By Jeff Marthins, Senior Business Consultant at John Galt Solutions.
The most fundamental requirement of any company is to deliver the product to the customer - on time and in full. If it is unable to do this, it fails to achieve the main goal of any company - to make a profit. As a result, in the last two decades, companies have made their supply chains longer, more complex, and global to ensure every product reaches its intended destination on-time.
However, there is a problem with this model. With more moving parts in a supply chain there are more things that can go wrong. In fact, supply chain disruptions are becoming more common with companies facing at least one major disruption (lasting a month or more) every 3.7 years.
But for every problem, there is a solution. For the supply chain industry, the latest solution is to use digital supply chain planning solutions to forecast demand, inventory, production, distribution, and more. Unfortunately, not everyone has adopted the latest technologies.
A Gartner report reveals that more than 50% of organizations have not yet actively started building a roadmap for supply chain digital transformation. Which is surprising, because according to a 2017 McKinsey survey, supply chain digitization gives the biggest boost in annual growth.
On average, companies that aggressively digitize their supply chains can expect to boost annual growth of earnings before interest and taxes by 3.2 percent—the largest increase from digitizing any business area—and annual revenue growth by 2.3 percent.
Statistically, this also means that chances are, your company is one of those who are not focusing on digitizing supply chain planning as much as they should. And if your company isn’t after raw financial benefits that come with digital SCP transformation, then why bother, right? Not exactly.
Even without the financial benefit, supply chain digitization should be prioritized because companies will benefit from a range of benefits that bring crucial improvements in security, customer service, resilience, and long-term agility. Additionally, the financial benefits are just starting to grow and a digital transformation’s impact on a company’s financial performance will grow considerably in the future, making an SCP transformation even more important.
Risk Management Through Forecasting
Globalization has increased the indefinite nature of supply chains as well as the risks involved. Supply chain shocks are also becoming more frequent and severe. Currently, companies can expect to lose more than 40% of one year's EBITDA every decade, on average. Losing an entire year’s worth of earnings is also not out of the realm of possibility either - all it takes is a single 100-day disruption.
A 100-day disruption could wipe out an entire year’s earnings or more in some industries.
How can companies prepare for disruption?
The best cure is prevention. Companies should always take proactive measures to avoid supply shocks. One of the best ways to do this is to adopt forward-looking technologies that can help predict supply shocks and give the company critical time to deploy contingency measures.
The technologies a company can employ is also highly dependent on their IT infrastructure. Investing in a digital supply chain planning transformation opens up a lot of possibilities and options including big data analytics, artificial intelligence, supply chain work mapping, stream (real-time) analysis, workflow automation, and more.
Risk management also extends to avoiding unfavorable situations like stockouts and lost sales, situations that can be avoided through better demand and replenishment planning. For instance, Hasbro was able to use Atlas’ Demand Management Engine to recapture $7 million in lost sales.
A small minority of companies that invested in mapping their supply networks before the pandemic emerged better prepared. They have better visibility into the structure of their supply chains. Instead of scrambling at the last minute, they have a lot of information at their fingertips within minutes of a potential disruption.
- Coronavirus Is a Wake-Up Call for Supply Chain Management, Harvard Business Review
Developing custom digital solutions with network mapping, artificial intelligence, and ML capabilities is very expensive which can act as a deterrent. A better alternative is to take an off-the-shelf enterprise-ready solution and customize it to your company’s requirements. One such solution is the Atlas Planning Platform developed by John Galt.
Factors Group, one of the largest manufacturers of nutritional products in North America implemented a 12-month rolling forecast using the Atlas, an end-to-end digital planning platform, and reduced on-hand inventory by $20 million while maintaining customer service levels through more accurate long-term forecasting.
Improved Customer Experience
As we mentioned earlier, business is all about delivering the product on-time and in full and if a company can do this consistently, it will win big points with its customers. But it’s not easy to be consistent in an ever-changing environment. Even the customer demand itself changes every day. This is where digitization becomes useful.
Digital planning solutions can take into consideration hundreds of individual parameters and millions of data points and process them all in real-time. The accuracy and speed of modern algorithms and big data help eliminate differences between forecast demand and actual demand. Another area in the supply chain that benefits from modern technology is routing. Last-mile deliveries are the most expensive parts of any supply chain which means optimizing routes can result in a significant reduction in delivery costs.
A real-world example of a company leveraging these technologies to improve customer service is Reddy Ice, the world’s largest manufacturer of packaged ice. Reddy Ice was able to reduce call-in orders caused by stock shortage by 50% by monitoring real-time ice levels in customer stores (through IoT sensors). They also improved delivery efficiency and on-time delivery by integrating real-world conditions such as weather into the routing process. On top of all this, Reddy Ice also achieved a 20% increase in sales driven by visibility and accuracy of daily demand forecast leveraging machine learning, local insights, and weather data.
Becoming Agile for Long-Term Success
Strength is in flexibility and so a company’s ability to survive disruptions and supply chain shocks lies in being able to comprehensively transform the way that their supply chains operate. Modern technologies are built around agility and promote innovation, communication, and collaboration.
Many companies are adopting a methodology known as DevOps and implementing it in other parts of their business. DevOps is an extension of Agile methodology that promotes creating software that can be easy to work with, reduces time-to-market, and can be updated quickly and easily.
Another popular practice that improves agility is establishing a single source of truth. Having all of the crucial information stored and managed in a central database is invaluable for cross-functional productivity. The Single Source of Truth (SSOT) model also promotes data-driven decisions and eliminates ambiguity by ensuring everyone has the same information on hand.
Efficiency and Process Automation
A common misconception is that a digital transformation of any kind introduces uncertainty. However, that’s far from the truth and when executed properly, SCP digital transformations will help you become more resilient and better prepared for disruptions without any loss in productivity. In fact, with the right software, productivity only increases.
Modern technologies can help you identify redundancies and streamline supply chain planning with surprising ease and effectiveness. The data analytics and management capabilities that are built into modern planning solutions introduce major benefits such as transparency and cross-functional collaboration.
Additionally, digitizing supply chain planning brings modern necessities like automation, continuous integration, IoT data management, and more. Leveraging these capabilities helps companies maintain and extend their competitive advantage.