digitize to succeed: supply chain transformation

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Digitize to Succeed: Supply chain transformation imperatives

Why today’s supply chains need to adapt to succeed

Digitize to succeed: Supply chain transformation imperatives

Recently, supply chains have seen a greater volume, variety, scope of disruption and external pressures than witnessed in decades. It is also not as straightforward as it was in the past to address these challenges. According to an IDC survey, almost 75% of supply chain leaders in global pharmaceutical companies said their supply chains were in reactive mode, constantly having to expedite to meet demand. In addition, over 65% say that they have lost faith in their demand forecasts. These are worrying statistics indeed. In order to provide more agility and resilience to supply chain management, we need to understand the underlying causes of these problems.

The speed of order fulfilment and process efficiencies remain key imperatives of supply chain management. But new challenges have forced supply chains to improve their resilience and agility in order to survive. Digitization remains the key to a successful ERP strategy, and more importantly, to having an edge in today’s competitive markets.

Modern supply chain management solutions help enterprises solve age-old problems such as process optimization, procurement, planning and logistics, and more recently, bigger challenges, such as:

There are increasing requests for customizable products, mechanisms to deal with higher demand volatility, and the need to operate in an environmentally sustainable way. These factors put more emphasis on digital transformation, as digitizing existing processes and ways of working are no longer enough.

This paper will explore these challenges, and provide recommendations for organizations with business-critical supply chain processes on how to adapt to succeed.

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Modern supply chain management solutions

More accurate demand

forecasting

Predictably leveraging machine

learning and AI

Real time, end-to-end,

granular visibility into supply and

demand

Meeting demand (or not)

with existing and projected

supply

Supply chains are now under pressure from at least three distinct elements:

The customer

Customer expectations are constantly increasing. For example, most retail customers now expect same-day dispatch and next-day delivery. Yet, according to a 2020 survey of 900 company executives across 9 industries, respondents stated they invested an average of $150 million to improve their supply chains over the past two years — but only 10% of them are using the investment to meet increasing and evolving customer experience demands . Product personalization is now commonplace and is expected across many industries. Meanwhile, the customer still expects and requires fast delivery for personalized products. Thus putting more pressure to ensure a fast and efficient process.

Supply chains today: Critical challenges

There is a shift from inspection-based audit models to continuous- compliance models, with the increased granularity and scope of compliance checks. This will continue to require companies to invest more and adapt their compliance functions.

The regulator

The advent of continuous manufacturing is touching numerous companies in a variety of ways. Nowhere is it more apparent than in pharmaceutical companies. This trend has become more prevalent and will inevitably become the norm, given the investment in new drug products due to the COVID-19 pandemic. Continuous manufacturing is being actively encouraged by regulatory bodies such as the FDA. This impacts the compliance and regulatory functions and their involvement in operations.

The ecosystem

Seamless supply chain collaboration in real time with suppliers to optimize inventory is an imperative. Building resilience and agility for sourcing raw materials to withstand disruptions is a necessity, in supply chain management. The sustainability agenda is no longer an option. The shift to the circular economy adds additional considerations and activities in supplier selection and management within existing supply chain configurations.

Digitize to succeed: Supply chain transformation imperatives 3

Analysts in the supply chain management industry have made some key recommendations that can ensure your supply chain operations address these challenges. We’ve summarized the main strategies that will enable supply chains to adapt and survive in an ecosystem that requires increasing customer-centricity, resilience and agility:

Development of a digital supply chain strategy

According to a Gartner survey, almost half of supply chain organizations have a digital supply chain strategy in place, or have actively defined their long and short-term transformation goals. It is unclear how many of these companies truly have a digital supply chain strategy in place as opposed to merely believing that they do. It may be worth providing a baseline definition of the term here.

At HCL, we join many of our peers in seeing “digital supply chain” as an entirely new way of doing things — not just a matter of adding more IT-based capabilities in a process that is still fundamentally a hybrid patchwork. In other words, it is a far more holistic approach that seeks to capitalize on connectivity, SMART technologies, and tracking capabilities such as barcode, RFID, GPS, etc. This approach then harnesses all of the resulting data to drive important tactical and strategic decisions of your business. Even as a common consensus on what this all means continues to come into focus, such transformation initiatives are gaining a board-level focus — which ultimately results in more focus on business goals, value output, process definitions, and the roles and individuals that ultimately operate the supply chain.

