Supply_Chain_Revolution

Supply-Chain Revolution: The Need For Visibility And Sustainability

10/15/2021
Supply_Chain_Revolution
To combat climate change and to benefit humanity, bold decision-makers are rethinking their end-to-end logistics – innovative technology is helping

The coronavirus crisis exposed both the complexities and the vulnerabilities of a lean global supply-chain model. It quickly became clear that a technology-powered supply-chain revolution was required to provide greater transparency, agility, and end-to-end visibility – as explored in this earlier article on The Art of Smart hub. Now, though, leaders are looking further ahead and can see the possibilities of creating supply chains that empower local teams, are decentralized and ethical, and dial up sustainability.

Of the Art of Smart’s four pillars for smarter decision making, boldness, innovation, and diversity will shape the supply chains of the future. While meeting consumer demand has always been a challenge, the rise of ecommerce has put more strain on supply chains and many organizations have felt forced to use air freight, if only on a temporary basis, which is costly for them and also the planet.

But this is at odds with the rising green agenda, says Nigel Bostock, CEO of Crowe UK. “Today, the business risk is compounded by the financial resilience of suppliers and their ethics. The bigger macro challenges coming out of COVID-19 will be environmental, social and corporate governance (ESG) and sustainability.”

He suggests that businesses take a cue from the 2021 G7 summit, where leaders proposed better governance and sustainable, purposeful supply chains. “Calls for ethics in supply-chain management have been growing,” Bostock says. “These include emission-free networks, policies against modern slavery and conflict minerals, and an agenda that promotes diversity and social mobility. People are paying attention to not only what businesses do, but also with whom they do business.”

Moreover, widespread challenges from climate change have brought to the fore the need for supply-chain decarbonization and net-zero targets. Businesses must understand the climate footprint of their entire supply chain, including tier-two and tier-three suppliers. Location technology offering complete visibility will be crucial to achieving these goals. 

Sustainable supply chains: a win-win

While many organizations have improved sustainability within their operations since the start of the pandemic, thanks to increased data-driven transparency, the environmental soundness of their suppliers are not a high priority, research suggests. According to the World Economic Forum, in many sectors, especially customer-facing ones, a company’s direct emission footprint can be relatively low, yet volumes throughout their supply chain can be significantly larger.

Mark Goh, Professor of Supply Chain Management at NUS Business School in Singapore, explains the risk such thinking creates for supply chains. He and his colleagues broadly categorize supply-chain risks as operational and disruption. Their research shows that until recently, businesses typically focused on operational risks – such as uncertainty around raw material supply, customer demand, cost, and transportation challenges – since there was a higher probability of encountering them.

Disruption risks, such as earthquakes, floods, terrorist attacks, disease, and recessions, occur with a lower probability, but have a much bigger impact. These disruptive risks are becoming more prevalent. Consequently, it is a win-win scenario if businesses pay closer attention to environmental and social practices within their supply chain. By embracing technology solutions, supply chains can become resilient, transparent, energy efficient, and minimize waste.

Route optimization and managing expectations

Increasingly, consumers demand to know where their products are coming from and if they are ethically sourced. By harnessing the power of blockchain and Internet of Things (IoT) technologies, businesses can make this information available to consumers, thereby helping to manage their expectations, which improves their experience, even if there is a delay.

Companies now realize how crucial it is to strengthen the resilience of their supply chains. Increasingly, they are embracing location-technology solutions, such as real-time tracking and route optimization, to create efficient, smart and dynamic supply chains.

Data-driven, real-time visibility helps organizations deliver monitored goods on time and in a cost-effective way. It boosts security and compliance while keeping a closer eye on maintenance needs, thus reducing repair costs, and offers accurate ETAs, even when problems occur. Dynamic routing tools in supply-chain models can also check for potential bottlenecks and determine alternative routes to avoid them. Another benefit of real-time data is that it can help supply chains become more sustainable by calculating the most efficient transportation routes and modalities.

