Sustaining Supply Chain during Pandemic: Leveraging IT Solutions

There have been many disasters prior to COVID Pandemic, global disasters such as the eruption of a volcano in Iceland, the Japanese earthquake and tsunami, Thailand floods, and Hurricanes Maria and Harvey - but all of which had one thing in common - they left behind an inflicting upheaval in the supply chain order. But many firms saw this as an opportunity to improve the health and survival ability of their supply chain - they focused to make supply networks more flexible, increase visibility into the structure of their supply chains, identified exactly which suppliers, sites, parts, and products are at risk, which allowed them to put themselves first in line to secure constrained inventory and capacity at alternate sites.

The companies which had a paradigm shift in their supply chain technologies and invested in mapping their supply networks before the pandemic emerged better prepared.

However, these companies are in minorities as a new supply chain impact study from global consultancy leaders Infosys Consulting has found that 85% of global supply chains faced a reduction in operations during the pandemic and that 1 in 12 leaders believe their business will "never recover."

What could have possibly gone wrong?

The impact that Covid-19 has had on many supply chains in our global economy cannot be overstated. The results of the survey suggest that virtually all supply chains have been impacted to some degree and that the majority of supply chains have faced a 25% or greater reduction in operations.  The results of the survey also indicate that supply chain organizations may have been overconfident in their preparedness for a major disruption. 77% of our respondents believed that their supply chains were at least somewhat prepared for a major disruption before Covid-19, while only 39% believed that their supply chains were at least somewhat prepared for a major disruption during Covid-19.

This drop of 38% basis shows that the majority of companies did not heed the lessons of the natural disasters of the last decade and, as a result, suffered severe supply disruptions when the Covid-19 pandemic struck.

In another survey conducted by Resilinc in late January and early February, immediately following the Covid-19 outbreak in China, 70% of 300 respondents said they were still in data collection and assessment mode, manually trying to identify which of their suppliers had a site in the specific locked-down regions of China. There are a number of reasons and some of them have been stated by HBR (Harvard Business Review) as below:

1. The required resources for supply network mapping are expensive;
2. The procurement function is measured by cost savings, not revenue-assurance;
3. Supply chain disruption is often not part of supplier performance metrics.

1) Lack of Supply Network Mapping as Risk-Mitigation Strategy

Many companies and leaders talk about the need to do supply network mapping as a risk-mitigation strategy, but they have not done so because of the perceived large amount of labour and time required. These businesses are now struggling in their attempt to map their supply network as global economy order is left shattered by the COVID-19 pandemic.

A whopping 70% of companies (according to a survey conducted by Resilinc) are still grappling with information-gathering and evaluation. These businesses are attempting to manually identify which of their suppliers have a site in a locked-down region, secure raw materials and components, and protect their network from further disruption. With essential data absent or unobtainable, response to the outbreak is reactive and unsynchronized, making the impact even worse.

2) The goals of Procurement didn't align with the overall Business Objectives

COVID-19 has severely disrupted supply chains on a global scale. Business executives, and especially procurement leaders, are having to maintain business operations, fulfil urgent demands, and mitigate supplier challenges against a backdrop of significant disruption to their teams, their people and their local communities.

Procurement leaders have concentrated their initial efforts on managing upstream supply disruptions from tier 1 and tier 2 suppliers while rebalancing short-term sourcing decisions in the light of supply network constraints. Now they need to turn their attention to the medium-term security of the supply base, unlocking funds intelligently and building future-proof resilience.

According to a report by Accenture,

1. 94% of Fortune 1000 companies are seeing supply chain disruptions from COVID-19;
2. 75% of companies have had negative or strongly negative impacts on their businesses;
3. 55% of companies plan to downgrade their growth outlooks (or have already done so.)

3) Inability to measure Disruption-Metrics in Supply Chain

At a time when supply chains are growing increasingly complex, disruptions such as natural disasters, cyberattacks and geopolitical conflict can have a significant impact on speed and sourcing. For many organizations, lean tactics and consolidation of suppliers can also amplify risks when there’s a kink in the system.

As companies compete to move products in greater volumes faster and at lower costs, many are also introducing more risk into their supply chains. Everything from natural disaster and geopolitical conflict to material price spikes and labour shortages can now impact entire supply chains. Meanwhile, the growth in outsourcing, offshoring and lean manufacturing has made the world smaller and increased the risks.

The SCM World’s 2017 Future of Supply Chain survey found a growing percentage of respondents said they were “very concerned” about data security, natural disasters and war.

