Supply Chain Final Notes

CASE STUDY: HITACHI

Hitachi strongly feels the critical need for digital intervention in the following areas within supply chain. Customer Centricity for Demand Sensing: The unprecedented global crisis corresponds to least predictability when it comes to demand forecasting and planning. However, smart sensing of consumer behavior and mindset through tools such as Social Media Analytics (SMA) can offset this disadvantage. Resilience & Agility: Businesses need resilience and agility in processes and performers (i.e., workforce) to meet the changing demand in the post COVID-19 era. This can be achieved through building alternative supply chain models and evaluating risks & rewards through simulations. Latest digital technologies such as Extended Reality (XR) will further help to prepare workforce for a quicker & agile response. Supply Risk: The COVID crisis has impacted a large part of supplier base while businesses brace for multi-fold increase in cost of operations due to labor scarcity & increased cost of regulations and compliance. In such a scenario, an investment on increasing multi-tier supply intelligence, assessing supplier risks and monitoring price fluctuation is surely a focus area. Remote Visibility & Control: A robust Digital Eco-system lays the foundation for end-to-end visibility, accessibility and control across all stages- supplied material, labor, multi-stage inventory, and logistics- along with reduced dependency on manpower. A command center to control the entire supply chain remotely becomes crucial for hardened resilience and business success.

WHAT EXECUTIVES ARE SAYING?

In our 2010 survey of 639 executives covering a range of regions and industries, 71 percent said their companies were more at risk from supply-chain disruption than previously, and 72percent expected those risks to continue to rise. In 2018, the United States government stood up multiple agencies and task forces to better address supply-chain risk (including the Critical Infrastructure Security and Cybersecurity Agency in the Department of Homeland Security and the Protecting Critical Technology Task Force at the Department of Defense),and the private sector continues to seek a uniform and proven methodology for assessing and monitoring risks in a way that truly minimizes business disruption

UNDERSTANDING THE SUPPLY CHAIN RISK PROFILE

Supply chain risk profiles are identified to widen the focus on supply chain vulnerabilities.The purpose of the risk profile is to establish where the greater vulnerabilities lie and what the probability of disruption is. In a sense this approach takes the view that: Supply Chain Risk = Probability of Disruption x Impact

IDENTIFYING CRITCIAL PATHS

Supply networks reside in a complex web of interconnected 'nodes' and'links.' The nodes represent the entities or facilities such as suppliers,distributors, factories, and warehouses. The links are how the nodes are connected - these links may be physical flows, information flows, of financial flows.Often a ratings system is needed to help create a combined priority score by multiplying the three scores together. Critical paths are likely to have several characteristics: • Long lead-time • A single source of supply with no short-term alternatives • Dependence on specific infrastructure • A high degree of concentration amongst suppliers and customers • Bottlenecks or 'pinch points' though which material or product must flow • High levels of identifiable risk

CHAPTER 8

THE SYNCHRONOUS SUPPLY CHAIN

VALUE BASED PROCUREMENT

Value-based procurement has the objective is to identify sources of supply that can deliver thedesires outcome against the lowest cost of ownership i.e., to maximize the ratio: Outcome / Total Cost of Ownership The new competitive paradigm is in stark contrast to the conventional model suggesting that theroute to sustainable advantage lies in managing the complex web of relationships that link highlyfocused providers of specific elements of the final offer in a cost-effective, value-creatingnetwork. There is a need to orchestrate the supply network which creates a value-based procurement andcreates a stronger network. This is known as collaborative advantage rather than competitiveadvantage in its traditional, single firm meaning. 4 Key Principles: • Managing the supply side of the business • Achieving business goals • The search for innovation and supply chain improvements • Achieving outcomes at lower cost

WHAT MCKINSEY CONCLUDED?

