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How Digital Innovations Strengthen the Efficiency and Resilience of the Supply Chain

How Digital Innovations Strengthen the Efficiency and Resilience of the Supply Chain

29. October 2020
Supply Chain

The global corona pandemic has posed major challenges to the logistics industry this year: Disrupted supply chains, closed borders, lack of employees etc. Some companies were able to respond to the crisis better than others. Digitalization and resilience are decisive factors impacting the speed and accuracy of the reaction.  In economic markets with a strong international division of labour and high volatility, external influences are increasingly leading to disruptions in the supply chain. According to a study by the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA), experts also forecast a much faster-moving and more dynamic future. This is largely due to the customers expectation of more flexibility in the delivery of goods and product selection. Besides, it is also influenced by the increasing cooperation between companies, forming a network type of working environment.  With such framework conditions it is important to analyze one’s own processes and to ensure them to be as stable and efficient as possible.

Reasons for disruptions in the supply chain

Even before the pandemic, disturbances were not uncommon. Delays in border controls, inadequate planning steps and errors in documentation or communication, among other things, repeatedly lead to disruptions, which are only made worse by the current corona crisis.

How do you achieve the necessary resilience and at the same time efficient processes along supply chains?

A resilient supply chain is characterized by the ability to counteract impairments. It can adapt to internal and external changes and recover from the consequences more quickly. Below we focus on some points that help to make processes in supply chain management more efficient and resilient.

Demand fluctuations and the bullwhip effect

Restrictions on shopping on the one hand, panic buying on the other: Buying behaviour has changed considerably during the corona pandemic. The so-called bullwhip effect describes the phenomenon in which demand fluctuations yield inefficiencies throughout the supply chain. This effect describes the need of increasing swings in inventory in response to shifts in consumer demand as one progresses further up the supply chain.  One reason for this is that the demand fluctuations are passed on with a time delay. Another reason is that, the retailers, to be on the safe side, lean towards the tendency to order more than the demanded quantity from the wholesaler.  This in turn, pushes the wholesaler also to order a larger quantity from the manufacturer, to avoid supply bottlenecks. This tendency is then pushed further up the supply chain, leading the manufacturer to produce more than the actual demand.

Early detection and evaluation of fluctuations

To counteract this problem and strengthen the resilience of the supply chain, a supply chain management system is needed that can react to changes with the least possible delay. To be better prepared for such a crisis in future, indicators should be examined and implemented which behave as early warning systems pushing for a call to action well in advance. However, caution should be exercised when evaluating these indicators as growing demand cannot be perceived as permanent. This has been shown, for example, by the corona-induced influx of toilet paper and masks. Since customers have bought a particularly large number of these products due to the fear of bottlenecks, this has resulted in an enormous increase in demand. However, this unproportionally increased demand, as fast as it has risen, will also decrease again as soon as the situation changes or normalizes.  If the increased demand is taken as permanent, this will lead to excessive inventory and high storage costs. This should also be considered when using new technologies and methods. Advanced analytical methods such as predictive analytics can predict forthcoming developments, activities and trends based on historical data. However, when such a structural break and an exceptional situation such as a pandemic occurs, even sophisticated analytical methods reach their limits. In the event of such a structural break, a new parameter estimation must reassess developments based on newly gained knowledge and experience. 

Increasing transparency

Transparency is important to quickly identify deviations and problems, provide maximum information and ensure timely reactions. Systems that provide end-to-end visibility make it possible to map individual stages at every step of the supply chain. Digital supply chain platforms such as limbiq.com, which additionally offer options for communication between all partners of the supply chain, can reduce communication problems and promote a continuous flow of information. This ensures that every participant in the supply chain has full visibility of  the current status, all important information and documents related to the delivery at any time.

Using real-time data to support decision-making

In order to enable decision making, complete information is essential. Information on the current situation as also on how the decision might affect the situation. This applies to changes in the procedure as well as complete changes in the routes. A backup plan with alternatives should be well thought out. Every change of route brings new requirements and potential risks to the transport. A system that collects comprehensive data and provides it in a clear and concise manner can empower the partners in taking appropriate decisions. In the future, artificial intelligence will play an increasingly important role in this area. Artificial intelligence can give recommendations based on collected data and support decision making by suggesting  possible solutions based on existing data.

Automation of processes

There are more and more possibilities to integrate technologies like AI and robotic process automation, which help to automate everyday tasks. Choosing the right software and technical compatibility with existing systems is a major challenge. Process automation offers the potential to reduce sources of error and to handle transports faster. In the field of warehouse logistics, it is possible to operate automated systems remotely, for example by using robotics for order picking and to continuously view and control significant information about the processes. This capability can be of great importance in the coming years, not only during a pandemic. 

Conclusion

COVID-19 has led to some impairments and forced many industries to digitalize. However, apart from the pandemic, many more challenges are likely to be faced. Digital innovation improves the efficiency and resilience of the supply chain by providing continuous real-time information, identifying problems earlier and responding timely  to unscheduled changes.

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