How digital innovation is transforming supply chains
As businesses prepare for 2023 and beyond, innovation in supply chains is not only changing the way they operate but potentially revolutionising entire sectors.
With a sharper global focus on hygiene and health, consumer goods brand Reckitt knows it must be at the forefront of supply-chain innovation as it strives to be agile and resilient.
The company has been experimenting with artificial intelligence-based “demand sensing” to better predict consumer and trade behaviour. A cloud-based supply chain planning platform is streamlining tasks such as inventory management, production scheduling and recycling planning.
“The emergence of new technologies like autonomous robots and AI is presenting promising opportunities for improvement across the supply chain and other areas of the business,” says Jalal Shah, Global Supply Director in the United Kingdom for Reckitt, the owner of brands such as Dettol, Durex and Nurofen. “The time for companies to assess their supply chains for piloting tech is now.”
In recent years, Reckitt has targeted the business market with disinfection brands such as Dettol and Lysol – which first made their names in household germ protection – while endorsing a “targeted hygiene” approach. This practice encourages the washing of hands and use of hand sanitisers when and where it matters most for health, rather than indiscriminate disinfection. In turn, this makes the use of chemicals and hygiene products more effective and sustainable.
Shah says this business-to-business model required Reckitt to transform its supply chain and manufacturing capabilities to accommodate new packing formats, as well as developing physical distribution infrastructure.
“Innovation is always at the forefront as we also continue to develop and optimise our formulations and packaging designs to improve our carbon footprint,” he says. “We’re working to cut waste in our supply chain by monitoring site waste, promoting waste reduction and urging suppliers to use more recyclable and reusable materials.”
The model is working. In 2013, 48 per cent of Reckitt’s sites sent zero waste to landfill. “In 2021, it was 96 per cent as we continued both to reduce waste and to recycle and reprocess it, or find better disposal options such as turning it into energy,” Shah says.
The exponential gains
The Reckitt case study clearly highlights how, beyond the recent disruptions of COVID-19, a range of enduring megatrends is driving supply chain innovation.
Factors such as consumer power, sustainability, automation and environmental and social governance (ESG) are inexorably rising at a time when supply chains are digitising by leveraging smart technologies and data. At its best, this translates to game-changing business advantages, real-time visibility and traceability of products, and better working capital and cost efficiencies.
Evidence of what’s driving supply chain innovation is widespread. In a recent PwC survey of about 5,000 Chinese consumers, respondents identified fake and counterfeit goods as a major concern. What does that mean for Australian exporters?
Matt Kuperholz, PwC Australia’s Chief Data Scientist, believes the finding confirms the opportunity for digital-savvy Australian suppliers of high-quality produce, including beef, dairy and honey, who can prove the bona fides of their goods. “We know that Chinese consumers will pay a premium for Australian beef, for example, that is digitally traced through the supply chain,” he says. “They value that traceability.”
While media headlines often focus on how blockchain may revolutionise supply chains, Kuperholz says the most exciting gains are likely to emerge from a synergistic combination of “exponential technologies”, such as AI, automation, data, the Internet of Things and 3D printing, in addition to distributed ledgers such as blockchain.
“Crucially, they support and reinforce each other. When you add all of these exponential technologies together – as well as subsets of AI like computer vision that allow companies to automatically gather shipping container and pallet numbers – what you end up with is not a linear improvement, but an exponential improvement,” he says.
Procurement power
Innovation around procurement and payments is also playing an increasingly crucial role in smart supply chain management.
Westpac has a relationship/arrangement with Nasdaq-listed Coupa*, which offers a cloud-based procurement platform, which enables Westpac to improve its internal operations and help clients to transform how they manage business spending and make payments to suppliers. Coupa enables Westpac to assist companies with large procurement spending requirements, or complex supplier relationships, with real-time visibility of budgets, increased purchasing power and more efficient supply chain processes.
Jeff Byrne, Managing Director, Global Transaction Services at Westpac Institutional Bank, says Coupa’s data modelling and AI power also improve governance of supply chain management compared with old manual processes.
“You’ve got much better visibility of your spending, especially if you’re a large organisation and operate in different jurisdictions,” Byrne says. “For example, it can help ensure you’re adhering to contract pricing. It’s about making sure that the price you should be getting is the price you are getting.”
Coupa also caters for smarter payment methods such as virtual cards, a digital and more secure version of the traditional credit card. Many organisations do not like to hand out physical purchasing cards to all employees, explains Byrne. “By having a centralised online virtual card you can still get the same benefit of potential rebates from spending on your corporate card.”
Smart contracts that promote accountability and traceability on secure and decentralised distributed ledgers also have the potential to make supply chains simpler and more transparent, Kuperholz points out. To date, he thinks such smart contracts, blockchain and digital assets, such as non-fungible tokens (NFTs), have been significantly underutilised within supply chains. “We haven’t even scratched the surface of what’s possible.”
