This blog is based on an article that recently ran in the Journal of Supply Chain Management, Logistics & Procurement, “Supply chain agility: An imperative in an unpredictable world.”

The COVID-19 pandemic has only confirmed what we already knew: modern supply chains must be built on a foundation of extreme agility and responsiveness. The sudden onset of COVID-19 in 2020 only reinforced a lesson that supply chain professionals had already realized: uncertainty is the only real certainty.

In today’s age of great volatility, agility has become the new competitive differentiator. While lean manufacturing and just-in-time were game-changing concepts when they were introduced, in 2020 and heading into 2021 they must be taken to an entirely new level. Sudden demand spikes, precipitous demand drops, supply disruptions, production line shutdowns, and other events can only be managed by early prediction and real-time responsiveness.

The Detection and Response Challenge

What makes detection and response capabilities even harder to achieve nowadays? Today’s supply chains are increasingly more complex than they were when concepts like Kanban were first introduced, with global footprints, multiple selling channels and extreme levels of competition. In addition, whatever industry companies are operating in, the emergence of Amazon has meant that same-day or next-day delivery is now a cultural expectation ― giving an entirely new urgency to the phrase “just in time.”

In addition, product categories are much more segmented and differentiated than they were previously. To meet customers’ growing expectations for personalized offerings, the typical company’s product lines have grown exponentially. This means supply chain and logistics professionals need to distinguish between more frequently purchased products and the slower-moving products customers are willing to wait for.

Going Digital to Interact with Your Ecosystem

Today’s hyper-focus on meeting customer expectations is also creating pressures upstream in the supply chain, as manufacturers extend visibility and collaboration beyond their own walls to avoid any disruptions. To improve the entire network’s responsiveness to increasingly shortened lead times, trading partners are working together to seamlessly manage product flow throughout the supply chain and across all fulfillment channels ― with end-to-end visibility and an eye toward fact-based, profitable decision-making.

The creation of a new digital ecosystem has enabled these and other changes that will shape the definition of supply chain agility and resilience in the 2020s and beyond. Digital technologies will allow companies to increase their visibility, collaboration, speed and responsiveness ― all of which are critical in enforcing agility and resilience as core competencies. How is the typical company proceeding with this much-needed transformation? In a study of logistics providers conducted by Fraunhofer IML, only 36% of organizations reported that they had a clear overall plan for digital transformation. Fifty-two percent of respondents are working on individual digital projects but lack an overarching strategy that links all these efforts. A full 9% have not yet begun to actively implement digitalization.[1]

Among those embarking on digitalization initiatives, only 25% of logistics providers in the Fraunhofer IML survey are leveraging digital technologies to think outside the box and reinvent their foundational delivery model. These forward-looking companies understand that digital transformation is their means to reinvent themselves, leapfrog the competition, increase agility and establish themselves as strategic, long-term partners with their customers.

Despite the inherent challenges, McKinsey has estimated that the payoff of agility enabled by digitalization can be staggering. “For companies that aim well and execute effectively, the resulting cost reductions could be transformational. We estimate that productivity gains and cost savings alone could deliver near-term impact of 200 to 600 basis points of margin expansion across advanced industries, worth $200 billion to $500 billion,” according to a 2018 article published by the consulting firm.[2]

The Secret to Achieving Agility and Resilience

The real secret to agility in the 2020s is first using highly accurate, real-time demand, supply, and execution insights to inform decisions across the end-to-end supply chain. While creating a demand-driven supply chain means ingesting and interpreting large volumes of data, advances in cloud computing and edge computing make data-based decision making easy and cost-effective.

A recent report by Morgan Stanley highlighted the growing importance of data, as well as the huge investments companies are making as a result. “In the ‘Data Era,’ we see the potential for accelerating IT investment after nearly two decades of underinvestment in technology, driving incremental IT investment to double over the next 10 years to $1.5T+ from ~$750B that was added in each of the prior three cycles on average. In fact, IT spend as a percent of business capex crossed over the prior ~10 year average in 2019 and we see that trend extending in early 2020,” according to a June 2020 Morgan Stanley report.[3]

Most manufacturers have ranked increased transparency and collaboration as one of the key aspects permanently and positively impacted because of the COVID-19 crisis. In a recent study by IDC, 68% of respondents indicated that they would need to revisit their operating models to consider more automation, contactless solutions, transparence/greater trust (e.g., blockchain), and video-based collaboration/content sharing. Fifty-four percent of respondents agreed that their use of data/analytics/AI/ML will be central to adjusting more effectively to dramatic supply chain disruptions.[4]

As the worlds of planning and execution converge, ideally the demand data should be shared upstream with suppliers and other trading partners, creating a unified fulfillment strategy, a unified logistics execution, and a collaborative response to any deviations from plan. It should also be shared downstream. In the hyper-connected world of the future, the entire network can proactively sense and respond to potential supply chain disruptions caused by major events such as natural disasters and pandemics, as well as smaller events such as local weather, port congestion, equipment failure, capacity shortages and labor shortages. Connected via a common technology platform, the end-to-end supply chain can also respond to unexpected demand volatility caused by social media, news reports or special events.

Concrete Actions

In the journey to improve, the hyper-connected supply chain will support profitable agility by leveraging unified logistics and digital control towers, enabled by AI and ML, to create accurate real-time forecasts, sense disruptions at the earliest stage, make intelligent materials and logistics sourcing decisions, optimize supply chain execution, and minimize both delivery time and costs. Upstream sensing intelligence will proactively identify disruptions and deliver recommended resolutions to eliminate supply chain risks and vulnerabilities. Learn more about how to fulfill this vision.

Read part 2 on more about profitable agility and resilience.

[1] “Fueling Your Logistics Business through Digital Transformation,” Fraunhofer Institute for Material Flow and Logistics in partnership with Blue Yonder, 2019. Available at https://blueyonder.com/knowledge-center/collateral/fraunhofer-report.

[2] McKinsey Digital (November 15, 2018), ‘The Next Horizon for Industrial Manufacturing: Adopting Disruptive Digital Technologies in Making and Delivering’

[3] Morgan Stanley Research (June 17, 2020), ‘Technology Eating the World – Top Trends Post COVID-19’

[4] IDC Survey Spotlight (June 2020), ‘COVID-19 Impact on IT Spending Survey: COVID-19 Impact on Expected Security Spend Varies by Market Vertical and Size of Business,’ by Frank Dickson