In March 2020, sales of toilet paper surged by 213% due to panic buying. This surge in demand left grocery store shelves bare, resulting in even more customer panic.
This was just the start of the vulnerabilities in the supply chain that the COVID-19 pandemic exposed. As demand continued to fluctuate, the flow of goods across borders was impeded and labor shortages persisted due to worker safety concerns, disrupting the supply of consumer goods. While the pandemic may be over, many supply chain risks remain. Geopolitical tensions, rising inflation, and other disruptions highlight the need to further build resiliency into the supply chain and ensure a swifter response in the face of unforeseen disruptions.
Once the need for greater resilience was revealed, organizations have increasingly turned to digital solutions to fortify their supply chains against future shocks. This marks a critical turning point where investment in digitization is not just seen as a means of enhancing efficiency, but as a strategic imperative to mitigate risks in an uncertain world.
Recently, 82% of CEOs in supply-chain-intensive industries indicated that they plan to increase investments in digital capabilities, specifically in a concept called Supply Chain 4.0.
Supply Chain 4.0 is characterized by digitization, automation and advanced technologies aimed at managing the vast amount of data and intelligence within the supply chain network to facilitate real-time visibility, predictive analytics and agile decision-making. A typical supply chain operates with extensive data streams from various sources, such as multiple sites, suppliers, customers, social media, geopolitical factors, regional regulations and internal processes. Moreover, evolving customer expectations drive the need for greater service granularity and customization, leading to a dynamic and ever-changing SKU portfolio. The surge in e-commerce further amplifies the demand for faster, more precise and granular supply chains, prompting innovation and adaptation.
Given the complexity and scale of this data, effective decision-making in the supply chain is beyond the capabilities of humans alone.
How will Supply Chain 4.0 lead to increased resiliency? Some advancements include:
1. Improved Planning
Planning processes are revolutionized with advanced forecasting approaches such as predictive analytics and closed-loop planning. These techniques enable organizations to anticipate demand more accurately, leading to improved resource allocation and inventory management. Moreover, planning becomes more customer-centric, with a focus on gathering granular details about individual customer preferences and behaviors. This level of insight allows companies to tailor their offerings and services more precisely, enhancing customer satisfaction and loyalty.
Scenario planning emerges as a critical tool, offering probability distributions of expected demand volumes rather than a single forecast number. This approach facilitates targeted discussions during Sales and Operations Planning (S&OP) meetings, enabling organizations to explore both upside potential and downside risks. By considering a range of possible scenarios, companies can make more informed decisions and develop agile responses to changing market conditions.
Additionally, advanced inventory management approaches leverage scenario planning to optimize inventory levels and minimize stockouts or excess inventory, ultimately improving supply chain efficiency and profitability.
2. Enhanced Performance Management
In Supply Chain 4.0, performance management undergoes a profound transformation, characterized by real-time, end-to-end transparency throughout the supply chain. This visibility extends from high-level overviews to very granular detail, providing organizations with comprehensive insights into their operations. By integrating data from all suppliers and service partners, companies can achieve a holistic view of their supply chain ecosystem, facilitating collaboration and informed decision-making.
One of the key advancements in performance management is the ability for systems to “learn” and automatically identify risks or exceptions in real-time. This capability enables the deployment of automated control towers that can proactively address issues before they escalate, enhancing supply chain resilience and responsiveness. This approach maximizes efficiency and effectiveness, driving down operational costs while simultaneously improving service levels and customer satisfaction.
Projections indicate that organizations adopting Supply Chain 4.0 principles could experience up to 30% lower operational costs and a reduction of 75% in lost sales. Moreover, the increased agility afforded by these advanced performance management practices positions companies to adapt swiftly to changing market conditions and emerging opportunities.
3. Increasing Automation
According to the Bureau of Labor Statistics, workforce participation has been falling from a height of 67.4% in 2000 to an expected 60.4% in 2032. With ongoing challenges in securing a reliable labor force, organizations are increasingly turning to automation to streamline both physical and planning tasks within their supply chain operations.
Back-office processes are being automated to improve accuracy and speed, reducing the burden on human workers and enabling them to focus on more strategic activities. Meanwhile, robots and autonomous vehicles are being deployed across various warehouse functions, handling materials from receiving and unloading to picking, packing and shipping.
These automated systems offer several benefits, including decreased long-term costs, labor and utilization stability, increased worker productivity, and reduced error rates. They also minimize the need for frequent inventory checks, and they optimize processes such as picking, sorting and storing, leading to greater operational efficiency and cost savings.
Path to Transformation
To enable the vision of Supply Chain 4.0, a clear data strategy is essential. This strategy involves identifying and sourcing clean data that aligns with your business outcomes and represents the decisions you need to enable.
Another essential requirement is the development of an accurate digital representation of your ecosystem, achieved through a Digital Twin model. This model should comprehensively capture the end-to-end processes within your organization, extending as much as possible to encompass the customer and partner network. It should provide granular-level detail on systems and steps within each process. Such a representation is crucial for aligning data signals with the appropriate context across the entire process, enabling the extraction of valuable intelligence, and facilitating the design of automation.
Building a digital representation involves creating a comprehensive and accurate inventory of processes and leveraging it to align operational and resource information. The process names in this inventory become the data labels, as they represent all actions in the supply chain ecosystem.
The establishment of a Process Center of Excellence to build and maintain a comprehensive process capability is essential for navigating the challenges and opportunities presented by Supply Chain 4.0. While this endeavor requires significant organizational investment and commitment, the rewards are substantial. A more efficient and resilient supply chain not only enhances operational performance, but also ensures a swifter response to unforeseen disruptions.
