The supply chain has been catapulted to front-of-mind for business leaders by the events of the past couple of years. What at first sight seemed like a one-off disruption at the onset of the pandemic has turned into an ongoing crisis as the aftershocks have rippled through the global economy. At diginomica, we've been reporting on the enterprise repercussions, and one of the recurring themes seems to be a need for more joined-up data and processes to manage the response.
This chimes with our own long-held stance that effective adoption of digital technologies requires a change to a more connected, agile operating model that we call Frictionless Enterprise. The crisis of the pandemic has accelerated the urgency of making this change and we're seeing it emerge in many other fields besides supply chain. Frictionless Enterprise has five core characteristics — access to data and resources from anywhere, on-demand, in real-time, within a framework that's adaptive to change, and inherently collaborative. Our view is that successfully adopting these characteristics means discarding many of the ingrained structures of the industrial-era enterprise. We can now see that beginning to happen as organizations adapt to the new demands they now face.
Coinciding with our stronger focus on supply chain, earlier this year diginomica partnered with supply chain planning vendor Kinaxis on its Big Ideas in Supply Chain Summit in June and then the second edition which took place last month. We took the opportunity to report on some of the valuable insights from practitioners who spoke at these events. Looking back, we now see how many of their stories reinforce the lessons of Frictionless Enterprise.
Operate on real-time data, not batch updates
The fast-moving events of the past two years have demonstrated forcefully that it's no longer a viable operating model to rely on historic data to plan what to do next. The notion of Sales and Operations Planning (S&OP) — along with its younger sibling Sales, Inventory and Operations Planning (SIOP) — have been a core plank of end-to-end supply chain management for many years. When the concept was first introduced, the technology of the time limited it to a batch process, based on spreadsheets and monthly meetings. Today it can be done using up-to-date, digitally connected data — and can be tied directly through to execution, too. As Kirk Niehaus, VP Global Planning and Supply Chain Technology at cleaning products brand Clorox, described in a presentation on the company's digital supply network strategy:
This is about the evolution of S&OP, which is all about getting your data, doing a demand alignment and constraining it with a supply alignment, having a consensus meeting, and then a GM brief to the P&L owner about what the business plan is. That capability was brought to life in the late 1980s, because of the personal computer and spreadsheets. So for the first time in history, you could put your production, your capacity, your business plan, your inventory, your sales, all in one place.
Today we can see production, we can see sales, we can see all the promotions — and all that information is entered, literally every day. So, it's real time, and live and accurate, every day ... No longer are we beholden to monthly scheduled decision making.
In today's world, enterprises need to have real-time data so that they can respond to events as they happen. In a presentation on the journey toward autonomous planning at energy and automation equipment maker Schneider Electric, Olivier Redon, Global Sales, Inventory and Operation Planning VP, explained:
With all the surprises that we've had, we can no longer say the past will be the future. So what you need to do is anticipate, while being forward looking. What you need to deploy is demand-sensing, market knowledge, and supply sensing, in order to integrate all these elements to be forward looking instead of taking the past as a reference.
Understanding customer behavior is just as important as having information about what's happening on the supply side. Yes, you need to know instantly if a factory goes offline or a shipload of containers won't arrive on time. The same is true of disruptions to demand. Confectionery to petfoods giant Mars explained how it has improved forecast accuracy by a third in a presentation by Will Beery, Vice President, Global Transformations. Its ERP-centric infrastructure was highly resiient, but didn't have the agility to respond to rapid shifts in consumer demand, while its demand sensing had historically stopped at Mars' own customers in distribution and retail, rather than directly mapping consumer behavior. Diversifying to include more consumer data was a big part of the transformation, as he explained:
We're augmenting our customer data sets with consumer data sets. Sometimes that's social listening; sometimes that's pandemic data sets, like which countries and geographies are open versus closed. Where are people returning to work versus not? This is going to constantly change and drive consumer and channel shifts in our demand. And we need to incorporate that into our demand planning capabilities.
This kind of rapid data reporting and response is only feasible with the use of intelligent automation — but there's much more than technology involved in implementing this successfully. It also means breaking out of traditional fiefdoms and moving to a more open, collaborative operating model.
Break down silos
Kinaxis CEO John Sicard has long been a critic of the siloed nature of traditional supply chain operations, where each individual function focuses on its own goals, but rarely sees the enterprise-wide picture. Often, this fragmentation of effort is due to systems and processes that were designed for a different era, with disconnected technologies and a focus on delivering product rather than listening to end customers. Today, organizations need to break apart these functional and data silos so that teams across the demand and supply chain can see the bigger picture.
At aircraft maker Bell, this meant creating a single, shared data model that represents everything that's happening in the ERP system and elsewhere relating to demand and supply. Jason Howard, Senior Manager of Material Systems at Bell led the implementation. As he explained:
We came out of it with a common language and one unified data model. I can't stress enough how important that was to help us to communicate simply.
