Managing Supply Chain Complexities
How companies are transforming and driving value in procurement and supply chain with the help of emerging technologies.
Procurement leaders are increasingly turning to technology to help them address complexities of the internal, external, and digital varieties. And it’s not surprising then, the word of the year for CPOs (chief procurement officers) has been complexity, according to Deloitte’s Global CPO Survey 2019, which surveyed nearly 500 leaders in procurement about the challenges and opportunities they face in their jobs. Procurement leaders’ top concerns include economic downturn (42%), internal complexities (39%), external complexities (37%), trade war (33%), and managing digital fragmentation internally and externally (29%).
More than half (60%) of firms involved in Deloitte’s latest CPO survey said they’ve seen increases in procurement-related risk in the past year, but these executives’ directives remain the same: manage the risk, reduce costs.
But how, especially with all of the complexity inherent in today’s business environment? How, when so much complexity is outside of a procurement leader’s control?
Deloitte even categorizes “bad complexity” as anything that introduces risk into the procurement process and impedes its flow.
The antidote procurement organizations are looking for—the answer to the complexity problem—is digital transformation, with the help of the IoT (Internet of Things).
And one can’t ignore the bigger picture. Transforming procurement is just one piece of a puzzle, and that puzzle is the supply chain. The IoT is transforming both procurement and supply chain operations as a whole. Looking forward, experts say emerging technologies like AI (artificial intelligence) will bring the most significant change yet.
Driving Value in Procurement
The IoT is transforming how people, processes, and technologies drive value through the procurement process in the enterprise, says Damodar Sahu, digital strategist and partner of manufacturing and automotive at Wipro Ltd. Sahu says the IoT can help reduce unknowns; it can improve spend visibility and add transparency into supply and equipment usage. Business benefits include faster, better decisionmaking, shortened procurement lead time, reduced costs, faster time-to-market, and increased profitability.
Nicholas Petruzzi, professor of supply-chain management at Penn State, follows this line of thinking: “To me, IoT basically means ‘connectivity,’ and connectivity means ‘visibility.’ Visibility, in turn, means ‘information.’ Thus, from my perspective, IoT fundamentally means information. So, in the extreme—in the ideal—IoT would give us total connectivity, where total connectivity would mean—in the ideal—perfect information. Perfect information is synonymous with ‘no uncertainty.’
Thus, the idealistic promise of IoT is that, metaphorically speaking, it’s like having a crystal ball—it’s omniscience. Imagine that. Imagine having a crystal ball for your manufacturing procurement process.”
A crystal ball for a manufacturing procurement process would mean no demand uncertainty, no process uncertainty, no yield uncertainty, and no lead time uncertainty.
Businesses would know exactly how much and when customers will order, exactly when a machine or personnel breakdown will occur within the manufacturing process, exactly how much of an order with a supplier will arrive in useable condition, and exactly when an order placed with a supplier will arrive.
“The bottomline is in a manufacturing procurement world with no uncertainty, you would never need an inventory buffer. Zero safety stock,” Petruzzi adds. “In a manufacturing procurement world with no uncertainty, you could achieve the ultimate—the idealistic—just-in-time system.
From a manufacturing procurement perspective, you would be able to plan with precision. You would be able to guarantee that you have exactly how much product you need, no more and no less, exactly when you need it, no sooner, no later. One hundred percent fill rates, zero safety stock. Imagine that.”
The IoT isn’t a magic portal that brings businesses straight to this point of perfect omniscience, but it is certainly a step in the right direction. Petruzzi’s point is that IoT technology marks a quantum leap in the journey to that ideal destination.
Progress is being made today. In fact, Petruzzi’s colleague at Penn State, Steve Tracey, executive director of the Center for Supply Chain Research, says the two major ways the IoT is impacting procurement today is through visibility and digital transformation.
Realtime visibility gives the procurement process the capability to sense and respond with more precision than ever before. “The sensing capability enables procurement managers to gather data that they can analyze to better understand supply network and processes,” Tracey says.