We believe public- and private-sector organizations have struggled to progress significantly on this topic for several reasons: 1. Supply-base transparency is hard (or impossible) to achieve. In modern multi-tier supply chains, hundreds or thousands of suppliers may contribute to a single product.Even identifying the full set of suppliers from the raw-material sources to a final assembled system can require a significant time investment. 2. The scope and scale of risks is intimidating. The probability and severity of many risks is difficult to ascertain (How likely are certain weather patterns? How often will a supplier's employee be careless in cybersecurity practices?), and therefore difficult to address, quantify, and mitigate. 3. Proprietary data restrictions impede progress. In complex products, Tier 1 or 2suppliers may consider their supply chains to be proprietary, limiting visibility at the purchaser or integrating-manufacturer level.Rather than admiring the problem and these difficulties, we suggest organizations begin to tackle issues in a structured way, cataloging and addressing known risks while improving the organization's resilience for the inevitable unknown risk that becomes a problem in the future.

RFID stands

"Short Frequency Identification" and these smart barcodes are attached to items to easily identify them by using radio frequency technology. In more simple terms, radio waves transmit data from the tag to the reader that then transmits the information to a RFID computer program. A common example of RFID tags being used is at the grocery store.

WHAT IS SUPPLY CHAIN SYNCHRONIZATION?

"Supply chain synchronization is the strategic work conducted to bridge the gap between supply chain operations, multi-functionalbusiness processes, and people systems."

The process of getting from data to insight is essentially what analytics is all about - there are four types of approaches to using analytics:

1. Descriptive analytics - referring to the retrospective analysis of what has happened in the past. 2. Diagnostic analytics - the aim here is to understand why things have happened. 3. Predictive analytics - this is using analysis to forecast what is likely to happen. 4. Prescriptive analytics - is to help understand how can performance be improved and what actions should be taken?

What are the three parts of synchronization?

1. Physical resources and operations This is what most of us think of when we hear the words 'supply chain'. It's the physical moving of the stuff from the factory floor to the shop,and from the warehouse to the construction site. And the breakdown of this operation has never been better captured than by the sight of theenormous container ship, the Ever Given, as it sat stranded in the Suez Canal, in March of 2021. 2. Processes The Physical resources are the what, the Business Processes are the how. How do you minimize waste and deliver on innovation? What can youdo to reduce working capital requirements? What are the best tools for digitizing and automating your various processes? And how much of allthat needs to be outsourced?It's the processes that you put in place that will determine your Net Operating Profit After Tax (NOPAT), and increase the all-importantEconomic Value Added (EVA). 3. People And the People are of course the who. Or, in a word, culture. What can you do to make sure you're taking on the right people, and creating anenvironment for them all to flourish in? What's the right balance between hard and soft skills? Are your leaders leading, and what can you do tohelp them do so?

WHY ARE SUPPLY CHAINS MORE VULNERABLE?

A study conducted by Cranfield University for the UK government defines supply chain vulnerability as: An exposure to serious disturbance, arising from risks within the supply chain as well as risks external to the supply chain. The same study identified several reasons why modern supply chains have become more vulnerable. Including the following: 1. A focus on efficiency rather than effectiveness 2. The globalization of supply chains 3. Focused factories and centralized distributions 4. The trend to outsourcing5. Reduction of the supplier base

LAYING THE FOUNDATION FOR SYNCHRONIZATION

Achieving a stock less distribution center or cross-docking enables a more frequent and efficient replenishment of product from a manufacture to individual stores. Cross-docking, is typically completed by a logistics company, whereas POS data from individual stores is transmitted to the retailer's headquarters and then is used to determine replenishment requirements. Hence, the supplier sees the inventory and based on pre-determined volumes automatically replenishes the inventory which creates a JIT model while allowing minimum stock to be carried in the retail stores. And transportation costs are contained through the principles of consolidation.

ARTIFICAL INTELLIGENCE AND MACHINE LEARNING

Artificial Intelligence (AI) as an idea has been around since the mid-twentieth century. Lately, it has been used to power computing technology, which has become a reality with a growing impact on all our lives. AI is the use of rules or algorithms to process data - often huge amounts - to aid decision making or to provide insight and even predictions. There are two types of AI: rules-based and machine learning. Rules-based AI used "if-then" type of logic to solve problems such as vehicle routing and scheduling or to create expert systems that can enable improved decision making. Machine learning relates to AI where the programs or algorithms that underpin it can change or modify as new information becomes available. The name implies this form of AI learns from its experience and can become a powerful aid for prediction.

