Taking a technological leap of faith in supply chain management

Strate­gic deci­sions are the basis of sup­ply chain man­age­ment. From the fun­da­men­tals of where and how much to buy, to engage­ment with the lat­est tech­nolo­gies. CPOs and sup­ply chain direc­tors must decide their strat­e­gy based on all the fac­tors affect­ing their par­tic­u­lar busi­ness, as well as the val­ue placed on often con­flict­ing moti­va­tions such as bud­get, speed, ethics, effi­cien­cy, sus­tain­abil­i­ty, flex­i­bil­i­ty and of course costs.

Achiev­ing the per­fect bal­ance of all these vari­ables is an eter­nal chal­lenge, because even when the KPIs and prof­its are deliv­ered, there is the ever-present dan­ger that things will change. Mar­kets shift, tech­nolo­gies devel­op and the unex­pect­ed is nev­er far away. 

The last year or two have been rife with exam­ples of dis­rup­tions that have put sup­ply chain deci­sions at the top of the board­room agen­da. An ide­al sup­ply chain strat­e­gy will have just enough flex­i­bil­i­ty to deal with a cri­sis and pre­vent cat­a­stro­phe. Too much capac­i­ty is inef­fi­cient and inhibits agili­ty, but too lean a sup­ply chain risks being too brit­tle to adapt to sud­den changes. 

His­tor­i­cal­ly for many busi­ness­es, resilience has been some­thing of an after­thought. Emile Naus, part­ner at con­sul­tan­cy Bear­ing­Point, says: “Sup­ply chain strat­e­gy has had a focus on deliv­er­ing costs reduc­tions over the past 30 years. As a result, we have glob­al sup­ply chains with long lead times, high inven­to­ry (sup­port­ed by very low inter­est rates) and low cost. But this has come at a sig­nif­i­cant ‘cost’ that is less vis­i­ble than finan­cial. Longer sup­ply chains, with more ele­ments in the chain, are fun­da­men­tal­ly less flex­i­ble and less resilient.”

Supply chain transformation as a strategy

Less robust sup­ply chains neces­si­tate big deci­sions and fast changes when dis­rup­tion hits. But the upheaval of entrenched prac­tices can also be an oppor­tu­ni­ty for valu­able long-term trans­for­ma­tion.

“Sup­ply chain strat­e­gy will need to take a much more bal­anced view around risk, flex­i­bil­i­ty, invest­ment and costs,” says Naus. “Sup­ply chain strate­gists will then need to under­stand where they can sen­si­bly reduce the impact on the oper­at­ing costs, which will accel­er­ate the exist­ing trends to automation…robotics and appli­ca­tion of AI.”

Machine learn­ing, arti­fi­cial intel­li­gence and the inter­net of things are per­haps opaque con­cepts. But they can help peo­ple and busi­ness­es use data to make bet­ter-informed deci­sions, ele­vat­ing estab­lished sup­ply chain process­es like ERP, EAM, CRM, ITOM and HCM to the next lev­el and beyond.

Chris Gabriel, CTO at busi­ness soft­ware con­sul­tan­cy Sap­phire Sys­tems, says: “We are see­ing smart sup­ply chains being able to mon­i­tor ships at sea or con­tain­ers in a port and pro­vide auto­mat­ed data inputs into fore­cast­ing or stock man­age­ment.  We are see­ing algo­rithms able to pre­dict how cus­tomers will pay.  Of course, we are see­ing the growth in machine learn­ing and our abil­i­ty to recog­nise and act on infor­ma­tion in doc­u­ments or oth­er for­mats cou­pled with auto­mat­ed deci­sion mak­ing to speed up flows across organ­i­sa­tions.”

Taking a strategic leap of faith

The burn­ing strate­gic deci­sion for many is not whether to take the plunge into big data and AI but when, and to what extent. It’s an easy deci­sion for mar­ket lead­ers to invest heav­i­ly in emerg­ing tech, because they can absorb the costs and even view fail­ures as valu­able lessons. But the deci­sion is hard­er for small­er oper­a­tors.

Adopt­ing new meth­ods involves risk, and wait­ing for the best tech to be proven can be tempt­ing. How­ev­er, defer­ring these big deci­sions could mean being left behind. And although imple­ment­ing com­plex new sys­tems may seem pro­hib­i­tive­ly expen­sive, cloud com­put­ing is now offer­ing mod­u­lar and user-friend­ly options. 

The cloud is mak­ing the lat­est tech acces­si­ble to all, but Gabriel adds that it still requires some­thing of a strate­gic leap of faith, because cloud has to a cer­tain extent rewrit­ten the rules.

“Cloud said ‘don’t con­fig­ure your busi­ness to the ERP sys­tem but use best prac­tise in the cloud ERP sys­tem to recon­fig­ure your busi­ness.’” And that came as a step too far for many…but the gains of mov­ing from a sys­tem of record to a sys­tem of action are huge.”

The tur­bu­lence of the last 18 months has increased the val­ue of resilience in sup­ply chains, and the ben­e­fits of AI seem futile to resist. Among a sea of vari­ables, it seems the one con­stant is change, which always comes with costs and risks. If change is inevitable, the ‘how’ and ‘when’ remain the deci­sions of the sup­ply chain direc­tors, and so the bal­anc­ing act must con­tin­ue.