The COVID-19 pandemic painfully demonstrated the vulnerabilities of global supply chains. The learning must be that companies must restructure their operations to create far greater levels of supply chain resilience. The simple truth is supply chain disruptions will persist and take many different forms. Adaptive supply chains use cloud-based supply chain technologies to ensure business operations are prepared whatever the eventuality.
According to the Institute of Supply Management, 75% of manufacturing companies that source from China experienced disruptions during the COVID-19 pandemic. The growth of global supply chains created an extended ecosystem of trading partners that led to an over-reliance on particular areas for parts and raw materials. Dun & Bradstreet outlined the scale of the issue. The analysts calculated that 51,000 companies around the world had one or more direct suppliers in Wuhan, with at least 5 million companies having one or more tier-two suppliers in the Wuhan region.
When supply chain disruption hit, it was clear that few were prepared for the breakdowns and delays. Although companies were well aware of the problems that natural disasters and global geo-political events can have, there was a lack of the supply chain visibility and resilience needed to quickly and effectively respond.
None of this should have been a surprise as the entire supply chain industry had been talking about adaptive supply chains for years. Boston Consulting Group (BCG), one of the first to use the term in 2013, explained the need by saying: “As supply chains become more complex and more globally interconnected, the impact of external forces and disruptions in the business environment continues to grow. These forces are placing unprecedented pressure on supply chains: the nature and degree of customer demand have become harder to anticipate, product lines have become more complex, and the pressure to lower the cost of goods, reduce working capital, and improve performance continues to mount. At the same time, the cost and availability of key supplies and materials are becoming more volatile, while macroeconomic and geopolitical maps are evolving at varying speeds.”
The increasing complexity of modern supply chain management has given rise to ever-greater amounts of uncertainty and risk. Supply chain adaptability and resilience become vital factors in the ability of organizations to maintain the required level of operational efficiency and respond successfully to the issues being faced, whatever they are.
Defining the adaptive supply chain
Any adaptive supply chain definition must take into account the multiple layers of risk and threat impact to the modern supply chain. Supply chain adaptability can be defined as the ability to adjust a supply chain’s design to meet structural shifts, disruptions and changing customer behavior and modify each supply network to reflect those changes. Adaptive supply chain management provides advanced insights into dynamics, complexity, and uncertainty in supply chains to develop supply chain adaptability, stability, and crisis-resistance.
According to BCG, there are three key capabilities when building an adaptive supply chain:
- The ability to respond quickly to sudden changes in demand
- A deployment strategy that can adapt to shifts in key markets, labor rates, and other factors
- A strategy for responding resiliently to unforeseen disruptions, whatever the cause
We’re going to add a fourth, and essential capability:
- The ability to create a digital business that uses advanced supply chain technologies to build supply chain connectivity, agility, and visibility.
This digitization of the supply chain is a foundational element for the adaptive supply chain. Yet, today, any organization has numerous manual processes.
Mark Morley, product marketing director at OpenText Business Network, told Supply Chain Brain that many organizations have digitized only 60% of their supply chain processes. He said: “Companies are potentially using paper for 40% of their supply-chain processes. They really need to get closer to 90% or ideally 100% to build the necessary resilience into their supply chains.”
The benefits of an adaptive supply chain
The traditional model for supply chain management was linear with all the parts working together to drive speed, cost, and quality. What it lacked was the flexibility and agility to adjust quickly to accommodate changes in internal and external conditions. Adaptive supply chains operate through a digital ecosystem of trading partners and customers that enables the organizations to change direction quickly in the face of elements such as supply chain disruption, evolving customer demand or new regulation. The organization can:
- Better respond to variations in the internal environment
- Better adapt and re-design the supply network to meet external changes
- Better identify and respond to changing customer preference and demand
- Better manage inventory and logistics for optimal business performance
- Better identify, onboard, and manage new suppliers and partners
- Improve business and product innovation based on real-time supply chain feedback
- Clearly understand and develop execution capabilities in both manufacturing and supply chain processes
- Deliver new levels of end-to-end supply chain visibility and transparency through 100% supply chain connectivity
- Enhance sustainability, environment, and CSR capabilities at all levels of the supply chain
Redesigning your supply chain to become adaptive means leveraging the advances in digital supply chain technologies that are beginning to have a real impact. The benefits of an adaptive supply chain are only fully available to a digital business that is sharing information, trading and collaborating with suppliers, customers and partners electronically.
