Smart supply chain: are we there yet?

Posted on 20 Apr 2017 by Jonny Williamson

New digital tools give manufacturers the opportunity to improve efficiency and revenues. But as Nick Peters reports, it is not quite as simple as that.

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To realise a smart supply chain, companies will need to integrate their systems to allow for seamless real-time data transmission and analysis.

The first point to make about the smart supply chain is that the word ‘chain’ is no longer strictly relevant. In the early days, of course, it perfectly described interconnected pieces of the process that led from the supply of raw materials, to manufacturing, distribution and the customer.

Those way-stations still exist, but the ‘smart’ part of the process now invites us to think in three dimensions, not two. The new reality is best illustrated by the diagram below used by consultants PwC in their analysis of the digital supply chain.

It perfectly demonstrates the lack of transparency in the pre-digital chain compared with the visibility and flexibility afforded by the new hive/ control tower model that can tap into and crunch the real-time data flows produced by IP-enabled sensors, GPS and communications channels encompassing everything from customer messages to weather forecasts.

The complexity is unprecedented and is only made possible by analytical tools that make sense of it all. As a manufacturer reading this, you will be more than aware of the statistics that are bandied about, not least by ourselves at The Manufacturer.

Our Annual Manufacturing Report 2017 found that well over 60% of manufacturers had technologies embraced by the term ‘Industry 4.0’ or ‘4IR’ either deployed or in hand, with further investment rolling out in the coming years.

The optimism we discovered is endorsed by PwC’s analysis, which showed manufacturers expect the investment to create cost savings of 3.6% and revenue increases of 2.9%. The investment itself is not cheap, something in the region of 5% of annual revenues according to PwC, but offering a two-year ROI.

Choke points

Everything in the supply chain garden should, therefore, be rosy, but the transparency that all this connectedness offers is not to everyone’s taste. In the old version, companies doing business with each other would supply only as much information as was required to keep the chain moving.

In the smart version, companies will be expected to integrate their systems to allow for seamless real-time data transmission and analysis.

Traditional and integrated supply chains (Original graphic courtesy of PwC)

When I spoke to Warren East, CEO of Rolls-Royce plc last year, he said the adoption of these technologies and the visibility they offer would be a sine qua non of any supply chain relationship. And yet very real concerns arise.

We held a breakout roundtable meeting of manufacturers at our Annual Leaders Conference last year, to discuss the benefits of the connected supply chain, yet more time was spent dealing with questions such as, ‘Will my IP be vulnerable?’, ‘Who determines where liability starts and ends?’, ‘With so many open doors, what about IP security?’ than the benefits of connectivity.

One attendee went so far as to say, “There is no way we’d allow anyone within a mile of our production systems…!” It could be that force majeure wins the day, that the need/desire to work with large OEMs obliges compromise, but this demonstrates that it is not enough to simply say this brave new world will make everything better. The vendors of the enabling systems and software need to offer granular control to manufacturers so that the future can be embraced with confidence.

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Within an ever more connected ecosystem, data security remains a high priority for many manufacturing executives.

“Despite advanced technology, we all fear our precious data ending up in the wrong hands,” said Dr Steven Barr, managing director of Hennik Edge. “Manufacturers work on trust as well as process, and solution providers need to deliver on both.”

Software vendors are urgently addressing security concerns. Microsoft is introducing Blockchain as a Service (BaaS) into its Azure cloud platform.  Hewlett Packard Enterprise (HPE) offer its Virtual Fort Knox system, which allows companies in the supply chain to minutely control the content of the data flow, through their ClearPass Universal Profiler.

Smoothing complexity

The advent of the smart supply chain offers unprecedented opportunities for industries where uncertainty has traditionally been a way of life. Last November, I attended the Discover expo organised by HPE and was fascinated to see how 4IR technology is transforming the Malaysian palm oil industry, which is the largest worldwide source of fats and oils for anything from cooking to biodiesel fuel.

The supply chain for this industry, which produces 48 million tonnes of product each year, can be dramatically impacted by climate conditions. To address this, HPE produced sensors that send up-to-the-minute data on soil humidity and weather conditions via LPWAN (Low- Power Wide-Area Networks) to satellites and thence to central operations centres.

This not only enables effective local plantation management, but also – and crucially – helps generate an accurate picture of supply capability in real time.

The steel industry supply chain is subject to several issues that are both hard to predict and can have enormous impacts on margins that are, in the UK at least, already under huge pressure from high-energy costs. These pressures include the uncertain cost of raw materials, currency fluctuations and global markets reacting to low-priced dumping.

The industry itself suffers from having to produce large amounts of steel to fill small orders for specialist products. Quintic, the Dutch-American company that is part of the giant Dassault group, specialises in steel supply chain management solutions.

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Supply chain optimisation offers a variety of potential benefits to businesses.

Their products remove large areas of uncertainty from the supply chain via real-time data flows and then build on that more solid base by adding predictive analytics that iron yet more uncertainty from the process.

This technology has yet to make any impact in the UK, mainly because steel production in the UK operates on legacy systems that make supply chain optimisation difficult but not impossible, according to Markus Malmen, VP Sales for Quintic EMEA.

“There is a lot to win in optimising the supply chain,” he said. “You can optimise your raw materials process, you can optimise your cash flow, and minimise stocks, thus releasing working capital.”

3D transparency

Ultimately, the connected supply chain is about responding to the requirement for information at every point of the process and being able to see it in real-time without having to delve back down the chain as the old 2D model demanded.

Consumers are demanding to know where their products are at the delivery end of the cycle, creating a pressure for data that flows right back to the start of the manufacturing process. The Industry 4.0 technologies that facilitate this transparency, and the IT systems that crunch the data, mean that smart manufacturers and their supply chain colleagues can react considerably faster to events within the chain and beyond it.

The PwC report calls it the creation of a single source of truth that is available for every actor in the chain to see. And if data from within the chain is augmented by externally available data, such as news and weather reports, and even social media, the picture that emerges becomes sharper and more accurate, so that the chain can adapt to impending events like strikes even before they become headlines.

Getting to that point requires a great deal of investment and collaboration with supply chain partners, but failing to reach it invites being left behind.