This pragmatic approach to building resilient M4.0 supply chains is essential for thriving in today’s new normal.
Future proofing manufacturing supply chains, building resilience and the capability to proactively respond to disruption is no longer a case of if but when. Without exception, over the past two years, every manufacturing business has had its supply chains disrupted and most continue to face uncertainty, challenged by the impact of the COVID-19 pandemic, geopolitical instability, macro weather events, trade wars, and climate change. Developing a robust, resilient supply chain is a whole-of-business problem, a strategic imperative that must be treated with urgency.
The sales, production, and supply chain teams often participating in the gamesmanship of balancing supply with demand need to unite more than ever before and tackle both the tactical and strategic aspects of mitigating disruption and building resilience. This work must be done now, building on the initiatives that most companies commenced over the past two years. Here is a pragmatic, 10 -step process manufacturing businesses can follow on their journey to achieving now-essential resilient M4.0 supply chains.
Welcome to the New Normal
In the first quarter of 2020, as the world experienced the initial impacts of the COVID-19 pandemic, many considered the supply chain disruptions temporary as critical supply chains such as food bounced back, and the shopping aisles started to restock. However, as the year progressed it became apparent that we would not be returning to normal. In his book, The New (AB)Normal, published in October 2020, MIT Professor Yossi Sheffi described how we are entering an era of uncertainty which will reshape business and supply chain strategy. The Economist Intelligence Unit in an August 2020 briefing document commented that we have entered an era of turbulence and that companies that recover from the pandemic should seek to build resilience and adapt to a new normal.
“Tackling the supply chain risks in this new normal requires both a tactical and strategic approach.”
Fast forward to today and these predictions have been proven true, the pandemic continues to disrupt as new waves ripple around the globe, the long-term effects still significantly disrupting supply chains as the semiconductor shortages disrupt manufacturing, tens of thousands of containers remain stranded on ships waiting to be offloaded, and geopolitical tensions rise. Some manufacturing businesses that were unable to adapt to the normal did not survive, while others are just barely surviving. However, others that have been more agile and adaptable than their competition are thriving.
Tackling the supply chain risks in this new normal requires both a tactical and strategic approach. Manufacturing businesses need to build the capability to rapidly deal with unexpected supply chain disruption, have supply chain visibility and insights to enable rapid decision making while at the same time developing strategies to build long-term resilience.
10 Steps to Supply Chain Resilience
Over a decade ago, leading supply chain specialist Dr. John Gattorna, in his book Dynamic Supply Chains, delivering value through people, stressed the point that in supply chains, we are dealing with people everywhere. While the digitization of supply chains has increased significantly, even accelerating these past two years, people remain key to supply chain delivery and management. Supply chain team members rapidly became essential front-line workers as manufacturing businesses raced to obtain appropriate personal protective equipment, and later COVID testing kits, to ensure health and safety. As the focus shifts from these operational issues to the tactical and strategic challenges, people will continue to play an essential part. That’s why the need to ensure the right team is selected to lead this process is a critical first step in the journey to supply chain resilience.
Step 1: Select the Right Team The first step to developing the required supply chain capability is to recognize that this is a comprehensive and strategic business transformation program and as such requires appropriate executive sponsorship, allocation of resources, change management, and laser focus. A siloed approach is most unwise as supply chain always has, and always will, impact all aspects of a manufacturing business.
To illustrate the comprehensive nature of this process, consider the example of a small specialist supplier of a key component in the following scenario: The supply chain team identifies the supplier as critical and requests that the procurement team assists in assuring that contracts are established to ensure future supply. The planning team works proactively with the supplier to provide updated forecasts and the supplier in turn provides regular delivery updates. However, unbeknownst to the supply chain team, the finance department decides to impose changes to accounts payable to improve cashflow, which ultimately impacts the supplier and its ability to deliver.
“While the digitization of supply chains has increased significantly…people remain key to supply chain delivery and management.”
As this example shows, the process requires a unified cross-functional business approach. Moreover the executive should make it clear that this is a strategic, mission-critical program that is key to competitive positioning of the business. Because transformation in time of supply chain disruption and crisis is a major challenge, the right program leader must be selected. That person must be a team member who has the authority to get things done, the trust of cross-functional leadership,and sufficient knowledge and experience in the business’s supply chain, and also is able to step away from daily operations to remain focused on the resilience program. Seconded team members should include supply chain analyst, business analyst, IT, procurement, production, finance, and sales representatives. This team becomes the core Supply Chain Resilience Team.
Step 2: Establish the Right Team Space The right team space is one that can be occupied for the duration of the program, with consideration that it could also be the permanent space once the program is operationalized. This supply chain control room must have a couple of large display screens as well as space for brainstorming and action planning. There also must be an appropriate virtual space — a shared place where all current supply chain data and information can be accessed. This central repository of supply chain data will later become a key component of the digital supply chain control tower for monitoring and controlling the supply chain as explained in Step 7.
Step 3: Supply Chain Visibility The first action of the Supply Chain Resilience Team is to create supply chain visibility. Supply chains have become complex and, in many cases, have evolved into networks to provide visibility to both the cross-functional team members as well as the broader stakeholder group, mapping of the key supply chains using a collaborative mapping tool creates a single reference point for the business’s supply chains as well as having a high probability of surprising many.