“The intelligence gained allows procurement managers to make informed decisions and respond more effectively to achieve improvements in areas such as operational efficiency, processing time, and operating and management costs.”
For example, today, use cases like spend analysis and supplier collaboration are being advanced with IoT sensing capabilities. The IoT is helping procurement teams gain pattern visibility in their spending. Procurement teams can also easily share data, improve accountability, and help cross-functional teams co-develop solutions with suppliers and internal stakeholders. Such collaboration accelerates cycle times by improving internal coordination and supplier performance.
The IoT is also driving value in procurement through digital transformation, which expands beyond procurement into the entire supply chain. “The move to digital business capabilities are ever more important in the environment where supply is coming from locations across the world, finished products are sold globally through multiple channels, planning cycles continue to shrink, and customers are expecting ever shorter delivery lead times,” Tracey adds. “All these pressures and the need to digitally transform are affecting all areas of the supply chain, including procurement.”
Driving Value in Supply Chain
Wipro’s Sahu teases out an intelligent supply-chain scenario: “Imagine managing a supply chain where you can see actual product condition information flow in realtime as material flows through each step to the customer. You and your team have immediate access to information that confirms desired outcomes will be met. You see alerts immediately when there are issues that need resolution or, better yet, on leading indicators before problems occur. Imagine how much more responsive you can be to your customers’ needs. Can you also visualize the ability to drive increased revenues, eliminate waste, enhance sustainability, and reduce operational and working capital costs across your end-to-end supply chain? Imagine having the ability to monitor and measure success instantly. This is called intelligent supply chain or supply chain led by IoT.”
Burcu Keskin, professor of operations management at The University of Alabama, says the benefits of a digitized supply chain include the elimination of unnecessary steps, the automation of mundane steps, and the ability for humans to use their brainpower in handling exceptions, which can lead to unprecedented productivity improvements.
Blockchain Finds Supply Chain Niche
The supply chain is getting bigger and we are beginning to see an even greater intersection of blockchain technology and the supply chain.
Will Tech Help Manufacturing, Really?
For this column I want to talk about manufacturing, one of my favorite subjects. I have been writing about manufacturing for more than 20 years.
SC Hurdles and the IoT
We are just about at the end of the year and readying ourselves to make predictions for the new decade, but before I start to do that, I thought we should look at what’s been happening in procurement, supply chain, and how the IoT (Internet of Things) is making an impact on business processes.
“This will act as a catalyst for matching supply and demand better,” she explains. “Ultimately, customers will benefit by getting the products they want and the companies will enhance their profitability.”
With the unprecedented technological advancements of the past two decades, Keskin suggests business operations are evolving at a fast clip.
“Now, it is possible that business processes and supply chains, even across multiple firms and different geographies, are seamlessly connected,” she says. “The digitization of manufacturing initiated a significant transformation in manufacturing operations. In a sense, these new developments optimize the use of data, computers, algorithms, and automation, creating greater efficiency.”
The supply chain involves every process included in bringing a product from a manufacturer to an end user, including suppliers of raw materials, manufacturers themselves, transportation and logistics companies, and so on.
Adam Robinson, marketing manager at transportation management company Cerasis, says the IoT offers many benefits to the global supply chain, including revenue growth, asset utilization, waste reduction, customer service, profitability, sustainability, security, risk mitigation, working capital deployment, agility, and equipment uptime.
In manufacturing, it offers the ability to quickly manufacture products with a short-lifecycle, make changes in the middle of production, and use time-sensitive data to make more accurate predictions of demand.
And in transportation, the IoT offers the ability to easily process profitable returns, consolidate shipments based on multiple factors, reroute goods instantaneously, and service parts on-demand.
“The decisionmaking capacity of smart devices within an IoT-enabled network also affects the overall supply chain structure,” Robinson says. “Traditional supply chain tasks in procurement, planning, logistics, and supplier management would be streamlined by intelligent, data-driven systems in a collaborative multi-enterprise environment. While logistics managers may need to acquire an enhanced skill set, their primary functions would be focused on designing capability and network optimization, inter-enterprise collaboration, disruption and risk mitigation, and supply chain orchestration in an effort to exploit competitive advantages and differentiation.”
