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The Digital Supply Chain
The emphasis of logistics and the supply chain has, historically, been on the production, storage and movement of goods to the customer. Indeed, distribution, the key early “descriptor” of the process, was also known as “physical distribution”. But how did physical distribution work? Was there an underlying enabler that allowed the different elements to operate effectively? In its very first edition in 1989, The Handbook of Logistics and Distribution Management emphasized the key nature of the physical aspects, but it also recognized the importance of the information necessary to support and enable the fundamental processes to operate effectively. I wrote then that “information can be seen as the ‘lifeblood’ of a distribution system”.
The scope, quality and speed of information requirements to support distribution and logistics has now developed significantly and quite dramatically. Linked to this has been the evolution of new and highly sophisticated hardware and software. The digital world has undergone a breath-taking metamorphosis and this has important implications for the supply chain. Have logistics information flows now become the “digital supply chain”? If so, what really is the digital supply chain and how is it developing? These are some of the questions considered in the latest (7th) edition of The Handbook of Logistics and Distribution Management. The story goes something like this…
As with many evolving ideas and concepts that are associated with the supply chain, the basis for these developments is strongly linked to changing customer expectations. Customers choose and select products across multiple platforms and demand service that is both personal and fast. Customers may also have concerns about both product and supply chain sustainability. These and other requirements and expectations must be met in changing and challenging circumstances, including elongated and complex supply chains, disruptive events such as global health crises and political insecurity. These, in turn, may result in severe or sporadic supply shortages.
Although it may appear rather ambitious to try to accommodate all requirements such as these holistically, there are existing and developing concepts that make this far more feasible. One key concept is the idea of the Fourth Industrial Revolution (4IR), also known as Industry 4.0, whereby dynamic digital technologies have begun to alter significantly the scope of what is achievable. These terms describe the way economies can progress through the integration of innovative technological, societal and business practices to encourage a fresh combined approach to commerce and industry. Evolving from this is Supply Chain 4.0 (SC:4), which incorporates the combination of associated technologies that have enabled the introduction of an era of digital transformation in new real-time data gathering across the supply chain, with smart analysis and algorithms to simulate and predict different supply chain scenarios and foster data-based decision-making.
Supply Chain 4.0 (SC:4)
The concept of Supply Chain 4:0 (SC:4) describes how developing digital technologies can significantly alter the scope of what is achievable and attainable within the supply chain.
The move towards SC:4 is enabled by many different approaches and developments. These might be informational, through digital services such as logistical control towers using “big data” and the Internet of Things, or the use of internet-connected devices that interact automatically. In addition, there are digitally enabled logistics services that can improve cross-border movements in a single simplified process based on technology enhancements. Innovative delivery options significantly change operational opportunities for physical shipments, including the use of drones and autonomous vehicles or 3D printing which eliminates the need to hold finished inventory. The implications for traditional distribution are immense.
One aspect of SC:4 that is already commonly discussed is that of sustainability and the circular economy. This is an important consideration for many manufacturing and logistics operations, where a key facet of their planning is to ensure that environmental concerns are catered for through the elimination of waste material, recycling and reduced emissions. Finally, the concept of the shared economy is also very much reflected in developments in logistics. This not only includes shared warehousing and shared transport operations, already apparent in multi-user third-party logistics services, but also the increasing use of parcel collection from and delivery to the home and office – often enabled by smartphone technology.
Industry 4.0 and SC:4 encompass the age of smart machines, production facilities and storage systems that can autonomously exchange information, prompt actions and control operations without human intervention. This is enabled through the Internet of Things and other interconnected networks of machine devices and vehicles, but this ‘revolution’ is seen as a clear separation between humans and machine robots. Industry 5.0 and SC:5 anticipate the next stage in the cycle, as man and autonomous machine are reconciled to work together, producing the synergy of human intelligence and cognitive computing interacting harmoniously. Manufacturing and distribution are expected to reach new levels of speed and perfection whilst also protecting the environment through the incorporation of renewable energy and minimal waste.