Process orchestration: While automation is more embedded in supply chain processes, it remains a topic which is subject to a great deal of ‘hyping up’ by software providers. However, RPA tools have been successfully deployed in conjunction with AI, ML, and other technologies. The result is more end-to-end automation of processes through triggers in the supply chain. While most companies today are deploying RPA to automate production and warehouses, end-to-end automation could lead to process orchestration. This will set a new standard with regards to efficiency, agility, risk management, and cost savings.

Recommendations: How to digitize to succeed

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Informed decision making through real-time analytics: In supply chain planning, inventory optimization and order fulfilment, the ability to take effective decisions is largely dependent on access to real time and accurate information. A solid data and analytics strategy should allow quick and easy access to real-time data to facilitate the right decisions in supply chain planning. Capturing data from all points in the supply chain (both inside and outside the organization) and analyzing it will help find out where issues are likely to occur; all through a real time view of the supply chain data and critical KPIs.

Integrated is the keyword: On cloud or on premise, most supply chain organizations deploy a number of key systems to manage key functions in a best-of-breed approach. For example, supply chain planning, transport management systems, vendor and supplier management systems, ERP, and manufacturing execution systems may be separate applications. Organizations should ensure ERP integration uses standard methods with system interconnectivity being of paramount importance to ensure a scalable solution. Analytics tools are now required to ingest data from multiple applications to prevent fragmented or limited visibility on operations.

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Digitizing the supply chain calls for a strategic focus on transformation initiatives. Business leaders should enable end-to-end process orchestration, underpinned by a solid data and analytics strategy to facilitate decision-making. They must consolidate and integrate key supply chain systems to facilitate issue identification and upcoming challenges.

Retail

According to McKinsey, retail supply chains of the future will change from fixed and linear to having dynamic flows with a huge proliferation of ship-from and ship-to locations (aka.multi-channel). This will come with a heavier focus on customer experience, including “lot size of 1” approaches that allow retail customers to tailor products to their specifications when they order.

The “ship and forget” fulfilment approach will decline. Maintaining positive revenues require dynamic reallocations from one channel to another, more granular demand planning, and process-level optimizations. Deeper integration and blurred, multi-functional nodes will meet the complexities of retail supply chains and customer expectations of 1-2 days reduction in lead-to customer.

Consumer products

During early 2020, when the COVID-19 pandemic first hit the world, GE reported an initial drop in refrigerator and freezer sales. Then came a huge increase in appliance usage due to the lockdowns, which dramatically drove up demand. During this spike, GE Appliances CEO Melanie Cook was quoted as saying, “We cannot keep up with the demand. We’ve invested, added capacity, and we’re still flat out.”

In a digital transformation approach, software was employed to enable GE Appliances check stock levels at distribution centers, track shipments from plants, and gain pre-emptive insights into disruptions that might delay delivery to customers. Visibility into the cause of order backlogs, in some cases due to customer procedures such as not accepting incomplete orders, enabled quick rectification. New streams of data were acquired, harmonized and shared, so that all nodes in the supply chain could rally around the same priorities. As a result, GE was able to increase production by 25% in the latter half of 2020.

Supply chain transformation: Key trends


Supply chain disruptions can have unique impacts in different industries. Digital transformation of the supply chain emerges as a common theme among leaders who have successfully navigated disruptions amidst trying business conditions:

FMCG

In the FMCG segment, end-to-end automation from production to delivery is bringing better efficiencies to the supply chain. However, transportation and packaging materials partners have emerged as high-risk suppliers in recent months. The advent of crowdsourcing in transport is helping cut costs and bring reduced lead times to localized delivery. Trends indicate that real-time alignment of operational metrics in addition to supply chain diversification and agility, have become priorities to tackle disruptions.