BLOCKCHAINS AND SMART CONTRACTS

Blockchain technologies since entry have long been viewed as promises to significantly change the supply chain landscape. Blockchains are distributed ledgers that are shared amongst members of a network. Data and information entered the ledger are made visible to all the network members and validated and cannot be changed or deleted. High levels of security and encryption ensures that the data and information are accessible only to those with permission to view them. Smart Contracts are in the same family, yet they are computer programs that existing within a blockchain to automate the execution of an agreement when certain conditions are met. All the parties in the blockchain have visibility of the agreement which is immutable and cannot be altered and can witness its execution as if happens. There are no longer needs for intermediaries such as brokers, banks or lawyers once the smart contract has been agreed and posted on a blockchain. The advantages of smart contracts are generally agreed to be: • Speed, efficiency and accuracy • Trust and transparency • Security • Lower cost

USE CASE: CISCO SYSTEMS

Cisco Systems, one of the world's leading players in the networking and tel-communications markets, has created a virtual supply chain in which almost all manufacturing and physical logistics are outsourced to specialist contract manufacturers and third-party logistics companies. Only a very small proportion of their 20,000 different stock keeping units are actually touched' by Cisco. Following a sudden collapse in sales as the Internet bubble of the closing years of the twentieth century finally burst, Cisco was forced to write off over $2 billion of obsolete inventory. Subsequent investigations highlighted the reason for this spectacular fall from grace: inadequate visibility of real demand across the entire supply chain leading to significant over-ordering of components. Determined not to see a repeat of this catastrophic event - the size of the inventory write-off created a new world record and led to a major financial setback for the company - Cisco set out to build a state of the art communications network to enable information to be shared across the 'extended enterprise of their major tier 1 suppliers and logistics service providers. This has been achieved through the creation of an 'e-hub'. The purpose of the e-hub is to act as the nerve centre and to ensure real-time visibility of demand, inventory levels and production schedules. Through its event management capability it can provide early warning of supply chain problems. As a result of its investment in creating supply chain wide visibility through shared information, Cisco has enabled a highly synchronised network of global partners to act as if they were a single business.

CHAPTER 9

DEVELOPING AND MANAGING THE SUPPLY NETWORK

MARKET TURBULENCE INCREASED RISK IN SUPPLY CHAIN

Demand in almost every industrial sector seems to be more volatile than was in the case in the past. The vulnerability of supply chains to disturbance or disruption has increased. It is not only the effect of external events such as natural disasters strikes or terrorist attacks but also the impact of changes in business strategy. Supply chain management is in the center of the convergence to lean practices, the move to outsourcing and a general tendency to reduce the size of the supplier base potentially increase supply chain vulnerabilities. The impact of unplanned and unforeseen events in supply chains can have severe financial effects across the network. Research in North America suggests that companies experience disruptions to their supply chains, the impact of their share price once the problem become public knowledge can be significant.

ACHIEVING SYNCHRONIZATION THROUGH INFORMATION

Depicts the difference between (a) the conventional supply chain with limited transfer of information and (b) the synchronous supply chain with network-wide visibility and transparency.

CATEGORY MANAGEMENT PRACTICE

Everyone has similar items, but you will find many different versions of the category management.

MAPPING THE SUPPLY CHAIN

It is imperative to understand the model of extending a map as far upstream as possible into second - or even third-tier supplier to look for critical suppliers who may be hidden from view. In the model to the left, the three first-tier suppliers share the same second-tier supplier. If that second-tier supplier were to fail - there could be a major disruption to the supply chain.

EXAMPLE: BLACK FRIDAY

Many retailers recorded record sales on that day both through their bricks and mortar outlets as well as on-line - Internet sales for example were 30% higher than normal. As a result of this dramatic increase in volume, retailers' logistics systems were put under immense pressure,and home deliveries were severely affected with many delivery service providers unable to cope with the surge. The paradox is that for many companies their total sales revenue for the whole of the Christmas trading period was flat on a like-for-like basis.All that had happened was that customers brought forward their purchases - and bought at a lower price. The combined impact of higher logistics costs and marked-down prices inevitably eroded retailers' profitability. The impact of promotional activity upon production requirement is to the bottom left, whereas you can see the lagged and magnified effect of such promotional activity upon the factory. It can be imagined that such unpredictable changes in production requirement add considerably to the unit costs of the production.

