Boosting Supply Chain Resiliency with Data Analytics and Artificial Intelligence

Boosting Supply Chain Resiliency

Coming out of the COVID-19 pandemic, many organizations are considering digital transformation as the key to ensuring supply chain resilience. Evolutions in technologies have enabled the creation of digital supply networks that can be used by companies to strengthen their procurement strategy. With new and emerging digital solutions involving artificial intelligence (AI) and analytics, companies now can harness their data to optimize inventory more effectively than ever before.

Even as the pandemic is receding, supply chain disruptions continue to be commonplace, and chief supply chain officers are under growing pressure to use and analyze real-time data to mitigate risk. According to a recent Forbes article, “43% of enterprises will continue to digitalize and integrate innovative technology into enterprise-wide systems. This means that in the coming year, the ability to augment operations and decision-making with data analytics will continue to be a transformative and highly favored capability.”

Forbes reports that implementing new data analytics capabilities is best considered as a series of digital initiatives, for which there are many options. For instance, the introduction of the metaverse is one solution that will greatly increase a company’s ability to deliver predictive insights across supply chain networks, enabling it to “reduce development times and risk, achieve higher operational efficiency, and improve resilience.”

Ensuring Continuity Throughout Disruptions

Companies are using analytics and AI to mitigate risk and ensure continuity throughout any global supply chain disruptions. These powerful tools help businesses automate tasks in a way they never could before, while gaining deeper insights for better, faster decision-making, according to Supply Chain magazine.

Supply Chain reports that digital twin technology is currently considered one of the most innovative uses of AI and data analytics in supply chains. A digital twin provides a virtual supply chain replica that enables scenario modeling to simulate the impact of disruptions, like market changes and natural disasters, allowing companies to determine how resilient their supply chain is. AI modeling also proactively identifies supply risk, such as a supplier’s inability to source needed materials, before it can become a problem.

Deloitte experts agree that “with improvements in data, analytics, computing power, and visualization, digital procurement has better evidence-based options for decision-making, which can improve both the value and accuracy of strategic decisions and the speed of execution.”

New disruptive digital supply chain technologies are altering the procurement function for the better. Deloitte recommends that procurement leaders invest in both:

  • Maturing digital solutions that are currently transforming procurement with minimal investment, such as cognitive computing/artificial intelligence, predictive/advanced analytics, intelligent content extraction, visualization, and crowdsourcing
  • Emerging digital solutions that could impact procurement in the future, such as block chain, sensors/wearables, cyber tracking, and virtual reality/spatial analytics

In the face of continuing disruption, companies must adapt to ensure supply chain resilience. Digital transformation is an incremental, multi-year journey. If your company has not yet created a digital procurement strategy and started this process, now is the time to consider the many AI and data analytics options available on the path to intelligent supply chain management.

Disruptions Make Supply Chain Risk Scoring an Essential Management Discipline

Knowing the Score

Supply chain disruption has unfortunately become something of a norm. The interconnected, time-sensitive, and global nature of today’s supply chains means that an event can quickly have a broad ripple effect. And there is a growing range of potential disruptive triggers out there, from product recalls to cyberattacks, political turmoil, and violent storms.

Supply chain disruptions can emerge quickly and unexpectedly. As McKinsey & Company noted, “Consider the sudden eruption of a long dormant volcano that disrupts a supplier you didn’t know was in your supply chain….” Predicting such scenarios “is likely impossible for even the most risk-conscious managers.”

But being unable to predict supply chain disruptions does not mean that you can’t prepare for them.

With the broad range of threats facing operations today, companies need to have a formal, structured approach to identifying, understanding, and managing supply chain risk. Developing a disciplined approach can be a daunting challenge—but it can be made easier with a risk-scoring assessment that uncovers the supply chain’s weak points and identifies where disruptions are likely to have the biggest impact.

A Self-Diagnostic Tool Designed to Measure Supply Chain Risk Exposure

Effective supply chain risk management must be as thorough as possible. For example, our Dynamic Supply Chain Risk Scoring methodology provides a rigorous process that includes an in-depth analysis of the Bill of Materials (BOM) for products and the supply chains associated with each material. It evaluates supply chains across a set of major risk categories, based on Failure Mode and Effects Analysis (FEMA).

For example, it identifies problems such as:

  • Rigid or overly specialized component specifications that can limit the ability to adjust to supply chain disruptions.
  • Over-reliance on custom products and the limited number of suppliers that can provide those products.
  • Lack of visibility into the lifecycle and likely end-of-life dates for key components.
  • Insufficient inventory buffers that increase the risk of supply stockouts.

After identifying any weaknesses and vulnerabilities, Dynamic’s methodology ranks and prioritizes specific risks based on the likelihood of a potential disruption and the level of financial, reputational, and operational harm it might cause. Armed with that prioritized list, supply chain managers can allocate resources to target their top threats and move proactively to mitigate potential risks—modifying sourcing strategies to spread risk across more suppliers, for example, or stocking up on or finding alternatives for components that are reaching the end of their life. Over time, they can use the assessment as a guide to re-evaluating specific risks as conditions change.

When performed correctly, a risk evaluation and scoring effort is of significant undertaking. It can take several weeks to complete and involves responding to dozens of detailed questions. But the task is well worth the time that’s required.

To provide insight into the range of risks that should be covered, Dynamic offers a complimentary self-diagnosis checklist consisting of 10 questions that companies can use to quickly gain initial insights into their level of supply chain exposure, and better understand how a full risk-scoring effort could help them.

In today’s environment, companies can’t predict where the next supply chain disruption will be coming from. But they can build and strengthen their risk management capabilities and make their supply chains more resilient. A thorough risk-scoring initiative can be a powerful first step in the effort to take a more comprehensive, disciplined approach to managing supply chain risk.

