Supply chain challenges remain at the forefront for many, particularly because such obstacles do not appear to be subsiding. Manufacturers are still reporting ongoing global disruptions resulting in rising costs, and as demand outpaces supply, those higher costs are more likely to be passed on to customers.
Although there is no one simple answer or logistics solution, many manufacturers are responding with new strategies to transform the supply chain into one that can withstand disruptions. In an effort to curb supply chain challenges, manufacturers are embracing the tech-savvy strategies of digital supply networks and data analytics.
Why Invest Now?
Global manufacturers are reporting hefty revenue losses for 2021. In their Annual Global Supply Chain Report, the software company Interos found that “global supply chain disruptions cost large companies, on average, $184 million a year.” And in a report titled, "Risk, resilience, and rebalancing in global value chains," McKinsey supply chain experts concluded that “supply-chain disruptions cost the average organization 45 percent of one year’s profits over the course of a decade.”
As these studies reveal, ever-present supply chain obstacles are no surprise to companies and even the public, who pre-pandemic may have been blissfully unaware of where their household goods came from. The significant scope of losses felt on a global scale — including systemwide complications from high demand, rising costs of raw materials and delayed deliveries — calls for a fix to an unstable U.S. supply chain.
The Benefits of Digital Transformation
Digital supply networks, or the digitization of the entire supply chain, mean exactly what it sounds like: digitizing formerly analog processes and methodologies, while adding new digital tools like blockchain, the Internet of Things (IoT), machine learning, and artificial intelligence. Offering unprecedented levels of awareness and control, digitization is driving a revolution in optimization. Take just IoT, for example.
If a manufacturer’s product is tagged and tracked using an IoT sensor, its whereabouts and condition are known in real-time. Why is this a great advantage? According to the Internet of Business, Danish shipping giant Maersk tracks fresh produce deliveries in 300,000 refrigerated containers aimed at 343 ports across 121 countries. Those containers transmit critical data, including temperature and location, allowing manufacturers to analyze that data and intervene when a problem is reported. IoT has the added benefit of greater port staff safety, as fewer container inspections are needed. Tech pioneer Actility notes that Volvo implemented new-generation IoT tracking at a truck manufacturing plant in France, significantly improving factory supply chain operations to order, ship, and track components to and from different global suppliers.
Software developer Digiteum believes IoT delivers a “coherent stream of real-time data regarding the location of the product and the transportation environment. You will be alerted if the product is shipped in the wrong direction and will be able to monitor the delivery of ready goods and raw materials.”
These companies are leveraging IoT to drive innovation, optimize the global supply chain, and reduce company costs. A study by the Center for Global Enterprise finds that a digital supply chain could lead to a 20% reduction in procurement costs, a 50% reduction in direct supply chain costs, and an overall increase of 10% in revenue.
Evolving Data Analytics
Related to digitization, data analytics is the practice of analyzing and utilizing supply chain management data to drive efficiency. It empowers better decision-making capability, a greater understanding of risk and risk mitigation, more accurate demand forecasting, and inventory optimization. These benefits directly translate to what consumers find on store shelves and help companies boost their ROI.
PepsiCo heavily relies on data analytics to forecast production and shipping requirements, making sure their vast network of U.S. retailers has each of its soft drinks when needed and in the desired volume, thereby reducing waste, increasing efficiency, and enhancing customer loyalty. As a result, PepsiCo is able to obtain and study detailed consumer data. In an interview with BrainStation, PepsiCo CFO Hugh Johnston says this allows the company to "customize communication and execute in every store with precisely the right products in the right location at the right price.”
Other Optimization Trends
While digitization and data analytics are more popular optimization approaches, other trends are gaining ground. The forum Supply Chain Brain has forecasted some of the following trends for 2022:
- Supply Chain as a Service (SCaaS): A cutting-edge concept whereby every stage of the supply chain can be potentially handled by a different party. SCaaS can generate significant savings as each party optimizes its particular supply chain component
- Circular Economies: Finding efficiencies in the supply chain through recycling and reuse, encouraging manufacturers and sellers to sell previously discarded materials
- Elastic Supply Chains: A supply chain model easily scalable in either direction, giving manufacturers greater control to address market fluctuations and to better address expansion and contraction within given time frames
- Greener Management: Increasing the sustainability of supply chains in response to consumer preferences
A Disruption-Proof Future
Adaptation has been key to companies and manufacturers grappling with the economic turmoil resulting from supply chain disruption. The pandemic exposed vulnerabilities in the U.S. supply chain and industry leaders have responded in kind: managers are re-evaluating their supply networks, and manufacturers are adopting new solutions. Digitalization and data analytics are at the forefront of those solutions. Together, these solutions could offer a disruption-proof future.