While the early phase of the global COVID-19 disruption demanded a focus on agile responses and operating speed, business leaders are now planning for the next round of disruptions.
The mission is to ensure their businesses are equipped to capture opportunities when growth returns to the economy.
To succeed, according to the authors of a new report from SAP called Respond, Prepare and Reimagine they need to factor into their future plans the reality that AI and machine learning, blockchain, automation, and sophisticated analytics will remake all aspects of the supply chain — from logistics and transportation to manufacturing and warehouse and asset management.
The authors note that in the early months of the crisis, 94 per cent of Fortune 1000 companies suffered supply chain disruption. Underestimating the risk of supply chain shocks led to production stoppages, critical supply shortages, and factory closures.
Research conducted by The Boston Consulting Group (BCG) in May found that 43 per cent of companies wanted to make permanent changes to their supply chains as a result of COVID-19.
That report, called Building Resilience for Australian Companies Post COVID-19, argued that “While the direct impacts of COVID-19 will pass, the more dynamic and unpredictable business environment, rising political tensions. and broader issues such as inequality and climate change, will all have direct and ongoing implications for supply chains.”
Australia has unique economic risks that make supply chain resilience critical: a heavy reliance on imports, dependence on a small number of global suppliers, and reliance on legacy systems, wrote BCG. “All of those things lead us to believe that being able to respond in an uncertain world will remain important.”
Report co-author and BCG Managing Director and Partner Rebecca Russell argues that an over-reliance on lean just-in-time operating models and massive underinvestment in digital supply chain technologies left Australian supply chains vulnerable during the crisis. “The just-in-time model has been a really rational response to the pressure that organisations are under in terms of cost efficiency and service levels.
“When earnings per share every quarter is how you are held to account, then a really lean supply chain is a big part of that.”
The hyper-focus on efficient supply chain management techniques like just-in-time had the benefit that it reduced inventory, delays, and costs. But it also meant there was no buffer or flexibility in the system to withstand a sudden shock.
Chief Supply Chain Officers now have an opportunity to take on a more strategic role inside their companies. However, around two-thirds of CSCOs typically view themselves as a support function, according to research by Accenture. It found that 71 per cent of supply chain leaders believe that by the end of 2020 the supply chain will be a key driver of better customer service for their organisations.
According to SAP, sustainable supply chains offer a number of key advantages:
Focusing on design allows for continuous innovation, which in turn reduces time to market and helps to meet individualised customer demand.
Sophisticated planning improves forecast accuracy, and a real-time view of demand helps balance inventory and service levels.
Optimising and automating manufacturing processes increases agility and responsiveness.
Improved speed, efficiency and sustainability of logistics processes enables perfect order delivery.
Managing the entire lifecycle of physical assets results in maximum utilisation.
By adopting these approaches, the authors of Respond, Prepare and Reimagine argue that businesses will be able to put their supply chains on a more sustainable footing.
“That will allow you to respond to market changes with agility, prepare for faster growth and disrupt your competitors, and be well-placed to reimagine a future that leverages the opportunities of AI and machine learning, big data analytics and emerging technologies like blockchain.”
This article is published by Which-50’s Digital Intelligence Unit (DIU) on behalf of SAP. DIU Members such as SAP pay to share their expertise and insights with Which-50’s audience of senior executives.