Pharmaceutical

In a McKinsey quarterly interview, the CEO of a leading Asian pharmaceutical supplier highlighted the need to predict supply chain disruptions. To support multi-national remote operations, the company accelerated the architecture of a responsive digital supply chain. It also loops key stakeholders to enable knowledge sharing and faster resolution of intricate issues that crop up while working in a global, tightly-regulated environment. Examining the value chain, and building in flexibility where needed, are essential to minimize supply chain disruptions and interruptions to the pharma supply chain.


We are already seeing how increasing incorporation of IOT into consumer products can monitor and predict demand with staggering accuracy. This influences strategic decisions and enables automatic refills/replacements across the supply chain. As more refrigerators and other household appliances are connected to the internet, more of our processes and systems must conform to the digital supply chain philosophy.

Other trends

This movement to the cloud and shift to digital thinking comes with a host of complementary technologies which are overwhelming, yet ever more pervasive in the business technology landscapes across industries. From AI, RPA, API to blockchain and beyond, there is much to consider. Although we could go to much detail on all of the above, let’s give special mention to the hot topic of the moment — NLQ (Natural Language Query). This is the starting point for true conversational AI, or chatbot technology. This may very well become the single most important driving force in the use and adoption of next-generation technology by humans.

Movement to the cloud

Based on Flexera’s 2020 State of the Cloud report, the top two cloud initiatives among corporate respondents were optimization and expansion of their cloud usage. Most enterprises favor a multi-cloud approach which is often also a hybrid approach consisting of both public and private clouds. At the same time providers such as SAP, who are not exclusively cloud companies, will transform from cloud-first to cloud-only in the ensuing years.


Disruption trends in general

Based on a recent Gartner survey conducted among discrete manufacturers of all sizes, it should come as no surprise that the COVID-19 pandemic has towered over other sources of disruption in the past two years (rated at the top by 71% of respondents). Other more “traditional” sources of disruption like supply/demand shifts, competition, technology, and macroeconomics were rated lower, but distributed fairly equally. What we can glean from these statistics is that relatively few companies were prepared for the once-in-a-century crisis the current pandemic has brought. At the same time, the usual suspects do not go away and only serve to compound the effect. While the pandemic will surely pass, we think that few companies can ever go back to the “old normal” and business-as-usual. Supply chains remained surprisingly resilient during the lockdown period. But the cost in resources and human endeavor to make that possible is not something anyone wants to repeat. The race to a digital supply chain has clearly accelerated as a result.

Some of the key themes that emerge from these industry trends are as follows:

Unplanned supply and demand disruptions and deviations are likely to continue with increasing regularity. The ability to operate and adapt in such an environment is a key imperative.

Planning heuristics and algorithms to respond to the need of the hour. In times of global disruption, single, accurate truths do not exist. Predictive models and simulations now output information in ranges rather than absolute numbers, enabling efficient supply chain planning and orchestration in multiple response scenarios. The predictive models should be configurable, have access to real-time data, and able to be rerun quickly.

Manufacturing and distribution operations need to be optimized and automated, to allow for investments that will help manage various new and changing pressures and impacts

Managing supply chain disruptions before they occur calls for end-to-end visibility and agility, both across and within the supply chain. Use of digital technologies must therefore aim to provide for these outcomes when carrying out a supply chain transformation.

A major trend in supply chain is sustainability. More and more companies are committed to their responsibility for the environment and create goals such as SAP to be carbon neutral by 2025, or United Airlines to be carbon neutral by 2050.

How industry trends translate to action


Actionable data

Digital supply chain solutions integrate data from a variety of sources in real time. They empower analysts with insightful visualizations, critical notifications, and simulations that ultimately enhance decision making in times of uncertainty.

End-to-end visibility

In addition to extending visibility of operations through suppliers and subcontractors, visibility must extend downstream to customers too. Demand sensing and forecasting tools can now consider hundreds of factors. They can efficiently crunch the numbers and fine-tune the output as per customer requirements. Digital supply chain solutions can integrate data from various distributed sources across the value chain to provide real time, end-to-end visibility across the value chain.

Collaboration

As supply chains diversify, digital supply chain solutions will become platforms that can cross-pollinate supply chain players at various steps with the appropriate data to enable continuous collaboration, tracking, procurement, and fulfilment.