Digital technologies underpinning the adaptive supply chain
When announcing its annual Supply Chain Top 25 in 2020, Gartner placed the focus on how well companies had used digital technologies to handle supply chain disruption. Gartner found that 90% of those companies had implemented or upgraded supply chain planning and supply chain visibility technology, while 98% said they had implemented or were piloting advanced analytics or big data initiatives. However, this is some distance away from supply chain functions as a whole. The annual industry report from Deloitte and HMI found that only 20% of executives believe the digital supply chain is their predominant model in 2020.
This situation is set to change rapidly with the remaining 80% saying digital will be their main model within the next five years. However, achieving a completely adaptive supply chain requires implementing an array of digital technologies including:
The HMI survey found that companies were most advanced in their adoption of cloud solutions with 81% expecting adoption in the next 24 months and a full 90% adoption within 5 years. According to Supply Chain Brain adopting cloud-based supply chain digital technologies can contribute to the resiliency of supply chains in four important ways. They enhance flexibility, which enables business continuity by ensuring that information is accessible from any location around the world. They promote collaboration to improve supplier relationships, they improve end-to-end supply chain visibility and finally they provide valuable insights through post-disruption analysis of the supply chain. IDC found that cloud technologies provide companies with an 89% decrease in event response time and a 48% increase in on-time delivery rates.
The HMI survey also showed that robotics and automation adoption are expected to reach 58% within the next two years and 73% over the next five years. While industrial robots help automate the physical production environment, process automation removes mundane, repetitive tasks allowing production and supply chain processes to happen faster and more efficiently. This level of automation enables processes to adjust rapidly – in response to real-time events and inputs – creating flexibility and agility in the supply chain. Process automation solutions – such as OpenText AppWorks – can become a bedrock for digital transformation improving business operations and customer experience.
Perhaps one of the most foundational and disruptive elements of the modern, adaptive, and connected supply chains is the Internet of Things (IoT) technologies. The increasing power and reducing cost of IoT sensors and other devices allow for real time visibility across supply chain operations. Aggregating IoT sensor information from pallets, containers, forklift trucks, and multi-modal transport into a central IoT platform allows products to be completely monitored and controlled as they pass through the supply chain. It allows for new insights into IoT data that can enable decisions to be made quickly should a disruption or unexpected event occur anywhere in the supply chain.
B2B integration platform
One essential component for the adaptive supply chain is a central B2B integration platform. Whether connecting with various cloud infrastructures, working with processes and applications that span international boundaries, or interacting with customers and suppliers, it is critically important to have robust B2B functionality driving these transactions. COVID-19 has forced a paradigm shift as companies look toward localization as a means to counter global disruption. It’s enterprise B2B platforms like OpenText Business Network – that lets companies quickly build local ecosystems to maintain operations as well as pivot to new production practices to meet market requirements.
Applying analytics, artificial intelligence, and machine learning to supply chain data provides insights to support faster and more effective decision making and to optimize business processes. It allows all the information to be brought together in one place to help with planning and forecasting. Applying machine learning not only helps facilitate advanced analytics, but it also enables business processes within the adaptive supply chain to become increasingly automated. Although the benefits of AI and machine learning are clearly understood, adoption to date has been slow. According to HMI only one in ten organizations have currently adopted AI in their supply chain, although this figure grows to 68% adoption expected within five years.
How adaptive is your supply chain?
In its white paper on the adaptive supply chain, BCG recommends a number of questions you should ask to determine just how adaptive you are today and where you need to improve:
- What is the strategic role of the supply chain within your organization and is that understood by everyone?
- Does your partner ecosystem give your company the necessary levels of performance and flexibility across cost, speed, service quality, and risk?
- Have you identified the key partners outside your company and the relationships you need to develop with them?
- Are key suppliers and partners involved and incentivized in line with your supply chain and business strategies?
- How well does your supply chain operations identify, analyze, and respond to signals from the market?
- What is the level of end-to-end data integration that you have across your supply chain for both internal and external connectivity?
- Does your company understand the risks that supply chain shocks present to the business, and are there response strategies in place for each type of risk?
- Is there a process in place to systematically review supply chain risks and your ability to adapt to them?
The modern, global supply chain is a complex beast and the one thing we can be sure of is that the risks are going to grow and disruptions will become more frequent. There is no way to fully prepare or predict what’s about to happen. Instead, you have to build flexibility and resilience into your supply chain. That is the power and potential of the adaptive supply chain.