Additionally, greater visibility enables customers to be better informed about delivery times, down to the nearest half-hour in some instances. Indeed, location technology, as offered by HERE Technologies – a leader in this space whose platform processes more than eight billion real-time data points each day from vehicle and device sensors – allows an Uber-like experience so users can track the exact location of the goods and monitor the delivery time in real time.

The same technology can help businesses and consumers assess the environmental impact of delivery speeds. Amazon, the patron saint of two-day free shipping, is encouraging customers to use environmentally friendly options such as “no rush” and “once-a-week”  deliveries. In the US, Amazon Prime customers can choose to receive all orders once a week, which would reduce packaging waste and energy consumption on transportation.

It is about time organizations were so attentive to the impact of logistics, argues Subodha Kumar, a US-based Professor of Marketing and Supply Chain Management at Temple University’s Fox Business School and a Director at the Center for Data Analytics.

“Businesses have known that complete information transparency in the supply chain was important since the 1990s. It was not feasible because of other concerns – stiff competition, privacy concerns, NDAs, and bargaining power,” he says. This attitude is changing because of the smart implementation of emerging technologies.

Supply-chain innovations that often grab headlines are the ones ripped from the pages of science fiction, such as drone delivery and autonomous vehicles. Yet, it is in seemingly ordinary use cases, such as stock visibility, track and trace, and reducing waste and packaging, where innovative businesses have achieved efficiencies and added lasting value.

Kumar gives the example of the Novartis-initiated consortium, Innovative Medicines Initiative, which is testing the use of blockchain to reduce the pharmaceutical industry’s reliance on paper. Medicine packaging comes with paper inserts that provide dosing instructions, technical information, and warning labels. These need to be kept up to date. Outdated or incorrect information can result in resource-consuming recalls. One application of the consortium’s PharmaLedger project aims to solve this issue by providing near real-time updates through electronic leaflets built on blockchain technology.

Imagining the supply chain of the future

A functionality-based technology approach helps reduce and replace unsustainable parts of the supply chain, which only fixes the symptoms. Visibility through real-time data analytics helps businesses address the causes. For resilience, sustainability, and good governance to become genuinely competitive advantages, businesses need to think more holistically.

Changing the way businesses plan their supply chains is essential to addressing the challenges of environmental degradation. Long and complex global supply chains need to be rethought. Localized-sourcing, nearshoring, empowering local teams, and using more distribution nodes can all help navigate volatility, but this all must be underpinned by data analysis and it relies on investment in location and IoT technologies.

“Double redundancy is necessary for a resilient, flexible supply chain to maintain continuity in the flow of goods,” says Goh. He expects that decentralized regional supply chains will gain more prominence, as countries try to defend their critical supply chains from global catastrophes. Such nearshoring will shorten the supply chain.

As goods, raw materials, and manufacturing move closer to the customer, delays and transportation costs are reduced. Wastage from obsolete inventory is also reduced. Reliance on air freight goes down, as does the pollution from multimodal logistics.

“Businesses need to address changing consumer preferences for sustainable products, transportation alternatives, and urban warehousing and fulfilment that shorten delivery times,” says Bostock.

Match technology to the right problem and the benefits are manifold. Data-driven, real-time visibility will help deliver monitored goods on time and in a cost-effective way. The outcomes range from lowered inventories, better use of factory floors, reduced transportation and energy consumption, and improved efficiency.

Public concern for the environment and social issues remain top of mind. Technology-led initiatives will be key to transforming supply chains from a liability into a competitive force. 

ACG Case Study: Building Supply-Chain Sustainability And Agility

Through the unprecedented chaos of 2020, Mumbai-headquartered ACG Worldwide (ACG) innovated its supply chain with purpose. As a leading manufacturer and pharmaceutical supplier of capsules, films, and packaging, ACG’s supply chain was crucial for the timely delivery of pharmaceuticals and medical products, amid a global healthcare crisis.