Many of these risks of disruption are also amplified by the fact that supply chains are becoming more concentrated. Consolidation of suppliers and footprints may bring new efficiencies, but they can also amplify the effects of disruptions. In addition, complacency may lead managers to not prepare for such shocks. The announced and pending trade policies around the world are exposing these concentrations as companies are realizing how inflexible their supply chains really are.

How can we solve these problems?

COVID-19 Pandemic is not a typical risk event. The scale of the impact eclipses anything most supply chain leaders will have anticipated. The speed of the escalation requires continuous end-to-end assessment, optimization and monitoring. Companies need to respond rapidly and confidently to shape and execute a short-term tactical plan that will mitigate the risks to human health and protect the functioning of global supply chains. In doing so, strong data and analytics capabilities are crucial in understanding complexity, anticipating potential disruption, and quickly developing a response.

Digitization is enabling organizations to gather more data through IoT and to convert that into real-time actionable analytics. Many processes involved in measuring key performance indicators (KPIs) can also be automated and then referred to humans for decision-making. While COVID-19 may be the catalyst for companies to revisit their global supply chain strategy and accelerate the adoption of Digital Supply Network models and capabilities, short-term actions need to be made to respond to the immediate challenge.

One can have a look at this amazing report by Deloitte titled "Managing Supply Chain Risk & Disruption." It has termed COVID-19 Pandemic as the black swan of 2020 and has emphasised on the fact that when China, the world's factory is impacted, global supply chains are impacted, it advises measures to respond immediately to the incumbent challenge and proposes an imperative model for a new supply chain model.

Making Global Supply Chain Design Decisions under uncertainty in Practice

1. Combining strategic planning and financial planning during global network design - Strategic planning tries to prepare for future uncertainties but often without rigorous quantitative analysis, whereas financial planning performs quantitative analysis but assumes a predictable or well-defined future. Here lies the contradiction. To beat this, supply chain managers should allow integration of financial and strategic planning. Decision-makers should design global supply chain networks considering a portfolio of strategic options - the option to wait, build excess capacity, build flexible capacity, sign long-term contracts, purchase from the spot market, etc. based on the context of future uncertainty.
2. Use multiple metrics to evaluate global supply chain networks - It is always beneficial to examine network design decisions using multiple metrics such as firm profits, supply chain profits, customer service levels, and response times.
3. Use financial analysis as an input to decision making, not as the decision-making process - Financial methodologies, although being a great tool for its ability to produce an abundance of quantitative data, alone don't provide a complete picture of alternatives, and other nonquantifiable inputs should also be considered.
4. Use estimates along with sensitivity analysis - Estimates are fine as long as they are backed up by sensitivity analysis. Managers must try to make supply chain design decisions effectively and they can do so by making estimates of inputs and then test all recommendations with sensitivity analysis.

In the current Pandemic landscape, it can be seen that a complete short-term response means tackling six sets of issues that require quick action across the end-to-end supply chain. These six sets of issues have been described in this report by McKinsey and have been briefed below:

1. Create transparency
2. Estimate available inventory
3. Assess realistic final-customer demand
4. Optimize production and distribution capacity
5. Identify and secure logistics capacity
6. Manage cash and net working capital

Where does IT Solutions fit in?

Information is a key supply chain driver because it serves as the glue that allows the other supply chain drivers to work together with the goal of creating an integrated, coordinated supply chain. The information must be at least directionally correct, must be accessible in a timely manner, must be of the right kind and most importantly, it must be shared because it is used make a variety of decisions about each supply chain driver - Facilities, Inventory, Transportation, Sourcing & Pricing.

The Role of IT in Forecasting

The forecasting module within a supply chain IT system, often called the demand planning module, is a core supply chain software product. Forecasting modules are available from all major supply chain software companies, including the ERP firms such as SAP & Oracle. A number of statistical analysis software firms, such as SAS & SPSS, have programs that can be used for forecasting.

Information is Data. Data will improve your forecasts. The more data you have, the cleaner the data you have, the better you can see things. The winners during this black swan event will be the ones who have the infrastructure to see across their supply chain and the agility to act on what they see.

Machine learning will be one more tool whose usage will get increased in such firms for forecasting. Machine learning lets you look at clustering algorithms that may work very well to help segment a business. For instance, you could do a traditional ABC type segmentation. Or with machine learning, you could do ABC type segmentation with a viral pandemic thrown on top. So now you have a Met matrix where you can create some type of machine learning clustering algorithm that will help you segment your business during these times. There's more that machine learning can do, of course. And its impact on forecasting will certainly continue to grow and will change humans' role in the industry.