Tools for success
The CSIRO has long been working on tools to promote supply-chain innovation.
Over the past decade, Australia’s national science agency has continually upgraded its Transport Network Strategic Investment Tool (TraNSIT), a spatial computer model that creates detailed maps of Australia’s supply chains, freight movements and costings. Along the way, it has mapped millions of vehicle trips across the nation, helping farmers and governments to cut costs and improve efficiency.
The tool enables users to factor in key elements – including travel distance and time, vehicle configurations, road conditions and even driver-fatigue regulations – as they select the most cost-effective supply chain routes.
It can also help if there’s an intervention or disruption, says TraNSIT Project Leader Dr Andrew Higgins. “For example, what happens if we build a new rail corridor, or if there’s a big flood event? We can assess the impact of such conditions and decide how we can best get freight to key customers.”
Slated for launch by the CSIRO in 2023 is a Supply Chain Benchmarking Dashboard, an interactive web tool designed to benchmark Australian supply chains across commodities, regions and modes of transportation.
Higgins says the dashboard will inform users about “a whole swag of stuff”, from fuel and maintenance costs through to greenhouse gas emissions, and allow them to interactively filter between different task comparisons. It plays to today’s heightened awareness of risk management in supply chain innovation decision-making.
Risk is just one of the areas where digitisation of Westpac’s purchasing and procurement process – from sourcing and supplier management to budgeting – is making a difference, says Chief Procurement Officer Brian Hagen.
The bank has recently rolled out a digital supplier-risk assessment process, which standardises multiple disparate manual processes. “This has enabled us to identify, assess and manage supply chain risks in a more methodical and consistent manner, leading to a better understanding of supplier risk profiles and actions that need to be taken,” Hagen says. “We have also digitised our source-to-contract processes to drive further efficiencies, enable standardisation, lift compliance and auditability and increase savings.”
Westpac’s focus now is on a procure-to-pay solution that makes it easier to manage the purchase of goods and services while combining that process with the accounts payable function. Hagen says this will ultimately give the bank better visibility and control of what it spends and with whom it spends “in real time, while directing our people to products and services from preferred suppliers who we’ve already risk-assessed”.
Sustainability in focus
PwC Australia’s Global Trade Lead Stephanie Males notes ESG risk and the ethical management of supply chains are also top of mind for governments and businesses. “But is there enough visibility and information to determine that?” she wonders.
“One chain down you may well be able to say ‘I have visibility’, but without the digital and data visibility that enables you to monitor the next layer and the next layer, your ability to conform in a regulatory sense is limited at best.”
Likewise, the sustainable sourcing of products – and asset tagging to prove it – will be ever more crucial as consumer demand rises. “It becomes a differentiator in markets from a consumer visibility point of view,” says Males, and companies that get it right can potentially benefit from premium prices.
In the past, supply-chain managers have taken a ‘just in time’ approach whereby they kept inventory to a minimum and favoured short-term contracts, but many now prefer a ‘just in case’ approach of holding more stock, due to pandemic disruptions.
Males identifies a renewed sense of reset around how we’re going to continue to supply products where they are needed, which is powering the quest for new and more effective ways of tracking supply chains through the use of AI and data analytics.
For Kuperholz, technology offers exciting ways to make supply chains more cost-effective and sustainable. For example, gains in 3D printing will result in the ability to print a product where it is needed, rather than shipping it from a factory to another place around the world.
Likewise, he welcomes innovations such as digital-twin virtual technology that give organisations the ability to test scenarios, rather than being forced to make big, speculative investments in physical infrastructure.
“In a digital supply chain, we can much more quickly model such scenarios and our potential responses, lowering costs or increasing our resilience, because it’s a lot easier to play in a digital copy of something than in the real, physical world.”
The way forward
With his eye to the future, Hagen has four tips for organisations seeking to improve supply chains:
- Support smaller or diverse suppliers: “They may not have access to the same resources to transition into a digital environment,” he says.
- Think about the ‘customer’ and prioritise user experience: Hagen says digital transformations are not just about the digital capability businesses are implementing. “Success, benefits and outcomes only come with enterprise-wide adoption of these new ways of working.”
- Bring your suppliers on the journey: Use supply chain tools to assist in building and maintaining sound partnerships. “Getting your suppliers onboard with this vision will go a long way towards adoption,” Hagen says.
- Strive for a resilient supply chain that can quickly respond to change: While cost efficiency is important, it should not be the only factor driving the uptake of digital technology for procurement functions.
* Westpac has commercial arrangements with COUPA pursuant to which it may receive fees from time to time.
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