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Closing the loop: Rethinking digital supply chains

The transformative potential of data generated through digital supply chains is now capturing the attention of senior executive teams and boards as companies position themselves for greater resilience and growth in a post-pandemic world.

When the 200,000 tonne Ever Given container ship blocked the vital Suez Canal international trade route for six fraught days in March 2021, the crisis cost business and governments billions of dollars, with the total cost likely to take years to determine.

 

Coming off the back of the devastating disruption already inflicted on global supply chains by the COVID-19 pandemic, the catastrophe further illustrated the vital importance of continually rethinking and reconfiguring supply chain management systems for businesses – especially those in a nation as geographically isolated as Australia.

 

Rapid digitisation of supply chains since the start of COVID-19 has helped many organisations across industries, from mining to manufacturing and the service sectors, better manage the impacts and risks of disruptions like a pandemic – or a mammoth Suez Canal obstruction. But the real supply chain transformation journey is only just beginning.

 

Companies now need to grapple with how to use the data that their new digital systems provide to continually improve resilience along the supply chain, as well as enhance strategic planning and product design, as they ‘close the loop’ on supply chain management and position for post-pandemic growth.

 

“This is a transformation journey that we're trying to educate our customers on because a lot of them have transformed. But they haven't done that third piece of the transformation. It's important to close the loop on these systems and continue to build in a process of improvement,” says Kathryn Mouton, Senior Manager, Capability Network APAC and ANZ at Accenture Australia.

 

Proactive companies that are taking those steps are generally more successful in the market, she observes.

 

Cutting the cord

Mike Southwell, Director of Client Solutions and Insights for Global Transaction Services at Westpac, says there is no arguing the benefits that the digitisation of supply chains has delivered for companies that have embraced technology.

 

Although there is an initial investment in capital and time, such a transformation pays for itself in a crisis, he says, by enabling a company to minimise its use of working capital through greater control over inventory, payments and payment terms, and through the data and insights generated that improve a company’s risk management across the board.

 

“Due to COVID, everyone now understands just how fragile global supply chains are. An upstream delay can cascade and cause chaos for everyone,” Southwell says.

 

“Through digitisation, you can get much greater visibility of your supply chains and where the risks to them are, as well as understanding who alternate suppliers might be. Being able to monitor supply risk on a real-time basis is also critical, because it's ultimately a number of different tools and levers that you can pull to adapt to an uncertain operating environment.”

 

Summoning the courage to move on from legacy programs to a digital system can initially be hard for companies, Southwell notes, but once that decision is made, these end benefits readily see senior executives become invested in the process, something Westpac itself has recently experienced through its own supply chain digitisation journey using procurement solutions software, from Coupa.

 

“At Westpac, it took us less than four months to implement the first Coupa module and now everyone from our executives down are banging on the table saying, ‘do it faster’. From the beginning of the journey to the end, 90 per cent of the time was summoning up the courage to get off our old legacy systems, but once you can see the value it all makes sense. It just comes down to biting the bullet, leaving the past in the past, and having the right partners to help on the transition” he says.

 

Benefits drive adoption

These end benefits are now seeing the significance of the supply chain function elevated within the organisational hierarchy to a level that has broad operational impact. Previously an area where forecasting and cost-efficiencies were considered the most critical outputs, the new data from digitisation is moving it to a board-critical function that can help improve organisation-wide operations.

 

This development led Coupa to seek ways to help customers better analyse and benefit from the data they collect, resulting in its late 2020 acquisition of LLamasoft, a supply chain platform company that applies artificial intelligence and machine learning to supply chain data to optimise decision-making and build resilience.

 

Laurence Green, Account Executive at Coupa, says adding LLamasoft to the existing Coupa system enables companies to create a digital model, or twin, of their entire supply chain which can be used to analyse different scenarios. This has been critical during the pandemic as companies were forced to abandon traditional forecasting and rethink how they predict their future supply and demand, and because executives and their teams needed to make much faster decisions to keep pace with the rapid changes they were experiencing.

