Supply chain digital makeover, a priority

Emerging technologies such as AI/ML, cloud and blockchain are accelerating digital shift in supply chains and helping build trusted and resilient solutions. Digital transformation of supply chains has to be a priority for organizations to deliver their growth objectives, says Ajay Nair, Partner and Leader Supply Chain Transformation, PwC India.

Supply chains have been disrupted in the past by vicious events such as tsunami in Japan, floods in Thailand, SARS epidemic and financial crisis of 2008 and the ongoing pandemic, but the impact was geographically limited. Manufacturing was concentrated in select geographies such as China, fuelled by considerations of scale-driven costs and state support. However, as the global supply chains focused on costs and service levels, supply concentration risks increased. Global movement of raw materials, components and finished goods meant a world order, which had to be cohesive to minimise the risks.

COVID-19, whose impact has subsided, affected the demand and supply, and disrupted global supply chains. This was compounded by a series of disruptions–the Suez Canal blockade, US-China standoff, semiconductor crisis and Russia-Ukraine war. Disruptions are here to stay, and we will see them increasing in scale and frequency, impacting the resilience of supply chains.

China accounts for nearly 30 per cent of the global manufacturing and its support to Russia in the ongoing Russia-Ukraine conflict will result in international supply chains diversifying supply risks by moving towards nearshore or multisource models (Southeast Asia and India).

Shift in consumer behaviour towards product personalisation, digital products, omnichannel routes to market, need for shorter servicing time, health considerations, changing perspectives on discretionary spending and channel availability challenges have resulted in significant volatility of demand profile.

ESG commitments to net zero by organisations, financial institutions and governments will result in significant implications for supply chains such as shift in supply sources, transportation in EVs, renewable power, circularity, near-shore sourcing, responsible sourcing with compliant labour practices and regulations, and supplier diversity.

Availability of talent in supply chain and digital is in short supply, as is the capability of talent to drive transformation, compounded with the rapid increase in requirements to transform and build digital supply chains. Automating transactions and building digital capability in the workforce should be increased.

Significant investments by private players in logistics infrastructure such as Grade A warehousing is likely to increase. Emerging technologies such as Artificial Intelligence (AI), Machine Learning (ML), cloud and blockchain are accelerating the digital shift of supply chains and helping build trusted and resilient solutions.

Hence, the digital transformation has to be accorded a strategic priority for organisations to deliver on their growth objectives. Organisations that have invested in digital transformation of their supply chains should build towards a vision of connected and autonomous supply chains with the objectives of responsiveness and resilience.

The capabilities of a connected and autonomous supply chain are:

  • Dynamic SC segmentation
  • SC transparency and visibility across ecosystem
  • Closed loop integrated planning
  • Digital supply networks
  • ESG-ready future supply chain

The key enablers of this vision are:

  • Data-driven AI-enabled supply chain across ecosystems
  • Operating model to engage with ecosystem partners-suppliers, LSPs and customers

As per a PwC research, the organizations that have invested in building a connected and autonomous supply chain have witnessed revenue growth of 8 per cent and cost optimisation of 7 per cent, while meeting the objectives of responsiveness and resilience.

Consumer needs of personalisation and customisation of products, and the omnichannel routes to market have resulted in differential service level requirements across product-channel combinations. While static supply chain segmentation has been predominant, the availability of data and the cloud computing has resulted in dynamically segmenting orders and prioritising them for meeting supply service levels. The volatile nature of demand makes dynamic segmentation of orders as they flow in, a vital capability towards the vision of autonomous supply chains.

The volatility of demand will require responsiveness driven by the organization’s priorities. The digital supply networks balance real-time supply and demand data, and focus on demand servicing based on prioritisation driven by dynamic segmentation.

One of the key drivers for capacity shortfall for semiconductors is water availability for manufacturing entities in Taiwan. The net zero commitments of most organizations will impact the way they manage logistics and material sourcing strategy to minimise carbon emissions. Shift to renewable sources of power such as solar, both in manufacturing and warehousing, usage of EV in transportation (last-mile logistics), network strategy of organisations focused on minimising carbon emissions among others are some of the key considerations for ESG-ready future supply chains.

A supply chain’s constant optimisation between cost, service level and working capital now has now ‘resilience’ as an addition. In most businesses, service levels will trump cost given the gross margin of products. However, resilience (reliability of service level) will make investments in supply chains a strategic choice. Building a digital twin of the supply chain and doing simulation-based scenario planning at scale to test the vulnerabilities will help identify risks and mitigation plans.

Reimagining the supply chain operating model to enable seamless engagement with ecosystem partners will require data sharing across partner organisations to enable effective planning and execution to service demand. The operating model will require trust-based systems (Blockchain enabled) for exchange of data between suppliers and manufacturers.

Emerging tech would be a key enabler to build the capabilities for autonomous supply chains. AI/ML capabilities are leveraged for real-time order prioritisation, demand sensing for short term horizons of three or five days based on organisation data and external inputs. Blockchain is leveraged for product sourcing transparency across the ecosystem of partners.

Digital transformation of the supply chains should be driven based on business outcomes for the organisations and its customers. Hence business case for investments in digital transformation of supply chains should consider resilience (reliability of demand servicing) and ESG metrics in addition to cost optimisation and service improvement.

The government has planned investments worth Rs 7 trillion to be spent on logistics infrastructure projects over the next two or three years across highways, multimodal logistics parks, wayside amenities, ropeways and warehousing zones. However, one of the backbones of the logistics industry is the highly fragmented truck owner-driver population. While this segment lends itself to be an ideal case for an aggregator model, there has been little success given the limited focus on the value proposition for the truck owner/driver.

Disruptions are here to stay and become more frequent and larger in scale. Hence the vision of a connected, autonomous supply chain is key to building resilience while servicing demand. The capabilities of an autonomous supply chain such as dynamic segmentation, transparency platforms, closed-loop planning, digital supply networks and ESG compliance are enabled by data-driven emerging tech (AI/ML) and an operating model of engaging with ecosystem partners. Business cases for investments in digital transformation of supply chains should consider resilience and ESG metrics in addition to cost and service level. While the government is executing road infra projects at speed and has promised investments in logistics infrastructure, it should focus on the trucker community by enabling a digital platform for P2P aggregation without the perils of centralisation.