"Machine Learning can look at Decision Trees and Neural Networks and ...Probabilities and other things to be able to plan out a forecast a little bit better" - ERIC WILSON

The Role of IT in Aggregate Planning

Aggregate planning is arguably the chain area in which IT has been used the most. IT can add value in the aggregate planning realm through its ability to handle large & complex problems and the ability to interact with other core IT systems such as inventory management and sourcing.

Because aggregate planning problems are so complex, there is no other way to arrive at a feasible solution than through IT. Major software players in this area include the ERP Software firms (Oracle, SAP, etc.) and a variety of other vendors who often specialise their planning software by industry verticals.

The demand shocks created by COVID-19 have caused extreme bullwhip effects, resulting in an unpredictable and unstable manufacturing environment where suppliers struggle to intelligently predict demand as a result of panicked buyer behaviour. But why?

For years, companies have been focused on building a lean supply chain management strategy, which optimizes for cost but often results in low inventories. However, they weren’t always designing flexibility and agility into their supply chains, making it difficult for many to pivot in response to supply and demand shocks. When factories in China shut down, many manufacturers didn’t have a reliable second source to obtain high-quality components at scale, which impacted the smooth functioning of their supply chain.

Supply Chain & Demand Executive Magazine lists the below solutions to tackle this bullwhip effect and integrate IT solutions in Aggregate & Demand Planning:

1. Have a real-time understanding of buyer trends and supply;
2. Foster a transparent digital relationship with suppliers;
3. Learn to quickly onboard new suppliers as needed;
4. Create revenue-driving extensions of the demand chain.

Along with investing in ERP & other supply chain planning systems, one must invest in ecosystem integration capabilities. In a pre-COVID-19 world, suppliers could create larger data sets that produce more long-term predictability. Now, manufacturers and suppliers need to rely on smaller data sets generated in near real-time in order to understand and communicate supply and demand. With the evolution of Industry 4.0, IT Solutions such as predictive analytics is changing the paradigm of aggregate and demand planning.

"People are going more to predictive analytics. Predictive analytics is more of a forward looking view, and it's more of an external view to your business, to your sales, to your operations because it looks at those factors that are impacting your consumer" - Eric Wilson

The key component to predictive analytics is more and different data. Business needs the platform, the structure, and the visibility to collect that data. Business needs new ways and methods to process that data. Business needs to turn that data into insights quicker and with less latency. In short, business needs machine learning.

The Role of IT in Inventory Management

The COVID-19 pandemic has caused organizations to consider investing in more "flexible and resilient" supply chains -- that is, supply chains that can resist disruptions and recover operational capabilities after disruptions occur -- by adding additional sources of supply for critical items so they can quickly pivot to meet changing market demand. So, the lesson learned is that the companies that have built-in levels of redundancy and aren't just-in-time-optimized when it comes to inventory are better positioned to meet customer demand.

More and more firms are now resorting to Inventory Management IT Systems to make their supply chain more "flexible and resilient." Besides formalizing inventory replenishment procedures of thousands of SKUs, the two most significant contributions of IT systems can be improved inventory visibility and better coordination in the supply chain. Systems such as RFID, GPS, CRP (Continuous Replenishment System) can be used for identifying, tracking and maintaining inventory.

The Role of IT in Transportation

The use of software to determine logistics routes has been the most common IT applications in transportation. These software takes the location of customers, shipment size, desired delivery times, information on the transportation infrastructure and vehicle capacity which are then formulated into an optimization problem. Along with routing, vehicle load optimization software helps improve fleet utilization. Synchronization between the packing and routing software is important and IT helps achieves that. IT comes into play in the use of GPS for tracking the real-time location of vehicles and electronic notification of impending arrivals. There are IT solutions for real-time dynamic optimization of transportation routes and deliveries.

Mixmove suggests some backup plan to ensure continuity in supply chain management. It can be briefed as follows:

1. Creating simulation models;
2. Real-time tracking;
3. Using AI and machine learning for predictions;
4. Blockchain and other visibility technologies.

