Industrial Manufacturing and the Digital Supply Chain, Part 1
In a series of blog articles, the Product/Solutions Marketing team explores new business challenges and innovation solutions to change the game and manage disruptions. The following are the insights gained from my discussion with Sunil Roy, who leads Blue Yonder’s Industrial Manufacturing Industry Strategy, during a recent Blue Yonder Live and executive customer events that we prepared for jointly.
Terence: Industrial manufacturing companies are modifying their supply chain landscape and operations to prepare for the new world. They are managing many changing dynamics by adopting new business models and digital technology to improve agility, profitability, and – the most important aspect – competitiveness. What are the key trends you are seeing in your engagements with customer executives?
Sunil: The industry is going through an evolution, specifically in the last couple of years. What we have seen are four primary trends. The most common one is the rise in complexity.
I was in graduate school when we were talking about globalization and the impact of globalization. It was all about companies trying to go into countries that had low-cost sourcing capabilities, as well as to capture new market. Previously, companies would have their localized customers and suppliers in a few main markets.
Now it is all global. And when you look at the end-to-end supply chain, from all the suppliers to all the manufacturing facilities around the world, the complexity has grown by several orders of magnitude. This is not only because of the network, but also because of product proliferation, digitization, and companies from different cultures working together. All of this has raised the complexity, as well as working through time zones.
The No. 2 trend is that the market has become very, very level. Now companies from the Far East and China are having similar access to the U.S. market and vice versa. So overall, the competitiveness among the industrial manufacturers around the world has grown several bounds. It is all about how a manufacturer maintains its lead in this market, either looking to be a low-cost manufacturer or to innovate to be the leader in their market.
Terence: What about government regulations?
Sunil: The No. 3 trend is indeed related to government regulations, not only on climate topics but also in terms of data security and privacy laws. The regulations are impacting where the data is saved and how the data is maintained. It is at the same time creating more supply chain issues.
And finally, when I think of those three trends, the complexity, global competitiveness, and regulations are impacting supply and demand with increasing variability throughout the supply chain. The variability increases the stake in the decision making and makes your supply chain much more complex.
Terence: This new environment is making it difficult for industrial managements to manage the supply chain and profitability. Please educate us on the key challenges that keeps executives up at night.
Sunil: Industrial manufacturers are slightly different from process manufacturers or pharmaceutical companies. The production process is highly repetitive: they are making the same HVAC, generators, and equipment, which are supplied all over the world. The bill-of-materials for discrete manufacturers are highly complex: multi-level bill of materials with hundreds or thousands of parts that have been combined to make a product. It is a massive task just to maintain.
Product configuration is another significant area. Customers are looking for variations, so product configuration and customization is highly increasing. We have been working with, for example, a door manufacturer that has the kits and the components. When they get an order, they put on new skins and colors, pack the materials, and send them to the customers.
The supplier network has become highly complex especially since manufacturers have suppliers all over the world in a multi-tier supply chain, from Tier-1 to Tier-2 and more. The main challenges that companies are facing, at least in the last two years, especially during the COVID-19 pandemic, come from the multi-tier sourcing, which requires long lead times in the supply network. Adding to that are component shortages from the automotive industry and industrial manufacturing.
The component shortages have impacted the manufacturers’ ability to prove a high level of services to their customers:
- How would a company make decisions around allocating the short components to the right locations and making the best use of them?
- From a customer service standpoint, how would a company segment your supply chain and service levels?
Terence: With customer demand changing so fast and the technology infused in the product components changing equally as fast, are manufacturers managing to keep up?
Sunil: The bills-of-materials have to be managed, re-managed, and updated on a regular basis, which from both a master data and a procurement perspective is difficult. The other two major challenges are significant talent shortage and the lack of ability to get the right skill sets. Manufacturers are not only lacking staff and skills in manufacturing and operations, but the ability to manage omni-channel initiatives where they are serving large, big-box retailers while also going direct-to-consumer. All these factors are compelling them to update their supply chain.
Benefits of Digitalization
Terence: To solve these challenges, these manufactures are going through digital transformation of their supply chains. Can you share the benefits they are achieving?
Sunil: There are three benefits that we have seen when we work with our industrial customers. The first is reduction of inventory, which includes the work-in-process inventory and finished goods inventory. How would manufacturers reduce working capital? This can be done by reducing inventory in multiple sites and how they are stored. There are some inventories that do not move or move as fast. We are helping supply chain executives to reduce inventory so that they can release working capital, which can help them do more active engagements.
Terence: It is helping to counter inflation too!
Sunil: Exactly. And because of inflation, the cost of maintaining that inventory is going up. At the same time, the companies need to procure items. If they are buying the wrong items at the wrong time, these items will get stagnate in the storeroom.
The second most important aspect is the on-time-in-full (OTIF) measurement. How does a manufacturer decide how to give customers the right promised date? How can it make the date more predictable?
The third and final aspect is the order-to-delivery lead times. How can it reduce that order-to-delivery time as soon as an order is placed? How does it push the order right through manufacturing so to deliver on-time?
Terence: When manufacturers go through the digital journey, they expect leapfrog improvements. What are the typical improvements that you see?
Sunil: For inventory reduction, we have seen almost a 50% reduction for some of our clients.
Terence: Five-zero percent?
Sunil: Yes! And in terms of order-to-delivery lead time, we see a typical reduction of 30% to 50%. Imagine that it would have taken eight weeks to deliver some order, now it takes six weeks to deliver that order. This improves the overall reliability too.
For OTIF, the typical improvement is 80% to 95%. For forecast accuracy, a lot of our customers have achieved 90% and 96% accuracy. These are the typically big benefits that we see and that can help improve the profit-and-loss statement, as well as improving supply chain performance.
Visit Blue Yonder’s website for more information about industrial manufacturing use cases and benefits.
More Insights to Come
In an upcoming Part 2 article, we will get more insights from Sunil on the digital initiatives for the industrial supply chain and how to ensure success in attaining leapfrogging improvements.