Assuring supply chain continuity in an era of increased global uncertainty and change
- AI-powered software aids supply chain continuity by managing risk, reliability, and the financial impact of a tumultuous trade and regulatory landscape, writes Infor's Heidi Benko
The global trade landscape continues to churn with high-stakes uncertainty. From tariffs and sanctions to political unrest and environmental regulations, multiple international issues have been complicating supply chain management. Maintaining the steady flow of raw resources, components and finished goods is critical to sound economics and thriving commerce. To help manage the complexity, forward-thinking enterprises are combining multiple approaches and technologies, including: Artificial intelligence (AI), the Internet of Things (IoT), and multi-enterprise supply chain networks with 'control towers', which provide ultimate visibility into the extended end-to-end network of resources, partners, routes and relevant factors like weather. Individually, these solutions are helpful. Combined, they create powerful, strategic insights.
Manufacturers, distributors and retailers all depend on coordinated networks of air, land and sea carriers and third-party logistics providers. A magnitude of details must be coordinated for each shipment and delivery, whether they span a few miles or the entire globe. Weather-related delays, unexpected interruptions in availability, or spikes in costs can adversely impact final outcomes. When shipments are late, a domino-effect can be triggered, causing other delays — ultimately damaging customer relationships and eroding profitability.
Conversely, agile supply chain management can be an important differentiator, bringing added value to customers. Organizations that place a priority on optimizing their supply chains can turn complexity and risk into powerful, strategic insights, unlocking the future and understanding trends that drive profit and a positive customer experience. With reliable systems in place, enterprises can make well-informed decisions, anticipate issues before they happen, and confidently make promises to customers.
The compounding challenges
Global trade has been in the spotlight since the last U.S. presidential election, when candidates debated the value of trade agreements, protection of intellectual property, and the role of tariffs and sanctions in trade policy. The Trans-Pacific Partnership (TPP), U.S./China trade tariffs, the renegotiation of NAFTA into the USMCA, and uncertainty in the UK due to the Brexit vote are among the many issues creating volatility. This unease seeps into supply chain relationships, causing procurement agents to take a closer look at risks, increase safety stock levels, and add back-up resources. The financial impact must also be calculated so that profit margins can be preserved, even if that means passing costs on to the final consumer.
On top of political uncertainty, global economics are causing cautious organizations to hesitate on major investments, slowing growth. As companies take a wait-and-see approach, they may be reluctant to shoulder extended risk or forge new, un-tested partnerships. Yet, doing nothing is also dangerous. For example, customs delays can be detrimental to auto manufacturers with just-in-time inventory policies. And brands that have traditionally relied on suppliers in China for electronic components will be among the many exploring new partnerships in other regions.
Such shifts can have a compounding effect. When an entire industry reacts to news, like U.S. tariffs on Chinese-made goods, the large number of procurement teams trying to find comparable resources in other regions can be overwhelming. Suddenly, ports unused to such volume, become bottlenecked. Shipping lanes and strategic hubs for cargo vessels need to be recalculated.
One example of a cascading impact is the shift in apparel production away from China. Retailers and distributors using Infor Nexus digital supply chain system can easily visualize projections based on data already in the system. As companies try to avoid tariffs from trade with China, they are shifting orders to Indonesia and Bangladesh and Vietnam. Based on actual orders in the Infor Nexus system, a spike will hit in spring 2020, with Indonesia delivering up to 25% of orders April/May 2020, compared to today’s approximate 5%, on the Infor Nexus network.
Some procurement agents may view this spike as a potential capacity or bottleneck problem and choose to find suppliers in other regions that won’t be so stressed.
On the brighter side
Modern supply chain management and analytics software helps managers deal with these issues. Data is often the key to weathering the storms of volatility. The well-informed manager can be well-prepared. But, data needs context if insights are to be derived from it. This means the analytical tools for consuming supply chain data are as important as the reliability of the data itself. Some capabilities to consider:
Cloud deployment — Organizations that want to make the most of supply chain opportunities need to evaluate their current capabilities and consider upgrading or investing in new solutions deployed in the cloud. Cloud solutions provide the elastic storage capacity needed to store vast amounts of data — such as the data generated by IoT applications and used in training AI and ML applications. Also, cloud-based solutions, which are updated routinely by the provider, are always modern, meaning the latest innovations are automatically rolled into the solution — without time-consuming upgrades or integration projects.
