Supply Chain Innovation — Part 1

Stephen DeAngelis

May 4, 2015

“Supply chains face conflicting demands to be better, faster and cheaper,” states a recent report released by MHI and Deloitte. “Innovation is the key to achieving all three.” [“The 2015 MHI Annual Industry Report Supply chain innovation — Making the impossible possible“] The report underscores the veracity of the claim made by supply chain analyst Lora Cecere (@lcecere), founder of Supply Chain Insights, and others that the supply chain is not just a part of a business it is the business. “The supply chain IS Business,” Cecere writes, “not a department within a business.” [“Sage advice? Only for turkeys.eft, 1 February 2013] The MHI/Deloitte report discusses technologies that are transforming businesses in three categories: maturing technologies, growth technologies, and emerging technologies. Within these categories, the authors of the report identify eight technologies they assert are redefining the future of supply chains and, ultimately, redefining business. The creative use of these technologies has become an imperative, they insist, because “supply chains face constant pressure to do more with less.” The report explains:

“After years of cost-cutting and efficiency improvements, the pressure to reduce costs while simultaneously boosting performance continues unabated — with no end in sight. These conflicting challenges are putting pressure on margins and creating headaches for supply chain executives who are often stuck between the rock and hard place of slashing expenses and building new capabilities.”

To meet this “do more with less” challenge, the report notes that supply chain executives are seeking more innovative solutions because the remedies of the past are leading to diminishing returns. Bain analysts, Michael C. Mankins and Lori Sherer (), write, “The best way to understand any company’s operations is to view them as a series of decisions. People in organizations make thousands of decisions every day.” [“Creating value through advanced analytics,” Bain Brief, 11 February 2015] Authors of the MHI/Deloitte report agree with Mankins and Sherer and add, “The best decision-making is driven by feedback on events as or before — not after — they occur.” To achieve that goal, they recommend that companies “invest in forward-looking technologies and capabilities that can help them rapidly assess and redesign their complex supply chain networks to satisfy the demands of a constantly changing marketplace.” In this article, I will discuss the first group of technologies the report explores (i.e., those contained in the “Maturing Technologies” category). They are: inventory and network optimization tools; sensors and automatic identification; cloud computing and storage; and, robotics and automation.

Maturing Technologies

The report warns, “Companies holding off on deploying maturing technologies may find themselves struggling to keep pace with competitors as these technologies become industry standards.”

Inventory and Network Optimization Tools

The report notes, “Network optimization tools help companies develop forward-looking scenarios that identify dollar-value impact and associated risks. These tools can be very powerful in determining where to produce which products, what to make versus buy, where to hold inventory, which transportation modes to use, and how to differentiate service response times by product and customer.” Optimization, of course, requires data analysis. Powerful new tools are emerging, like cognitive computing, that can be used to tackle optimization challenges. These tools become even more powerful when they involve predictive analytics (which is a technology that the authors of the MHI/Deloitte report place in the Growth Technologies category). A good example of how optimization tools can be used to improve a business’ bottom line is trade promotion optimization. As analysts at L.E.K. write, “Trade promotion programs are pivotal to driving sales, building brand equity with consumers and strengthening channel partnerships.” [“Four Steps to Optimizing Trade Promotion Effectiveness,” Executive Insights, Volume XIII, Issue 5] To learn how new optimization tools can be used to improve trade promotion optimization, read my article entitled “Trade Promotion Optimization Meets Cognitive Computing.”

Sensors and Automatic Identification

When it comes to creating data, sensors and automatic identification systems are ideal. “Automatic identification (Auto ID) technologies — including barcode, RFID and voice, point-of-sale systems, imagers, and beacons — generate vast amounts of valuable data. Auto ID feeds corporate information systems with the precise identity and location of each physical item in a supply chain in an automated and timely manner. Adopting such technologies provides a major opportunity to improve tracking and tracing systems, process control, and inventory management. Longer term, Auto ID systems can give a company full visibility into its supply chain by removing a number of traditional limitations.” As noted above, gathering data is only part of the solution (the easiest part). The harder challenge is analyzing the data so that the right decisions can be made in a timely manner. One of things that makes data analysis a challenge is the sheer size of the data involved. The Internet of Things (IoT) is only going to increase the challenge. Sensors and automatic identification are going to play a large part in the IoT and sensors will be a significant portion of the billions of devices predicted to be connected to the IoT over the next decade. The data generated by those devices is going to be huge; but, analysis of that data will create powerful results. To learn more about the IoT, read my article entitled “The Internet of Things Bandwagon.”

Cloud Computing and Storage

The Internet of Things is predicted to have a major impact on supply chains and the IoT is only possible because of cloud computing. The MHI/Deloitte report adds, “Cloud computing has also played a vital role in improving supply chain management by helping enterprises share data with multiple partners across many different locations worldwide.” Almost all supply chain analysts agree that improved supply chain visibility (i.e., the sharing of data throughout a company and with partners) is going to be critical for success in the years ahead. The report notes that “cloud offerings fall into four major categories, each based on an IT-related solution offered as a service rather than physical products.” Those categories are:

  • Infrastructure-as-a-Service. Hardware resources and computing power provided as cloud-based services. Companies use these cloud resources instead of buying dedicated servers and networking equipment.
  • Database-as-a-Service. Storage and database capabilities. Many of these offerings use a multi-tenant architecture in which data for different clients is stored in identical physical tables.
  • Software-as-a-Service. Software applications provided as a service, eliminating the need to buy, install, update and maintain software packages. Application data is stored in cloud databases. …
  • Platform-as-a-Service. Complete cloud-based application development platforms that support all phases of the development lifecycle, from design and debugging to deployment, implementation, and testing. Companies are able to develop standalone web applications and add-ons.

Robotics and Automation

There is a lot of talk nowadays about the so-called “factory of the future.” These future factories are going to be highly automated and the factory floor is going to be filled with more robots than people. As the report notes, “Robots have revolutionized manufacturing. As they become smarter, cheaper, and faster, they are able to do much more than the repetitive and onerous tasks to which they have been traditionally relegated. Today’s robots can produce goods with higher quality, less down time, and fewer errors than can humans.” I’m aware that this automated future carries with it some troubling social consequences; but that is a topic better discussed in another article. Not just factories are being impacted by robotics and automation, warehouses are increasingly turning to automation in order to improve order fulfillment and reduce costs.

In Part 2 of this article, I will discuss technologies that the MHI/Deloitte report place in the Growth and Emerging categories.