Can data, analytics, and artificial intelligence save the supply chain? It’s a question that corporate boards may be asking their CIOs. After all, technology came to the rescue helping many organizations address the challenges brought by the COVID-19 pandemic such as remote work and online commerce.
But problems with the supply chain remain a lingering and painful reminder of how upside-down the world still is, even as office workers trickle back to their pre-COVID routines a few days a week. Ships continue to be stacked up off the coast of Los Angeles.
Restoring flow to the supply chain that has been clogged by unpredicted changes in supply, demand, production, and labor shortages will take time, according to experts. Investing in technology to gain visibility and transparency into the supply chain is one of a few steps that CIOs can recommend to the rest of the C-suite to gain ground against the current problems if they are impacting your enterprise, according to experts. On the flip side, companies that continue to fail to invest in supply chain technology may not survive. Technology investment is mandatory … but it’s not enough to fix the current crisis.
“The current state of the supply chain is the new normal,” says John Fay, who joined multi-enterprise supply chain network solutions software provider True Commerce as CEO in December 2020. Even as organizations struggle with the malfunctioning supply chain in the physical world, they are looking to apply technology for the help it can provide. Fay says that his company saw a 90% increase in drop-ship orders last year as manufacturers skipped physical stores and warehouses to take their products directly to consumers. This is one of many changing patterns in how products were delivered in response to problems with the supply chain, retail closures, and other limitations imposed by the pandemic.
Who Won the Pandemic Supply Chain?
If your CEO or board needs proof that supply chain technology can, in fact, help with supply chain problems, just look at the winners who succeeded during the pandemic itself versus those companies that struggled or failed. Top performers such as Lowes, Walmart, Target, and Amazon had all invested in technology and other solutions to help them gain visibility and transparency in their supply chain, according to Cindy Elliott, head of business sector strategy at GIS (geographic information systems) data, mapping, and technology company Esri.
“These companies were able to be more responsive immediately to a ripple happening somewhere else and make adjustments faster,” she says.
But many other companies did not make technology investments ahead of the COVID disruption. Elliot notes that the supply chain is considered a cost center by companies, so there’s always been a “how do I get it cheaper” approach.
“There are industries that are slower to lean into technology. When you digitize an environment, it’s a game-changer,” Elliott says. “The supply chain is an industry that’s been slower to adopt technology, and that results in a variety of different dilemmas. It leaves us where we are right now.”
Companies like Amazon have been able to capitalize on their supply chain technological superiority, gaining even more of an edge over companies that were unprepared for a supply chain disruption.
“As a consumer, I make my choices based on who helped me or who had something in stock,” says Brian Kilcourse, managing partner with retail research and consulting firm RSR Research. “Who has the best supply chain in the world and who has been killing it in the past few years? Amazon was crushing it. It wasn’t about price or variety. It’s all about next day,” he says.
Amazon has a technological advantage. It also has a size advantage. Like some other giants, over the past few years even before the pandemic, Amazon had bought its own shipping containers and even its own ships, which provided it with some insulation from competing with other companies for shipping space in a system with a finite number of ships and containers. It’s also a huge advantage at a time when the cost of shipping has increased so much. According to Drewry Supply Chain Advisors World Container Index for the week of Nov. 11, 2021, the composite price of a 40-foot shipping container is 250% higher than it was a year ago.
Experts agree that transparency -- the ability to see in real-time where items are in the supply chain -- is a big advantage that some organizations have over others. Amazon most certainly enjoys that advantage. Other giants are looking to gain more advantages in that arena as well. Looking to quickly level up, in April 2021, Japanese giant Panasonic acquired supply chain AI software company Blue Yonder in a $7.1 billion deal looking to create “autonomous enhancement of the whole supply chain.”
Big companies that have been able to invest in supply chain tech are the success stories right now. Elliott of Esri says that it’s a K-shaped recovery right now where “first movers are extraordinarily outperforming the market.”
The next group is working to invest quickly and plug in their technology to catch up. And then there’s the next group down from that that is struggling without technology.
“A sizeable group of retailers will fail,” she says.
Aside from gaining the technology and size of Amazon overnight, what can other enterprises impacted by the supply chain crisis do about it now?
Brian Keare, CIO of unified data analytics platform company Incorta and former VP of IT at HVAC manufacturer Nortek, recommends using the data you have already to determine where you are most at risk. The data you use should be the most recent data -- as close to real-time as is available. “Winners are defined by how quickly they can analyze and react,” he says.
Then look at the mistakes you have made before and fix them. Diversify so that you have fewer points of failure. Also, reexamine your business model. Maybe you have built a business on offering less differentiated products at a lower cost, but does that still make sense in today’s economy? Maybe not.
The Retail End of the Supply Chain
In past years the best demand signal or data to inform a retailer of what they needed to order was what a customer just bought. But the pandemic broke a lot of analytics models that relied on past data. People didn’t want the discretionary goods that were already in the supply chain in March 2020. They wanted paper towels and toilet paper. But before those products could be shipped, the supply chain -- all the loaded-up ships, trucks, and warehouses -- had to be emptied of the discretionary goods that no one wanted anymore.
What demand signals -- or data -- could retailers look at when none of the past data showed what customers wanted now? RSR Research’s Kilcourse says that his firm helped retailers find several alternate data sets to predict what customers would want. One of them was web traffic. The firm looked at search volume at different search engines to form leading indicators of consumer demand. For instance, what ingredients were scarce and in-demand among grocery shoppers. Was it black beans? Was it all-purpose flour?
Another tactic for retailers is to pay attention to costs. You can’t always cut them, but it’s important to optimize what you are buying.
For instance, at a time when shipping costs are so high, retailers who are going to fill a shipping container need to really focus on what they are going to put in it, says Kilcourse.
“If it’s going to cost me much more, I really need to make sure the right inventory is in it,” he says. “If it is a seasonal item that gets here too late, that’s no good. If it’s something to support a promotion, it’s no good if it doesn’t get here in time.”
For retailers that did whatever they needed to survive in 2020, these supply chain issues are just another fly in the ointment, says Dan Mitchell, director of the global retail practice at analytics software provider SAS. Retailers have been rushing to add self-service options for customers at point-of-sale, ecommerce channels for ordering, sanitation steps to the store experience, services like click-and-collect, and more.
“Our research shows that they did whatever they needed to do in 2020, and now they are going back to do it right.”
For many companies, there’s a lot of catching up to do. Thankfully, most other organizations are facing the same crisis and the same uphill climb.
“There is no short-term cure for these supply chain issues,” Mitchell says. “Fixing the supply chain is not a tech issue in the short term. In the long term, it’s a huge tech issue.”
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