Predictive abilities — Analytics and Business intelligence (BI) tools help organizations delve into trends and results related to inventory levels, products sold, product details, costs, and reliability of vendors. Basic BI tools focus on past results. Today, predicting the future is just as important, or, perhaps, more important. Analytics with AI and ML built-in can identify patterns and use algorithms to anticipate the next likely incident. Over time, the solution can 'learn' and build upon its historical references and real-time signals. The more data points, the more accurate the predictive abilities will become.
Usability — Ease-of-use is another characteristic that is very important in modern analytics. The shortage of experienced professionals in IT and data modeling is forcing companies to turn to self-service reporting tools that give end-users templates as starting points for building reports and dashboards to track Key Performance Indicators (KPIs).
Network visibility — The digital control center concept provides visibility into the extended supply chain. It connects all suppliers, carriers, 3PLs and other key parties. It incorporates relevant data from the edge, such as social, weather and news feeds. It also incorporates data generated from IoT sensors, such as GPS locations of the fleet, temperatures within cargo containers, and if perishables or fragile merchandise is being handled appropriately. This holistic view provides insights on supply chain details, as well as the big picture. The view enables supply chain managers to examine what-if scenarios, such as rerouting a shipment to avoid a storm or selecting a port that often expedites custom inspections.
To execute an agile supply chain, companies must be in control. They need to make informed decisions using a system that allows for visibility and management by exception. As inventory moves through the supply chain, managers can use a networked platform to adapt to demand or disruption. They ensure the order will be filled on time by understanding the financial viability of suppliers, collaborating with partners on parts, and using work-in-progress data. They can also use transportation data to ensure on-time delivery. Bookings, rates, and compliance are handled from a central location. Finally, goods are managed by exception to allow dynamic estimates for arrivals and accurate availability projections.
Connecting every trading partner on a single, cloud-based supply chain network enables companies to shift to tighter control of execution and 'rapid re-planning', as needed.
Example of a trade mandate and its impact on the supply chain
The International Maritime Organization (IMO) is enacting a global, low-sulfur mandate that will go into effect January 1, 2020, intended to reduce sulfur emissions from ocean vessels by 80%. Experts predict it will also cause a $13-15B increase in industry fuel costs. Several countries are expressing support of the mandate and promising strict enforcement — which could include fines and even jail time. Because the ocean carrier industry has been slow to respond and retrofit vessels, though, the mandate could upend the ocean carrier industry in the short term, impacting capacity and operating costs.
The emissions mandate drastically reduces the permissible amount of sulfur oxides released from ships, forcing existing marine vessels to install “scrubber” technology retrofits to continue using conventional marine bunker fuel. Or, they can switch to higher-priced, low-sulfur fuel. About 60,000 active vessels run on traditional bunker fuel. Only 17% of container fleets have scrubbers to meet the new requirements.
Another 500 vessels are expected to come out of the water in the next few months to install scrubbers, a process which typically takes up to 6 weeks. The remaining vessels are expected to switch to low-sulfur fuel use, although worldwide supply of the new marine fuel will be spotty, as energy supply chains adjust.
Cargo carriers can also adjust speeds to reduce the use of fuel, cutting costs and emissions. Slow steaming may solve some issues, but it will cause another one — late arrivals. Slow steaming can add days or weeks to already lengthy ocean journeys and will impact supply chain planning upstream and downstream.
Shippers and their trading partners need to be aware of these changes, factor in costs, and understand the impact on schedules. The effect of low-sulfur changes to increase ocean freight costs will have some shippers looking closely at supplier networks, possibly shifting sourcing locations and experimenting with alternate freight modes.
Companies will have to factor in the uncertainty, risk, capacity, and pricing issues that IMO 2020 will bring. The consequences will evolve, as availability of low-sulfur fuel and retrofitted vessels change. Visibility into the supply network will take on greater importance, as companies monitor changes and seek to foresee bottlenecks and delays. Predictive analytics will also be essential, as companies estimate new costs and determine profit/loss impact. Modern analytics and supply chain network visibility will be powerful allies in the effort to be compliant and reduce emissions, while retaining profitability.
The impact of IMO 2020 is just one example of global trade issues that require shifts in thinking and operational tactics. Organizations that keep pace with modern supply chain management technology will be better equipped to respond to such changes with agility and confidence. Data insights, achieved through AI and ML-driven analytics, will empower organizations to make well-informed decisions quickly.