Nikunj Desai, the organization’s Head of Global Supply Chain, describes the bold decision-making process to create visibility and react to an ever-changing crisis. “We are the second-largest capsule maker globally, manufacturing around 40 to 50 percent of the capsules for India and 20 to 25 percent of capsules for the world,” he says. “Our operations in films and packaging for pharma manufacturers are similarly large. So, our responsibility and pressure to deliver during the pandemic were immense.”

Technology-enabled communication and good governance helped establish strong public-private partnerships, support suppliers, and boost employee morale. When the pandemic began in Wuhan, China, ACG’s team on the ground set up a dashboard using track-and-trace tools to gather information from suppliers on delays, transportation route shutdowns, and lockdown measures. Once they saw that the virus had spread globally, ACG began contingency planning. Using the data gathered in China, they accounted for major suppliers, congested trade routes and other factors.

When India underwent a brutal lockdown, ACG could help its suppliers down the chain resume operation. “We were up and running in 36 hours,” says Desai. ACG created a command center, which included business managers, executive management, directors, and external partners.

Through this center, they maintained contact with and advised senior government officials. With prior knowledge of events in China, they could devise safety protocols and aid their essential workers. The lockdown measures meant roadside inns and motels were shut. ACG established new routes for transport drivers to get adequate rest and food at their various manufacturing plants on their journey.

In May 2020, soldiers from India and China were engaged in aggressive skirmishes across the Sino-Indian border. As geopolitical rhetoric enflamed local passions in the days following, ACG found their Chinese shipments informally detained at ports. Having a central command center helped as they engaged port authorities to mitigate these delays.

Throughout the last 18 months, technology-enabled visibility and open communication within the company, with suppliers, and with public officials helped ACG and its many customers.

Crowe Viewpoints

Marie-Fleur Bouillon-Bonte, Partner ACA, International Tax Liaison Partner, Crowe Global
Marie-Fleur Bouillon-Bonte
To meet current expectations, the supply chain must become a sustainable value chain from pick up to last-mile delivery. As house delivery becomes the norm – and not only when related to ecommerce – there is a challenge for logistics service providers to go beyond warehouse delivery and plan delivery to end-customers. They must promote short circuits with light, agile and noise-free city transport. This means that logistic service providers become, in a public-private partnership, key players in city development, improving urban quality of life and promoting local economic development. As the range of services increase and house delivery develops, land pressure in urban areas becomes more critical, leading logistics service providers to rethink their offer so it’s increasingly efficient and environmentally friendly. This starts with the building of energy-efficient spaces that respect architecture and environment and contribute to the attractiveness of the area. As for transportation, it implies carbon-free vehicles and development of even greener means of transport that are urban adapted such as the use of electrical bikes. As a result, the differentiating factor in the supply chain will be defined by going the extra mile, including co-designing the new urban space and contributing to defining the city as a better place to live. 
Christopher McClure, Partner, Crowe USA
Chris McClure
The demand for transparency in global supply chains has been growing for years. That pressure will continue due to regulations and stakeholder demands. Many regulations now require companies to perform extensive due diligence on their suppliers and obtain detailed data certifying the mineral and chemical composition of raw materials and component parts. The Conflict Minerals Rule began in the US and a similar version of it is now in force in the EU, for example. Anti-human trafficking laws in California, the UK, and New South Wales obligate companies to disclose detailed plans for evaluating suppliers and preventing labor violations. In addition to this regulatory proliferation, the recent wave of ESG strategies adds new scrutiny to supply chains and demands greater accountability. It is critical for companies to evaluate and prioritize the demands of important stakeholder groups like regulators, customers, employees, investors, and even competitors and activists. Forward-thinking companies will form cross-functional teams to inventory all these work streams, reduce duplication, and create efficiencies in their interactions with suppliers. Successful programs won’t just consist of administrative surveys but rather incorporate ESG efforts into supplier selection, onboarding, scorecards, and regular business meetings. Comprehensive planning for supply chain due diligence will lead to actionable goals and real progress that can be verified and confidently reported.  These efforts may require iterative requests or even the replacement of reticent and risky suppliers. Proactive companies will have more time to make important decisions, prevent disruptions, and ensure they are meeting key stakeholder demands.