Conclusion

Enterprise software forms the foundation of supply chain IT system and this is a space that has matured from the early 1990s to 2010s with SAP & Oracle as the two major players. Before integrating IT Solutions in the supply chain framework, one must understand the major supply chain processes:

• Customer Relationship Management (CRM) - The best CRM software are by Zoho, Salesforce, HubSpot, Microsoft Dynamics 365 and SAP.
• Internal Supply Chain Management (ISCM) - The best ISCM software are by SAP, Oracle, JDA, Infor Global and Descartes Systems Group.
• Supplier Relationship Management (SRM) - The best SRM Software are by SAP, Oracle, Specright, Anvyl and Tradeshift.

All operation and analytics related to the macro processes rest on the transaction management foundation (TMF) which includes basic enterprise resource planning (ERP) systems (and its components, such as financials and human resources), infrastructure software, and integration software.

ERP players that focus on integrating across the macro processes along with developing good functionality in one or more process will continue to occupy a position of strength. The goal of successful IT system is ultimately to help coordinate decisions and actions across the supply chain

The future of IT in Supply Chain

Here are a few new technologies that are shaping the current supply chain and are expected to see a huge transformation in the near future.

• Drones Technology - Package delivery with drones is not merely a future vision, but a present-day reality. This capability is especially useful in locations where it’s not easy to reach the parcel sender or receiver. Drone package delivery could also be a game-changer in regions that experience severe winter weather – making delivery services in these areas easier and more efficient. Besides logistics, drones are poised to play a significant role in other areas of supply chain operations such as inventory management. Nowadays, drones are equipped with technology and can scan any barcode (linear, QR, Matrix, etc.) and instantly feed this data to the warehouse management system (WMS). In this context, drones can deliver some clear benefits: increased tracking accuracy and efficiency as well as enhanced resource and workforce utilization and safety. Shipping firms like FedEx and UPS can use drones to monitor traffic and optimize drivers' routes based on real-time data, taking some hassle out of the end-stages of the supply chain. Logistics companies like DHL and organizations like Amazon and Google are developing and experimenting with drones to do just that, especially for lightweight consumer goods.
• 3D Printing Technology - 3D printing, or additive manufacturing (AM), is a disruptive innovation which will have a far-reaching impact on global supply chains and operations. This technology has the power to help companies significantly reduce costs, overcome geopolitical risks/tariffs, improve customer service, reduce their carbon footprint and drive innovation for competitive advantage. 3D Printing will have a massive impact on the supply chain - 1) Decentralize Production, 2) Drive Product Customization, 3) Reduce Complexity and improve Time-to-Market, 4) Improve Resource Efficiency. 5) Rationalize Inventory and Logistics
• Artificial Intelligence - By culling out deep-rooted inefficiencies and uncertainties, Artificial Intelligence and Machine Learning drive enterprise-wide visibility into all aspects of the supply chain and with granularity and methodologies that humans simply can’t mimic at scale. AI in supply chains is helping to deliver the powerful optimization capabilities required for more accurate capacity planning, improved productivity, high quality, lower costs, and greater output, all while fostering safer working conditions. Benefits of AI in the supply chain are 1) Accurate Inventory Management, 2) Warehouse Efficiency, 3) Enhanced Safety, 4) Reduced Operations Costs, 5) On-Time Delivery.
• The Internet of Things (IoT) - In the supply chain, Internet of Things devices are an effective way to track and authenticate products and shipments using GPS and other technologies. They can also monitor the storage conditions of products which enhances quality management throughout the supply chain. IoT has revolutionized SCM: 1) Authenticate the Location of Goods at Any Time, 2) Track Speed of Movement and When Goods Will Arrive, 3) Monitor Storage Conditions of Raw Materials and Products, 4) Streamline the Problematic Movement of Goods, 5) Locate Goods in Storage, 6) Administer Goods Immediately Upon Receipt.
• Driverless/Autonomous Vehicles - Companies of all shapes and sizes are entering the autonomous vehicle market, from small startup companies to large tech companies such as Alphabet (Google’s parent company) to major automobile manufacturers such as General Motors. It has been well documented that self-driving vehicles will have an immense impact on individual consumer travel, but it will also greatly impact logistics and supply chain management as well. Autonomous vehicle technology has the ability to greatly impact supply chains through cost savings reductions in transport time, safety, etc.

Article by

Shivanshu Gupta

A MicroMasters Student of Supply Chain Management at Massachusetts Institute of Technology, B.Tech Graduate in Mechanical Engg. from Indian Institute of Technology (IIT)

PS: This is a review article. Relevant references have been given in the article itself.