Supply Chain Management

How Digital Innovation Will Strengthen the Resilience of Your Supply Chain

Learn How Digital Innovation Will Strengthen Supply Chains

How Digital Innovation Will Strengthen the Resilience of Your Supply Chain

Disrupted supply chains, closed borders, lack of employees: the global economic parameters are posing major challenges to the logistics industry in the furture. Some companies are able to respond to the crisis better than others. Digitalization and resilience will be decisive factors of how they can react. 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 forecast a much faster-moving and more dynamic future. This is because customers expect more flexibility in the delivery of goods and product selection. Additionally, cooperations between companies are increasing. With such framework conditions it is important to analyze one's own processes and to set them up as stable and efficient as possible.

Reasons for disruptions in the supply chain

Even before, 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 may only get worse in the furture.

How do you achieve the necessary resilience and at the same time efficient processes along supply chains that are prone to disruption?

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 effective and more resilient.

Early detection and evaluation of demand fluctuations

Restrictions on shopping on the one hand, panic buying on the other: Buying behaviour has changed considerably. Therefore, being able to react flexibly to fluctuations in demand is more important than ever. The so-called bullwhip effect describes the effects of demand fluctuations throughout the supply chain, which increase from the end customer to the manufacturer. One reason for this is that the changed demand is passed on with a time delay. Another reason is that there is a tendency to order more than the quantity demanded at each stage of the supply chain: To be on the safe side, the retailer orders more than the quantity demanded from the wholesaler. The wholesaler will also order a larger quantity from the manufacturer to avoid supply bottlenecks. As a consequence, the manufacturer will produce more than is actually demanded.

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 that show the need for action at an early stage. However, caution should be exercised when evaluating these indicators. After all, growing demand does not have to be permanent. Customers may buy a particularly large number of items due to the fear of bottlenecks. This has resulted in an enormous increase in demand. However, this strongly 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 considered to be permanent, the result will be excessive inventory and high storage costs. This should also be taken into account 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 has to reassess developments based on newly gained knowledge and experience.

Increasing transparency

Transparency is important to quickly identify deviations and problems, provide a maximum of information and to be able to react quickly. Systems that provide end-to-end visibility make it possible to map individual stages and every step of the supply chain transparently. Digital supply chain platforms, which additionally offer options for communication between all participants in the supply chain, can reduce communication problems and promote a continuous flow of information. This means that every participant in the supply chain is able to call up 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 be able to take a decision, complete information is essential. Information on the current situation and on how the decision might affect it. 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 as much data as possible and provides it in a clear and concise enable 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 pointing out 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 are major challenges. 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 not only during a pandemic.

De-Globalization Will Drive Digital Innovation

De-Globalization will lead to impairments and force many industries to go digital. Digital innovation improves the efficiency and resilience of the supply chain by providing continuous, real-time information, identifying problems earlier and responding more quickly to unscheduled changes.

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