DEVELOPING SUPPLY NETWORK

No longer is purchasing seen as purely transactional activitybut instead it has been transformed into the much morestrategic function of procurement.Procurement is not just about buying but rather is concernedwith the fundamental decisions concerning who the businessshould partner with to achieve long-term competitiveadvantage.Sourcing decisions are as much about creating value as theyare about reducing cost. All organizations compete throughthe value they can create and deliver in the marketplace.Procurement's role in this value delivery activity is to seek outsuppliers who can make a distinctive contribution in the value-in-use derived by the end user.

MANAGE THE CRITICAL PATHS

Once the critical nodes and links have been identified the first question is how can the risk be mitigated or removed? As its simplest this stage should involve the development of contingency plans for actions to be taken in the event of failure.At the other extreme, re-engineering of the supply chain maybe necessary. Cause and effect analysis is another tool that can be used to identify the causes of problems with a view to removing or avoiding the causes. These are shown to the left.

CATEGORY MANAGEMENT

Procurement is responsible for determining (in conjunction with the business units) the "categorymanagement." In category management, we seek to group products and services into clusters withshared characteristics and to management them conjointly. Typically, large procurement departments will have a dedicated "Category Manager" who isresponsible for the procurement of a specific cluster of products or services and established amuch deeper understanding of the detailed insight into the nature of the market for these itemsand will closely follow new developments and trends in the market. Category Management (from textbook): 1. Define the category 2. Form the category team 3. Develop the category strategy 4. Gather category data 5. Develop supplier performance metrics6. Manage the supplier relationship

QR SYSTEM BENEFITS

QR systems can be linked between the retail check-out desk to the point of production through electronic data transfer, the surge effect can be dramatically reduced. The fact alone could more than justify the initial investment in linked buyer/supplier logistics information systems.

REDUCING PROCESS VARIABILITY THROUGH SIX SIGMAMETHODOLOGES

The Six Sigma route to quality control emergedin the 1980s as Motorola searched for a robustquantitative approach that would drivevariability out of their manufacturing processesand thus guarantee the reliability of theirproducts. The term 'Six Sigma' a largelysymbolic, referring to a methodology and aculture for continuous quality improvement, aswell as referring to the statistical goal, SixSigma. The term 'sigma' is used in statistics tomeasure variation from the mean; in a businesscontext the high the value of the sigma themore capable the process of delivering anoutput within customer specifications. As you can see from two processes to the right,one with a low capability and the other SixSigma capability.

AUDIT OF THE MAIN SOURCES OF RISK ACROSS THE NETWORK

The audit should examine potential risk to business disruptions arising from five sources: 1. Supply risk - how vulnerable is the business to disruptions in supply? Risk may be higher due to global sourcing, reliance on key suppliers, poor supply management, etc. 2. Demand risk - How volatile is demand? Does the'bullwhip' effect cause demand amplification? Are there parallel interactions where the demand for another product effects the demand for ours? 3. Process risk - How resilient are our processes? Do we understand the sources of variability in those processes, e.g., manufacturing? Where are the bottlenecks? How much additional capacity is available if required? 4. Control risk - How likely are disturbances and distortions to be caused by our own internal control systems? Do we have 'early warning systems' in place to alert us to the problems? How timely is the data we use? 5. Environmental risk - Where across the supply chain are we vulnerable to external forces? Whilst the type of timings of extreme external events may not be forecastle, their impact needs to be assessed.

