods around the world. The most common use of autonomous vehicles in logistics will be driverless trucks. Self-driving trucks will depend on mapping software and short-range radar to assess the vehicle’s surroundings. Wireless connections to other vehicles and to the road itself will provide additional information that will speed up traffic flow and reduce roadway congestion and accidents. Another step in process automation is last-mile delivery — getting products into the hands of the customer where companies like Amazon is using drones drones to drop packages from the sky onto customers’ front porches with minimal human intervention.

Industry 4.0 creates a disruption and requires companies to rethink the way they design their supply chain. Supply chains need to be redesigned in order to reach the next level of effectiveness for which digitization is the most effective strategy. The supply chain network needs to grow to more rural areas where the development is taking place actively. The main hindrance for the present supply chains will be development of infrastructure by leveraging technology to the 3-tier cities, towns and remote villages.

Fig 5: Pictorial Representation of Supply chain 4.0

The digital Supply chain will be

• Faster : New approaches of product distribution and advance forecasting techniques reduce the delivery time of high runners to few hours. Amazon for example,  had patented "predictive shipping". Products are shipped before the customer places an order. The customer order is later on matched with a shipment that is already in the logistics network (being transported towards the customer region) and the shipment is rerouted to the exact customer destination.

NO WONDER AMAZON HAD NEARLY DOUBLED ITS PROFITABILITY FROM $5.6bn to $11.2bn in 2018 after implementing such path breaking innovations.

• With Increased Flexibility: New business models, such as Supply Chain as a Service for supply chain planning functions or transport management, increase the flexibility in the supply chain organization. Supply chain can be bought as a service and paid for on a by-usage basis instead of having the resources and capabilities in-house. The specialization and focus of service providers allow them to create economies of scale as well as economies of scope and also attractive outsourcing opportunities. For example, we will see an "Uberization" of transport: crowd-sourced, flexible transport capacity, which will lead to a significant increase in agility in distribution networks.

• More Granular: This gives a strong push towards microsegmentation, and mass customization ideas will finally be implemented. Customers are managed in much more granular clusters and a broad spectrum of suited products will be offered. This enables customers to select one of multiple "logistics menus" that exactly fits their need. New transport concepts, such as drone delivery, allow companies to manage the last mile efficiently for single and high-value dense packages.

• Greater accuracy: The integration of data of suppliers, service providers, etc. in a "supply chain cloud" ensures that all stakeholders steer and decide based on the same facts. In digital performance management systems, clean-sheet models for warehousing, transport, or inventory are used to set targets automatically. To keep the aspiration of targets also in case of supply chain disruptions, systems will automatically adjust targets that cannot be achieved anymore to a realistic aspiration level. 

• Higher efficiency: Efficiency in the supply chain is boosted by the automation of both physical tasks and planning. Robots handle the material (pallets/boxes as well as single pieces) completely automatically along the warehouse process - from receiving/unloading to putting away to pick, pack, and ship. Autonomous trucks transport the products within the network. To optimize truck utilization and increase transport flexibility, cross-company transport optimization is applied to share capacities between companies.

McKinsley had derived 6 main value drivers for Supply chain 4.0 as shown in below figure:

                                                                

                                                               Fig 6 - Value drivers

Impact of Supply Chain 4.0

Eliminating today's digital waste and adopting new technologies is a major lever to increase the operational effectiveness of supply chains. As per a study conducted by McKinsley, the report says that the potential impact of Supply Chain 4.0 in the next two to three years is huge - up to 30 percent lower operational costs and a reduction of 75 percent in lost sales while decreasing inventories by up to 75 percent are expected, at the same time increasing the agility of the supply chains significantly. 

With advanced system support, 80 to 90 percent of all planning tasks can be automated and still ensure better quality compared to tasks conducted manually.  Methods such as dynamic routing, Uberization of transport, leveraging autonomous vehicles, and - where possible - 3-D printing can give huge cost savings. 

Supply chains are extremely complex organisms, and no company has yet succeeded in building one that’s truly digital. Indeed, many of the applications required are not yet widely used. But this will change radically over the next 5 to 10 years, with different industries implementing DSC at varying speeds. Companies that get there first  will gain a difficult-to-challenge advantage in the race to Industry 4.0, and will be able to set, or at least influence, technical standards for their particular industry. 

The ultimate goal of Supply chain 4.0 will by no means be limited to greater efficiencies and profitability the organizations will harness. The real goal will be the opening up of many new business models and revenue streams the digital supply chain will offer. 

Video Links for understanding SCM 4.0-

1.https://www.youtube.com/watch?v=pdcJJpsOPGw - Overview on Digital Supply Chain by Pwc: A real time example how a digital supply chain can sense the upcoming demand in advance and adjust the supply chain for catering to the increased demand.

2.https://www.youtube.com/watch?v=3jh7XVpT7iA&t=2s - Manufacturing Process Industries Capitalize on Digital Supply Networks: A video by Deloitte - How Cost-efficient computing power and sensor technology is seeing rapid integration across manufacturing process industries such as pharmaceuticals and other chemicals