The aim of this was democratization of data access so that people could collaborate across every aspect of SIOP. He added:
We wanted our entire SIOP process to be transparent to everyone. There's not a complicated part of the process that only certain analysts know, that's hidden away on their hard drive. None of that. The entire process is orchestrated in RapidResponse, and shared. Everyone can see it, everyone can analyze it, and we try to make it as simple as possible so that everyone can understand it ...
By democratizing the whole process, we accelerate collaborative planning of collectively understood decisions.
Connect up your ecosystem
As well as breaking down internal barriers, Frictionless Enterprise also reaches out across the enterprise boundary, where digital connection often makes it faster, cheaper and simpler to find ready-made resources than building them internally. Real-time data and processes must run across this boundary too. Schneider Electric's Redon says the company has left behind the old batch processes of first doing demand planning, then inventory planning, then checking capacity, and finally letting suppliers know what's needed — and then doing reconciliation later on. Instead, the company has connected to its suppliers so that it has visibility into their readiness and can automatically update its orders. Redon said:
The disruption that we've seen, you need to be connected with suppliers. Now 90% of our electronic spend is connected in Kinaxis up to a tertiary supplier. We are capable now to give a fully consolidated long-term view, and we are capable of giving a commitment on the demand. And then on the allocation, based on the quantities that we have, we are able to see what would be the impact in terms of business end-to-end.
We have full visibility on the distributors' stock at reference level. We can integrate this insight into all development planning and consider the full demand chain.
Be alert to the XaaS Effect
A further consequence of digital connection is that today, suppliers remain engaged with customers and are able to monitor their use of the product or service throughout its lifecycle. We call this The XaaS Effect, since it reflects the early experiences of Software-as-a-Service (SaaS) vendors, but today it encompasses Everything-as-a-Service (XaaS), and is an integral component of Frictionless Enterprise. Even a high-value capital equipment manufacturer like Bell finds that its customers increasingly expect it to take responsibility for sustaining its aircraft throughout the product lifecycle. Outlining Bell's approach to supply chain planning, Michael Loeffler, VP Materials Management, described the impact of this shift from simply shipping products to supporting customer outcomes:
A purely date-based, just-in-time, build-to-order model fundamentally doesn't work. We have to anticipate and be flexible. We have to make investments and take risks.
We've had to pivot from planning around certainties to making judgment calls based on probabilities. We've abandoned the quest for that single perfect, unchangeable plan, and put more effort into modelling scenarios and improving the planning process.
As Anne Robinson, Chief Strategy Officer at Kinaxis, points out, supply chain professionals are just as crucial to customer outcomes as any other enterprise function:
You are the last person before the customer gets the widget, and you're the one who's going to interface what's wrong with that widget back to product, understand the pricing back to marketing and sales. It's an important role to play.
Build in sustainability
And finally, as both customers and employees become more demanding in the realm of corporate responsibility, there's a growing awareness among enterprises that they need to be accountable for their carbon footprint and ecological impact. This too requires connected data and processes, both internally and out to other supply chain participants. With an estimated 60-80% of a company's greenhouse gas emissions coming from its supply chain, there's a huge priority to building in carbon accounting, so that this can be measured and managed. But there's currently no widely adopted standard for carbon accounting, which means buyers have to validate the data they're collecting. Speaking in a panel on supply chain sustainability, Paul Clark, General Manager of Cloud Engineering and Supply Chain Sustainability at Microsoft, commented:
Every product from every supplier to every raw material is going to have to be tracked throughout its lifecycle and throughout its use cases, so that carbon accounting can be attributed from one company on one product to the next, and the next.
We're also going to need greater transparency. And we're going to have to be able to report these things openly — share our calculations, be open for scrutiny. So that all companies can come together and actually drive the standard that we can measure and that we can improve along the way.
The panel acknowledged the scale of the challenge, with Sandy Rodger, a supply chain veteran who is currently doing PhD research in the circular economy at Cranfield University, pointing out that it means turning the habits of the past two centuries on their head to foster more of a circular economy mentality. These include sourcing recycled raw materials wherever possible, and finding buyers for discarded waste and alternative uses for equipment that's no longer needed. Supply chain professionals have the skills and the knowledge, it just needs to be applied in new ways, said Rodgers:
The knowledge that's needed here is 98% the knowledge that these industries already have, including the supply chain people in these industries. All you're doing is bending the supply chain, making it a circle instead of a straight line.
The sustainability panel concluded that the only way to get started was to find somewhere to make an initial impact. As with any of these initiatives, the roadmap to the end goal has many twists and turns. Our aim with the framework of Frictionless Enterprise is to establish the general direction of travel and save many later detours.
For more diginomica stories from Big Ideas in Supply Chain Fall Event 2021 visit our Big Ideas in Supply Chain Fall 21 event hub. The virtual event ran from October 5-6th and sessions are now available to view on-demand until further notice. Click here to register and view now.?