Supply chains that embrace this technology will differentiate themselves quickly from the rest of the crowd. Judy Whipple, professor in Michigan State University’s Supply Chain Management Dept., says, “End-to-end IoT can provide greater visibility to inventory locations/levels around the globe, increasing inventory accuracy. This data can then be shared with partners to better understand and predict consumption patterns, which, in turn, can improve demand planning.
This information can also help firms improve spend analysis as well as identify outliers, (like) why is one piece of equipment incurring more maintenance than others, and how can this issue be resolved through better training, selecting different equipment, improving maintenance processes, etc.”
Data availability can also improve decisionmaking with respect to risk management. “For example, suppose a firm has a disruption affecting one area of its supply chain.
It can quickly identify where inventory and assets are available across its network to determine the impact of the disruption and potentially create more effective recovery strategies,” Whipple adds.
Simply put, the visibility the IoT delivers throughout the supply chain presents opportunities to improve transparency, efficiency, responsiveness, and greater collaboration. But, there’s something missing. What’s missing today is the “thinking.” Enter AI. Advances in AI, coupled with IoT, will enable a cognitive state that creates proactively agile procurement and supply-chain management.
AI in Procurement and Supply Chain
“(The) sensing capability of IoT is creating visibility through realtime communication within its ecosystem, whether it be the user or the connected physical machines, systems, and processes,” explains Penn State’s Tracey. “But, without thinking capabilities, the interpretation of these data still currently lies in procurement users who will garner insights, make decisions, and respond accordingly. In the future, as IoT technologies become more ‘intelligent’ with the help of AI, it will elevate the procurement process from being ‘smart’ to being ‘intelligent,’ able to take certain, but not all, actions for itself.”
One of the most significant benefits of leveraging the IoT throughout the supply chain is the ability to rapidly collect large volumes of data that can be analyzed for actionable insights that drive smarter, faster, and better decisions. The potential value from this Big Data is essentially limitless, especially in conjunction with AI. “At its most basic level, AI helps to find meaningful patterns and trends in the Big Data produced by IoT,” Tracey explains. “In supply chain, this data discovery helps managers to draw actionable insights about demand, inventory, production, and distribution operations, allowing them to make more informed business decisions, more quickly.”
Emily Lyons Soelberg:
AT&T Takes on NB-IoT
Peggy and Emily Lyons Soelberg, vice president, product management, IoT (Internet of Things), AT&T, talk about how everything is getting connected and how the IoT will really change the trajectory of AT&T’s business.
The State of IoT, Cloud, Edge, and AI
Peggy and Sam George, corporate vice president Azure IoT, Microsoft talk about the state of the IoT (Internet of Things) space, where it’s headed, and how the cloud, the edge, and AI (artificial intelligence) are impacting several vertical markets.
The predictive capability of AI potentially empowers supply chain managers to take proactive actions and make fast and smart decisions when it comes to the unplanned, distracting events and delays in the supply chain. AI can transform materials visibility and management, demand sensing and planning, and more, allowing supply chain partners to dramatically accelerate maneuverability of assets through the supply chain, reduce waste, and respond to customers with agility.
“In essence, AI and (the) proactive agility it brings can positively impact both bottomline efficiencies and top-line growth of procurement and supply chains,” Tracey concludes.
AI is revolutionary. Wipro’s Sahu says these technologies have several applications in the procurement and supply chain, including extracting information, data analysis, supply and demand planning, and warehouse management, and pursuing these applications are worthwhile. “While the journey to becoming an AI-enabled procurement organization needs time and effort, it is well worth the investment,” Sahu says. “Once the data foundation is in place, there are many different avenues through which procurement can leverage it to deliver consistently higher value.”
This value includes reducing the complexities that are keeping CPOs and other procurement leaders up at night. With the help of the IoT and, increasingly, AI, enterprises are not only one step closer to managing supply chain complexities but also one step closer to transforming and driving value in procurement and the supply chain as a whole.
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