This starting point will ultimately lead to near real-time visibility of key supply chains. It is also the step where the team should determine whether they have full visibility of the supply chain, establishing whether they have sufficient information on their supplier’s supply. If not, the team should arrange discussions with suppliers to address this information gap. Once the completed supply chain maps are published in the central repository and displayed in the Control Room, you can establish a common understanding, which is fundamental to the analysis steps.
Step 4: Quantify Risk Key supply chain performance attributes include reliability, responsiveness, agility, cost, and asset management. Each of these attributes has its own metrics; for example perfect order fulfillment and overall value at risk. While the calculation of these metrics is recommended for each supply chain, a cross-functional team can expedite the identification of risk. Having the benefit of a visible supply chain map, the production team member can, for example, highlight critical components which could disrupt production and delivery, while the planning and procurement team members could provide deeper insights into supply risk. In addition, finance can assist with providing historical costs for expediting or substituting the components. All of this can be rapidly annotated and shared on the collaborative supply chain map. When the quantification of risk iscomplete, the team can prioritize the supply chains according to risk, making it possible to provide the appropriate focus for the subsequent steps.
Step 5: Risk Identification and Alerting In this step, the team focuses on the high-risk supply chains with the objective of identifying the causes of risk. As a starting point, the collaborative supply chain maps can be used to annotate areas of concern, with particular focus on identifying risk indicators and possible measures and alerts for these indicators. Are there systems or sensor data that can be integrated into a dashboard for alerting should one of these risk indicators reach a trigger point? Could tracker and condition monitoring sensors be used to track critical components or products? Examples include weather monitoring and ingestion of weather forecast data along routes that are sensitive to extreme weather events. Alerting and even predicting weather-related supply chain disruptions would enable the team to take proactive risk mitigation steps such as alternative routing or early delivery of the products. Deployment of GPS trackers, including more advanced temperature monitoring capability, could alert when time- and temperature-sensitive consignments are at risk. The first stages of developing a digitized supply chain risk dashboard can present such alerts in near real time.
Step 6: Tactical Risk Mitigation Identifying or predicting risk enables the team to take proactive risk mitigation measures. The power of the cross-functional team come as it engages in a series of scenario planning and what-if analysis. Much can be achieved with the trusty collaborative supply chain map; however, a skilled supply chain or business analyst may also provide a simulation of the supply chains using one of the several commercially available solutions, which will add a further layer of robustness to the planning sessions. The key question being tackled is “what can be done to mitigate the risks identified or predicted in Step 5?” As the team discusses each risk scenario and debates, assesses and selects potential mitigations, it develops a risk mitigation playbook. The intent is that the playbook provides the detailed steps for initiating Plan B, be it an alternative routing, alternative supply, or even substitution of a component and the various supporting business processes. As with Step 5, digitization opportunities exist for this mitigation such as preconfigured workflows and plans that can be automatically triggered after a risk alert is detected.
Step 7: Monitor and Control Having completed the first six steps, the Supply Chain Resilience Team will have established a base Supply Chain Control Center with a digital dashboard enabled to provide risk alerts and prediction. A risk mitigation playbook is available for the team to rapidly initiate a Plan B with the opportunity to further automate this process. This center could be operationalized at this stage, used for proactive monitoring of the supply chains and as a hub for decisive decision-making and control in times of disruption.
Step 8: Strategic Supply Chain Resilience Having developed a program for proactively responding to tactical risk mitigation, the team must also consider longer term strategic supply chain resilience. This is preparing for the new normal discussed in the introduction. The team needs to expand as it works on identifying longer term risks and working through the mitigation strategies. This requires deeper engagement with the executive to get insights into the future direction of the company, and subject matter experts should be consulted in areas such as sustainability.
Step 9: Simulation and Digital Twins With longer term risks including sustainability and scope 3 carbon emission reporting, trade wars, and geopolitical tensions, identifying the risks and quantifying the various scenarios, which could include complete network redesign, becomes a complex exercise. The use of commercially available simulation and digital twin solutions provide the team with the ability to rapidly access multiple scenarios once the supply chain is configured and populated with the business data. Once established and validated, these solutions become a key source of reference for the business, facilitating the planning and management of the strategic supply chain resilience plan.
“These 10 practical steps will help manufacturers progress along the journey to resilient M4.0 supply chains.”
Step 10: Establishing the Supply Chain Control Tower Having deeply analyzed the business’s supply chains, established the key risk areas, and developed playbooks for risk mitigation as well as longer term risk identification and the resilience plan, the team is well-positioned to integrate these solutions into a Supply Chain Control Tower. Such a system can automatically monitor for risk, and provide alerts and predictions, as well as recommend mitigations both from coding the playbooks from Step 6 into decision models and workflows as well as through machine learning. With increased supply chain complexity, automation of monitoring and control becomes a necessity.
These 10 practical steps will help manufacturers progress along the journey to resilient M4.0 supply chains. As with all M4.0 processes, automation is a key enabler; however much can be achieved by following the foundational steps, which are crucial to a successful overall implementation. People are key to supply chains, ensuring the team members and stakeholders are fully engaged leads to trust and ultimately trust and commitment lead to long-term resilience and sustainability. M
About the author:
Owen Keates is Industry Executive, Hitachi Vantara Manufacturing Practice, where he leads the development of Hitachi Vantara’s digital supply chain solutions. With over 25 years of experience in supply chain management including global supply chain manager – logistics company and vice president of a supply chain consultancy, he has led many digital transformation programs across a range of industries.