New-age digital supply chain solutions can help enterprises deal with rising complexity, increased volume and severity of disruptions in the supply chain. Digitization enables no-touch and/or reduced cost of operations at nodes across the supply chain, and also gives access to data sets that facilitate the correct decision making in demanding times.

Here are the key strategic benefits of digital supply chains:

Digital done better

Risk management

Visibility within and beyond the organization, suppliers, subcontractors, and sub-tier suppliers is the key to managing disruption and compliance-related risks in the supply chain. As regulatory bodies move toward continuous compliance monitoring tools, digital solutions will become essential for doing business in the global economy.

Immediacy

In a global economy where supply and demand peaks and troughs are more unpredictable and frequent, collaboration with suppliers must happen in real time to meet customer demand. Continuous adherence to quality assurance and compliance excellence must be maintained, and this is critical to sustain customer satisfaction in the supply chain.


Keeping up with the need for digitalization in today’s supply chains, a number of companies are following the lead and implementing digital solutions. However, supply chain transformation initiatives are subject to a number of challenges. Combining the right ERP with the right best-of-breed solutions to augment critical non-ERP sub-processes is only part of the picture. Traditional supply chain processes typically manage the internal production, inventory management, sourcing and selling aspects. But, do not usually integrate suppliers, third parties, and business intelligence to close the loop on planning and forecasting.

Supply chain transformation initiatives also suffer from assuming a ‘one size fits all’ approach to system implementation. We are aligned with BCG on their view that selecting the right partner for your transformation/migration strategy is key, which they recommend in their paper “An ERP Strategy for a Post Pandemic World”.

The SAP Ariba Network is the world’s largest B2B commerce network with more than 5.3 million companies in more than 190 countries connected to it (as on December 2020). This means that there is a good chance some of your key suppliers will already be transacting through the platform. The network allows you to send various business documents, requests, and messages from your ERP to external business partners such as suppliers, tier suppliers, subcontractors, 3PL or 4PL providers.


Some of the leading ERP solutions in the market offer lean and modular architectures that are API-based, cloud-native, and agile. However, to align the implementation with your business case, it is crucial to collaborate with a technology partner. The right partner can align your implementations along the right KPIs and defined targets, on time.

Beyond implementation, companies must also extend change management to be inclusive of its staff and contingent workforce. Future-proofed ERP solutions utilize persona-based, end-to-end processes, which might call for an upskilling/reskilling plan for your existing workforce. Knowing the workforce and including them in the journey is key to a successful transformation.

The Ariba Network: A final piece of the puzzle to complete digital transformation in supply chain

Within the supply chain management and direct procurement domains, the Ariba Network offers tangible value by including data and processes from outside the four walls of your enterprise. For instance, by incorporating the data and process steps which take place at your vendors. This means you can have full visibility throughout the supply chain, and not just what is happening internally. After all, the supply chain process cannot exist without suppliers and third parties. This visibility across the entire process facilitates increased agility and resilience to external disruptions. For example, if you see a vendor cannot deliver, or become aware of some risk event impacting the supplier or region, then you can use the network to quickly seek alternative sources without building additional integrations. The process is available to switch to a different supplier quickly.


The breadth and depth of processes with suppliers on the Ariba Network is now more advanced and robust than ever before. It facilitates integrations with your suppliers in supply chain forecasting, Supplier Managed Inventory (SMI), subcontracting with CMOs, quality management and direct procurement order collaboration. The diagram below shows the full scope which can be leveraged through this Supply Chain Collaboration (SCC) solution:

SAP Ariba supply chain collaboration processes: Overview

Figure 1- SAP Ariba SCC processes overview

Forecast Collaboration

Supplier Managed Inventory

Place, inquire and receive order

Provide ERS, invoice status and payment advice

Confirm order and provide advanced shipment notification

Provide invoice

Share forecast

Share demand, inventory and min/max levels

Forecast commit

Provide and execute against shipment via scheduling agreement or replenishment order

PO Collaboration (all PO types)

Supplier Managed Inventory

Provide rolling delivery schedule with different firming levels

Execute against firmed orders (released)