USE CASE FLOW: A DIGITAL EQUIPMENT CORPORATION

The challenge to logistics management is to find ways in which these changed requirements can be achieved without an uneconomic escalation of costs. There may have to be trade-offs, but the goal must be to improve total supply chain cost effectiveness

THE ROLE OF INFORMATION IN THE VIRTUAL SUPPLY CHAIN

The extension of the information system beyond the classical dimensions of simple planning and control enables time and space to be collapsed through the ability to link the customer directly to the supplier and for the supplier to react, sometimes in real time, to changes in the market. The internet has transformed the ways in which supply chain members can connect with each other - it provides a perfect vehicle for the establishment of the virtual supply chain. Not only does it enable vast global markets to be accessed at minimal cost and allow customers to dramatically shorten search times and reduce transaction costs, but it also enables different organizations in a supply chain to share information with each other in a highly cost-effective way. As supply chains evolve from a linear, factory-outwards construct to a network of agencies and actors some form of coordinating mechanism is required. Think of the mechanism as a platform which links all the parties in the network through shared information - the platform enables a much higher level of flexibility and responsiveness to be achieved because of improved visibility

CONTROL TOWERS AND DIGITAL TWINS

The role of the supply chain control tower is to bring together relevant data and information regarding flows and inventories across the supply chain as well providing a real-time monitor of the status of each none and link and highlighting and deviations from planning activities and events. It is in effect a dashboard of key metrics reflecting the operational performance of the supply chain. Ideally the control tower will utilize AI to enable appropriate decisions to be taken when deviations from the plan are identified. It should also be capable of using predictive analytics to enable a better response to changes in supply and demand conditions.

SEGMENTING THE SUPPLY BASE

The two dimensions of the matrix are "financial impact" (i.e.,the impact of the purchase cost on profit) and "supply risk"(i.e., the availability of alternative sources of supply.

EXTENDED ENTERPRISE AND THE VIRTUAL SUPPLY CHAIN

The virtual enterprise or supply chain is in effect a series of relationships between partners that is abased upon the value-added exchange of information.

ACHIEVING SUPPLY CHAIN RESILIENCE

There are four key elements that supply chain resilience is based upon. 1. Supply Chain (re-) engineering 2. Supply chain collaboration 3. Building a supply chain risk management culture 4. Investing in agility

FUNDAMENTAL SHIFT AWAY FROM THE ECONOMIES OF SCALE MODEL

There is a shift to greater flexibility models, such as the QR model, whereas greater pressure is placed upon manufacturing to meet the customer's needs for variety in shorter and shorter time-frames. The key to flexibility in manufacturing is not just new technology, e.g., robotics, although this can contribute dramatically to its achievement. The main barrier to flexibility is the time take to change from one level of volume to another and from making one variant to another.

RESILIENCE VS. CENTRALIZATION

There is a trade-off between the cost savings resulting from consolidation and centralization and the resulting risk implications. Even though the system costs increase with the number of facilities (e.g., inventory) the associated risk costs come down. It has been suggested that the system costs increase with the square root of the number of pools or resources while the costs of disruption decrease as the inverse of the number of pools.

FUNCTIONS OF A LOGISTICS INFORMATION SYSTEM

Transparency has a lot of benefits for organizations such an internal operations of the business can become much more efficient. Think: capture customer demand data sooner improves utilization of the production and transport capacity. As you can see here, some of the uses to which improve logistics information can create.

ROBOTICS AND AUTOMATION

Within Supply Chain Management, warehouses have witnessed the most significant increase in robotics and automation. In some cases, the technology replaces general labor but in other cases it is used to augment the workforce to make their tasks easier but also more productive. These types of robots are sometimes known as "cobots" - collaborative robots as they are designed to operate alongside people and assist them in their work.

Digitalization

driving significant changes across Supply Chain Management and Logistics. The digital revolution has impacted almost every aspect of supply chain management.

The internet of things (IoT) or sometimes the industrial internet of things

includes decides and technologies that enable the digital physical worlds to connect with each other. Typically, the devices might be sensors, bar codes, RFID tags, and wireless links which can capture information in real time from activities in their locality.

Digital Supply Chains

intelligent value driven network that leverages new techniques & methods with data analytics to create value and revenue.

KEY ELEMENTS OF A DIGITAL SUPPLY CHAIN

• Connected: Digital tools help companies stay visible, influential, and in control. They interact better with the business world and customers in real-time. • Intelligent: Accessing and using data smartly through digital means creates an intelligent network for decision-making. • Scalable: Digital connectivity and intelligence make it easier for companies to adjust and grow their operations, spot errors, and manage partners effectively. • Rapid: In the future, companies need to use digital tech to quickly adapt, allocate resources fast, and adjust production promptly in response to changing needs.