Tim Lawrence, Director of Digital Supply Chains, Digital Catapult, explains how supply chain innovation could save the festive season.
Let’s be honest, last Christmas wasn’t exactly what everyone had in mind. A snap lockdown meant thousands had to spend the festive season away from their families, and the usual extravagance of festival celebrations was significantly scaled down. Since then, it’s been an eventful year for the manufacturing and logistics sectors.
It’s no secret that for months, kinks in global supply chains have resulted in containers time and time getting stuck where they shouldn’t. A shortage of drivers to pick up containers, a backlog of cargo ships, overburdened warehouses and labour shortages have created the perfect storm. And in the run up to December, the murmurs of impending Christmas shortages have arrived.
From the Christmas jumper to Christmas trees, and even a seasonal turkey, speculation has been rife that supply chains will buckle under the pressure of spikes in consumer demand. With the US National Retail Federation estimating that around two fifths of all sales are made in the final two months of the year, this situation isn’t beyond the realms of possibility.
So, what’s brought about such high levels of supply stress? Crises, such as financial crashes – or in this case, the COVID-19 pandemic – often exacerbate supply and demand imbalances. These crises can significantly impact consumer buying decisions, which can be extremely difficult for businesses to manage. And with the rise of social media, consumers have so much more information with which to make these decisions, resulting in unexpected changes in demand.
As the industry will understand, manufacturing has always been aimed at being lean and efficient. Manufacturers tend to only stock what they need to fulfil current orders. Adopting a ‘just-in-time’ approach means during the pandemic they’ve suffered by not getting the parts they need on time, as well as getting the right products out the door to consumers.
Any small disruptions to supply chains, such as bad weather causing factory closures or capacity constraints, can impact the chain quickly. The World Trade Organisation has predicted that the issues with global supply could last several months. So now supply chains have begun to unravel, how can we ensure this isn’t a long-term issue?
Bringing business home
Global supply chains are often highly fragmented with sub-optimal information flow. Collaboration between businesses across the supply chain is often patchy. In reality, while many manufacturers have visibility of their immediate suppliers, this rarely extends beyond that; a good example of where that has led to issues is the global chip shortage, which has pushed carmakers to re-evaluate this way of working.
One simple way manufacturers can look to address this problem is by shrinking their supply chains geographically. Opting for suppliers on the other side of the world, while sometimes unavoidable, inevitably extends the amount of time for transportation. This means you’ll be slower in responding to shocks. Having suppliers closer to your consumers means a faster response time. For example, in response to the semiconductor issue, the European Union and automotive companies are busy localising some capacity.
Rich insight through blockchain
Supply chain transparency is also a key thing to unpick here. Many manufacturing processes remain paper based, without a streamlined flow of data – meaning valuable insights allowing you to react to shocks are being lost.
Investing in technologies like blockchain will be a huge enabler to manufacturers understanding supply chains better, gleaning rich insights on provenance of components and materials. The electric battery supply chain is where viable use cases of blockchain are starting to emerge; manufacturers are successfully using it to trace batches of materials such as cobalt.
Through a system of trust, blockchain allows for innovation across different parties and improves coordination between disparate stakeholders. Ultimately, this leads to a boost in trust, security, resilience and sustainability. However, as with any digital transformation, blockchain requires cross-organisational collaboration and buy-in from all parties.
Predicting future shocks
Elsewhere in the innovation space, we’re witnessing the emergence of digital twins as a step change in improving supply chain transparency. By creating a digital model of a physical system or process, it will allow manufacturers to identify shocks, predict the impact and even trial hypothetical situations – and work out how to best respond. For example, in pharmaceutical supply chains, connecting up each step in the process using IoT and providing real-time data to models – which can then learn and feedback demand and inventory level data – enables the supply chain to learn and adapt to changing circumstances and anticipate shocks.
Meanwhile, artificial intelligence is opening the door for automating supply chains through demand sensing, removing the need for human intervention. AI-based supply management tools can help companies foresee delays, demand peaks and troughs and event mark when a process is about to come undone before it happens. Digital Catapult’s participation in research and development project AiEVO focuses on optimising data sharing in the supply chain – with trials showing cost savings of up to 30% for participant companies.
Re-modelling supply chains
As the AiEVO project is proving, cross-organisation work to innovate within supply chains will be essential. Digital Catapult recently launched the Made Smarter Digital Supply Chain Innovation Hub, aimed at developing more resilient and sustainable supply chains through digitisation.
Backed by £20m funding from Innovate UK and UK Research and Innovation, this programme hopes to lead the charge in tearing down barriers to supply chains running smoothly. If something positive has come out of the pandemic, it seems that at the very least, companies have witnessed first-hand the importance of improving data sharing, transparency and collaboration across supply chains.
The way things have been done traditionally – i.e. the ‘just-intime’ approach – simply doesn’t work anymore. Looking ahead, supply chain innovation and digitisation needs to sit high on manufacturers’ priority lists. Otherwise – from business growth, to happy customers – they risk missing out on more than just a Christmas turkey.
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