Scheduling Agreement Release Collaboration

Place order with BOM

Provide notification of components' shipment

Notify buyer of components' receipt

Provide component consumption

Provide reports on production, component POs and component inventory

Subcontracting/ Contract Manufacturing Collaboration

Vendor Consignment Collaboration

Report consumption of consigned stock and provide settlement document

Provide rolling delivery schedule with different firming levels

Multi-tier Order

Request quality notification/ response

Request quality inspection

Request quality review/ certificate

Provide notification response/ notification

Provide quality inspection results

Provide quality review/ certificate

Quality Collaboration

Place return order

Provide notification of return shipment

Notify buyer or return shipment receipt

Provide credit memo

Returns Processing

CM Manufacturing Visibility

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Buyer Supplier

Consider a situation where a company needs to engage with multiple suppliers to finalize a weekly supply plan. With the ‘Forecast Collaboration’ scenario in the Ariba Network, your demand managers will be able to analyze the demand forecasts, and communicate the consensus demand plan to the supply manager. The supply manager can then share the demand forecast with each supplier with a single click. This can send the daily or weekly requirements to all suppliers on the Ariba Network. As a result, the unconstrained forecasts can be viewed and checked by the supplier. The suppliers’ demand managers can evaluate this forecast and communicate through the tool, the quantities they can commit to, and any additional quantities they have in each time period.

The supply manager can then get a complete view of what each supplier can or cannot deliver in each time period. They can then adjust the forecast with each until they have been able to arrive at a final constrained supply plan to create purchase orders or schedule agreements.

These ‘back-and-forth’ processes facilitate dialog and confirmation electronically with your business partners in the fastest and simplest possible way. It can be done electronically, with an underlying data trail being available for analytics and reporting to help inform future decision making.

Bringing suppliers into the supply planning system process: An Ariba use case


The Ariba Network Supply Chain Collaboration solution is pre-built and integrated on cloud. The automated upgrades help you stay current with minimal effort. Connect your ERP to the network and you can leverage these collaborative processes with your suppliers, and realize the benefits by extending the process to your suppliers.

The Ariba Network also facilitates connectivity and collaboration with tiered suppliers. Thus reducing the complexity that arises from multi-component products and/or logistics providers. On a granular level, key stakeholders such as supply and demand managers are also empowered with key insights, controls, and alerts. These are significant contributors to enable orchestration of supply chain processes.

Supply chain digitization: Giving you a competitive edge


The high level business benefits that supply chain digitization and collaboration with suppliers can bring, include:

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An integrated, single-entry point to a platform for supply chain collaboration with all suppliers. This simplifies the process of onboarding and upskilling new suppliers. It also ensures the operational IT setup and support costs of integration with all suppliers is minimized.

Real-time information visibility through analytics and dashboards across the supply chain improves resilience of the entire value chain. It brings predictability, agility, and responsiveness to enterprises.

Deployment through an open platform provides excellent integration capabilities for AI, machine learning, and automation to drive greater efficiencies, savings, and responsiveness to external events.

The KPIs which can be measured to estimate savings and benefits to the business include:

Reduced cost of inventory, average transaction costs, percentage of back-orders, supplier onboarding costs and IT integration costs.

Increased productivity of stakeholders that are involved in supply chain operations and improved compliance to process.

Increased customer-fill rate, which adds to revenue gains and improved service levels.

Figure 2: A digital supply chain


The graphic below provides an example of what a digital supply chain might look like by highlighting some of the key benefits that can be harvested across each main area of your network.

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R&DRapid prototypingCustomer collaboration platforms for product development

Planning and SalesAdvanced demand planning with Big DataMulti-channel marketingHarmonized business intelligenceForecast collaboration

Distribution and LogisticsHands-free warehouse pickingSmart sensors for delivery and condition trackingInventory monitoring and collaboration GPS/RFIDDrones for last mile delivery

Maintenance and RepairPredictive maintenanceIoTSmart glasses3D printing of partsSupplier collaboration

Production3D printingMachine to machine automated assemblySmart glasses

Source to PayAll assisted purchasingAutomated complianceOrder processing through RPASourcing informed by market and risk intelligence

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Conclusion

There is an undisputed need to digitize the supply chain to remain competitive in today’s world. However, merely digitizing is no longer enough. In fact, recent supply chain disruptions such as the pandemic, other external factors such as political events, or local disasters have underlined the fact that many lack the resilience to quickly adjust to satisfy customer delivery and quality requirements. Organizations who rely on efficient supply chains must critically evaluate their environment, and define their transformation strategies in line with the desired outcomes.