Steps to Managing Geopolitical Risk on the Road to Supply Chain Resiliency

Managing Geopolitical Risk

In addition to the ongoing effects of the pandemic, geopolitical issues around the world are creating unstable operating environments that can increase costs while lowering supply chain efficiency. Tariffs, sanctions, civil unrest, and military action can disrupt access to suppliers, markets, and shipping channels.

In the face of destabilization caused by events like the war in Ukraine or COVID-related factory closures in China, how can you bulletproof your supply chain to make sure that the products you need are not caught up in political disputes?

Some experts believe we’re currently in a period of re-alignment of manufacturing economics. For example, according to futurist Trond Arne Undheim, the world went too far toward lean, just-in-time supply chains, so now, in today’s political environment, the geopolitics of manufacturing needs to adjust, adapt, and align by putting greater focus on regional networks and innovation.

Thanks to the impact of the pandemic combined with geopolitics, “reshoring, even major reshoring that will be costly and take time to implement, is back on the table” for manufacturers, Undheim said in a recent Forbes article.

The Quest for Strategic Agility

With this sort of manufacturing rebalancing taking place, strategic agility is essential to managing geopolitical supply chain risks. “You should be confident in your organization’s ability to monitor, measure, and manage exposure to geopolitical events,” according to PwC business transformation analyst Matthew Comte.

Business leaders should be aware of their major supply routes, and how existing or emerging geopolitical conflicts could make them vulnerable, Comte explained. To reduce risk, they can consider not only regionalizing their supply chains or reshoring, but also other strategic actions.

To develop strategic agility, Comte recommends that company leaders:

  • Monitor geopolitical trends and events that may impact key suppliers
  • Identify risk exposure by mapping supply chain nodes for suppliers around the world
  • Assess each node’s vulnerability to disruption and the company’s ability to mitigate various types of geopolitical risks
  • Plan to adapt business strategies and operations to changing geopolitical conditions on short notice, such as by securing redundant suppliers or creating an inventory approach that straddles just-in-time and just-in-case strategies

Other steps executives can take to manage geopolitical risks more proactively and strategically include identifying quantitative political risk indicators; assessing the business impact of political risk; integrating political risk into enterprise-wide processes; engaging the board and the C-suite to incorporate political risk into strategic planning; and setting up a cross-functional geostrategic committee, according to a 2021 EY Geostrategy in Practice study conducted in collaboration with the Political Risk Lab at the Wharton School of the University of Pennsylvania.

The Impact of Digital Twins

Leveraging data and technology is yet another way for companies to mitigate geopolitical risks. For example, digital twins are being used by some companies as an emerging artificial intelligence (AI)-powered tool that allows supply chain managers to run “what-if” scenarios.

When political issues arise, digital twins calculate the risks, estimate the impact on a supply chain, and suggest ways to minimize disruptions and slowdowns, according to a recent Workflow article.

From strategy development to data management to technology solutions, Dynamic Technology Solutions provides a broad portfolio of supply chain services designed to anticipate and mitigate internal and external risks. Review our technology supply chain management case studies and learn more about what we can offer your company.

Skin in the Game: A Collaborative Approach to Identifying Supply Chain Risk

skin-in-the-game

Transparency and visibility are critical to the effective operation of supply chains, and manufacturers and suppliers share a great deal of information in order to increase efficiency and predictability and, ultimately, get materials and products to the right place at the right time. But that type of collaboration often falls short in one key area—the identification of risk.

Typically, manufacturers are highly diligent when it comes to asking suppliers to share data about costs, schedules, and lead times—but very few apply the same sort of rigor when it comes to requiring information about upstream supply risks. They may hope that suppliers give them that information, or they may try to find it on their own, but they rarely press suppliers for it. As a result, there is an increased likelihood that disruptions will catch them by surprise and that they will be forced to react to problems rather than prevent them.

That approach is becoming less and less tenable. As a report from McKinsey & Company notes, we are now “operating in a world where disruptions are regular occurrences. Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.”

The “Push” Approach

Manufacturers can address this by establishing a disciplined process in which suppliers proactively “push” risk information to manufacturers, rather than waiting to be asked for it. That means that contracts and RFPs should require suppliers to provide information on potential issues with obsolescence, sourcing, sustainability, and compliance for the manufacturer’s mission-critical products and components. The point is to ensure that suppliers have some skin in the game, and a clear responsibility for scanning the horizon for risk.

This process should also include mechanisms that make sure that this supplier risk information is fed to the appropriate people and functions within the manufacturer organization. This should include product and engineering teams, who can use that information to modify designs to mitigate the identified potential risks. Internal teams should also communicate closely with suppliers to provide guidance on specifications and streamline the authorization of alternative components to help reduce risk.

Mutual Benefit

All of this will require fundamental change in the traditional relationship with suppliers, and that may make suppliers uncomfortable. Therefore, it’s important to remind them that the increased responsiveness to risk that this process will bring will benefit them and the supply chain as a whole, as well as the manufacturer. And it will them help build higher levels of trust that strengthen their relationships with their customers.

This process is not, in itself, a cure-all for supply chain risk, and manufacturers will still need formal internal processes for evaluating these risks using a broad range of data and mechanisms to ensure that senior management can monitor risk. But the flow of supplier information can support those internal processes. Suppliers are, by definition, in a better position to see upstream risks—and in essence, this approach lets manufacturers tap into that perspective to extend their “risk perimeter” further out from the organization. Moreover, in the event of an unavoidable disruption, the shared understanding of risk and the increased levels of trust will put suppliers and manufacturers in a better position to work together to recover, thereby enhancing the resilience of the supply chain.