 

Supply chain design and planning is being used increasingly at an operational level, Green says. “For example, as people change their consumption patterns, forecasting on historical data becomes irrelevant … Coupa can pull in external sources of data, such as mapping data from Google, to help correlate new causal data with consumption patterns.”

 

Planning scenarios with digital twins

This approach helped medical device company Medtronic, one of the world’s leading suppliers of ventilators, better manage complexity through COVID-19.

 

As demand for products soared, the company needed to optimise the configuration of its global supply chain, including hundreds of in-house and contract manufacturing sites, more than a thousand suppliers and 250,000+ distinct products. It also needed to drastically reduce the lead time for making informed decisions. So, Medtronic built a data lake from its existing data to feed into the LLamasoft platform, which in turn created a real-time digital twin of the company’s end-to-end supply chain.

 

The replica enables Medtronic to model the likely outcomes of different decisions at any point along the supply chain. If the company wants to switch a warehouse location, or remove a warehouse entirely, it can use the model to see not only how that change will impact the journey of a product to its customers, but also to its bottom line. Multiple scenarios can be analysed at once, resulting in optimised decisions made much faster.

 

Green says the changes also allow businesses a better view of all the supply chain processes, as well as new insights, like changing consumer patterns in real time, based on meaningful information. Consequently, companies can react to what is presently happening on the ground, rather than predicting what may happen based on past data.

 

With the right feedback loop, the information can also help with the development of new products and services that better target customers based on real-time data – and this is transforming organisations’ supply chains from cost centres into profit drivers.

 

“I see the future of supply chains becoming closer to the customer versus a back-office function,” explains Dillon Singh, Australia and New Zealand Practice Lead for Operations Transformation, Procurement and Supply Chain at Accenture.

 

“Let's put that in the context of a telecom, for example. The supply chain can feed the products and technology teams information that is geographically specific and segmented, like gender and where people work, and so help them identify the sorts of products they should be pushing into those markets.” Suddenly supply chain moves from a back-office capability into the front office.

 

You are what you eat

Companies starting to embrace this next level of supply chain transformation need to ensure that the internal data the systems use is clean, accessible and accurate, says Southwell, and this means moving their entire supply chain management to a cloud-based or platform system.

 

Using risk management in financial supply chains as an example, Southwell says that companies can apply the power of AI and machine learning to procurement and other supply chain processes to help them learn from the data and to identify suspicious transactions and flag them to investigate further. But this is only possible if the data is easily available and structured for its end use.

 

“You can't do that if it's all on paper, or in PDFs in an e-mail inbox, or sitting in an ERP [enterprise resource planning] system that isn't designed for that. But it’s another way in which moving to the cloud or an integrated platform can reduce risks, because there's no way that a single person could be across millions of different transactions,” he explains.

 

Software like Coupa’s Decision Data Model can provide this solid data foundation for companies from any industry. Then, more complex technologies like AI and machine learning can be applied, using algorithms that track, simulate, and predict real world behaviour inside a virtual environment.

 

The model is informed and updated by data from physical assets, such as inventory, storage facilities, and transportation equipment. Reliable outside data can then be layered on top of the company’s own information, enabling it to monitor real-world behaviour, like changing demand, or predict future bottlenecks. It creates ‘visibility’ across the chain from suppliers to customers, to reduce financial risk and increase resilience to potential disruptions.

 

Green offers the example of a large beverage manufacturer in Australia, which has used the Coupa and LLamasoft platforms to map the end-to-end delivery of its products to its second- and third-tier retailers. The modelling enabled the company to easily see each cost involved through the supply chain, from production and storage to transportation, and last-mile delivery to those customers, and helped it to optimise delivery chains as well as its pricing structure.

 

Plus, unprofitable customer markets or segments were identified allowing the company to adapt its business strategy accordingly.

 

While many organisations have reached the stage of transformation where they achieve greater visibility along their supply chains, Mouton says, they can go that extra step, of using that information strategically across the business and to drive profit in a post-pandemic economy.

 

“The whole point of closed loops for management is meant to bring in everything from budgeting to leveraging platforms to get the full visibility, and then building a model that acts almost like a control tower so that you're actually using that data proactively,” she explains. “This third tier truly does close the loop.”

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