Digitization of supply chains calls for skilled implementation partners that can help enterprises meet their targets, bring visibility across the entire supply chain, and implement mechanisms to cope with disruptions. A successful digital supply chain can help companies gain a competitive edge by becoming more customer-centric, resilient to disruptions, enforce compliance to processes, and ultimately deliver customer requirements in uncertain times. In a digitally-interlinked ecosystem, supply chain companies can even aspire to embed sustainable supply chain operations. These companies can meet the essential requirements for environmentally and ethically-conscious buyers, and enforce confidence and accountability in the ecosystem.

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1.https://www.gartner.com/smarterwithgartner/5-trends-from-the-gartner-hype-cycle-for-supply-chain-strategy-2020/

2.https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/retail/articles/future_of_retail_supply_chains.pdf

3.https://www.mckinsey.com/~/media/mckinsey/business%20functions/operations/our%20insights/next%20generation%20supply%20chain%20supply%20chain%202020/next%20generation%20supply%20chain_%20sc%202020_final_without%20cropmarks.pdf

4.https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Supply%20Chain%2040%20%20the%20next%20generation%20digital%20supply%20chain/08b1ba29ff4595ebea03e9987344dcbc.pdf

5.https://www.mckinsey.com/~/media/McKinsey/Industries/Advanced%20Electronics/Our%20Insights/Reimagining%20industrial%20supply%20chains/Reimagining-industrial-supply-chains.pdf

6.https://www.wsj.com/articles/ge-appliances-turns-up-the-speed-on-supply-chain-upgrade-11606326996

7.https://www.pwc.se/en/pdf/digital-supply-chain-final-2.pdf

8.https://www.pwc.in/assets/pdfs/consulting/technology/data-and-analytics/mobile-computing-digital-and-internet-of-things-in-supply-chains.pdf

9.https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/supply-chain-4-0-in-consumer-goods

10.https://www.wsj.com/articles/ge-appliances-turns-up-the-speed-on-supply-chain-upgrade-11606326996?page=1

11.https://www3.technologyevaluation.com/research/article/the-5-biggest-challenges-when-implementing-erp-for-the-first-time.html

12.https://www.riverlogic.com/blog/top-supply-chain-trends-you-need-to-know-in-2020

13.https://www.chainalytics.com/7-supply-chain-challenges-in-2019/

14.https://www.freightwaves.com/news/pharma-supply-chain-faces-challenges-even-before-covid-vaccine-distribution

15.https://www.ariba.com/

16.https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/How%20Asias%20largest%20pharma%20is%20leveraging%20its%20values%20to%20navigate%20the%20COVID%2019%20crisis/How-Asias-largest-pharma-is-leveraging-its-values-to-navigate-the-COVID-19-crisis-vF.pdf

17.https://www.industryweek.com/supply-chain/article/22025901/how-supply-chain-systems-integration-is-a-game-changer

18.https://www.automationanywhere.com/rpa/hyperautomation

19.https://home.kpmg/in/en/home/insights/2020/05/ramping-up-the-supply-chain-post-covid-19.html

20.https://www.bcg.com/en-in/publications/2020/post-pandemic-enterprise-resource-planning-solutions

21.https://www.forbes.com/sites/sap/2020/04/28/the-importance-of-real-time-data-in-times-of-supply-chain-disruption/?sh=6ea785e25563

22.https://www.sap.com/india/products/integrated-business-planning.html

23.https://www.sap.com/india/products/hana.html

24.https://www.ariba.com/ariba-network/customer-success-stories

25.https://www.ariba.com/solutions/solutions-overview

26.www.supplychainbrain.com/blogs/1-think-tank/post/31723-how-customer-centric-supply-chains-can-fuel-growth

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