The key contributors to the digital supply chain are the innovative technologies that make the concept feasible. A brief list and some implications for the supply chain includes:
- Big data: extremely large data sets that may be analyzed by software designed to reveal patterns, trends, and associations, especially relating to human behavior and interactions (eg from sensors, etc). This leads to big data analytics.
- Artificial intelligence (AI): the ability of a computer or a robot controlled by a computer using machine learning to undertake tasks that are usually done by humans because they require human intelligence and discernment, eg home-based assistants (such as Amazon Echo) can link with home smart appliances, identify stockouts and automatically re-order (eg milk in the fridge), warehouse pick routes can be optimized in real-time, etc.
- Internet of Things (IoT): describes the network of physical objects - “things” that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the Internet, eg shelving, vehicle sensors & telematics.
- Control towers: the essence of the control tower concept is to provide supply chain visibility across divisions, countries and transport modes. The heart of the control tower is an information hub supported by a set of detailed decision-making rules and a trained team of operators, eg supply chain and logistics decisions will be made automatically (by AI) from ‘big data’ systems to deliver customer service while minimizing inventory.
- Blockchain: a permanent digital record of transactions that is stored across a distributed or decentralized network of computers. The blockchain is not split across many computers, but copied to all computers in the link – a single source of information on which all stakeholders can rely.
- Distributed Order Management: DOM systems are designed to arrange orders across the multiple systems and processes utilized by those involved in replenishing an order. DOM can analyze every transaction and determine the most efficient shipping location considering multiple factors, including speed of delivery, the distance between the shipping point and the customer, as well as available stock levels. This clearly requires a unified view of stock across multiple channels in order to know exactly where the products are.
- Digital marketplace: a technology platform to improve/simplify buying logistics requirements – in logistics eg a freight exchange/marketplace, an e-forwarder, a tender platform (for outsourcing).
- Crowd-shipping: also known as crowd logistics, ordinary citizens using social networking collaboratively to act as couriers, creating new informal logistics networks for local distribution of small items ordered online - small parcels.
- Robotics/automation: many warehouse and logistics jobs can be undertaken by robots eg container stacking, warehouse put away, picking and packing.
- Autonomous vehicles: self-driving trucks, plus robots and drones used for delivery purposes.
- 3D printing, also known as “additive manufacturing,” enables the remote production of three-dimensional objects. This can eliminate large elements of an upstream supply chain.
Key aspects of a digital supply chain
What does a digital supply chain look like? The use of an amalgam of the many innovative technologies outlined above implies the need for a very different structure and operational approach. Yet, in many ways, there is a natural progression that has occurred and is still occurring. It is the linking of these new ideas and techniques that is the key to any fundamental change. The digital supply chain can be characterized in several different ways but there are five major elements that can be considered as key to the formulation of an autonomous and self-optimizing supply chain:
- Supply chain transparency and sustainability: this involves multilevel data flow and seamless connection of all data across the supply chain for products, logistics, customers and finance, together with a completely transparent and sustainable supply chain that includes the reuse of materials and the integration of suppliers and other players.
- Closed-loop and integrated planning and execution: end-to-end planning from customers to sub-suppliers covering all planning time horizons. This should include integrating financial and capacity plans, demand and supply balancing, collaborative workflows and automated decision-making using advanced analytics.
- Smart logistics flows: includes inbound and outbound transportation considering all modes; automated warehouses, transport management systems (TMS) and warehouse management systems (WMS); optimized and dynamic distribution; omnichannel order management.
- Dynamic supply chain segmentation: the use of segmentation strategies to support key business requirements, covering all realistic service, margin, cost and inventory parameters. The adoption of supply chains that are flexible and which can be further segmented for each customer order, as well as reshaped for alternative market conditions and product components.
- AI-driven supply chain management: Data networks and AI connect along the supply chain to provide enhanced demand forecasts via demand sensing. Patterns and trends can evolve based on machine learning within the supply chain and trigger appropriate responses. This enables a fully autonomous supply chain to make appropriate and effective optimization decisions.
Digital supply chain systems architecture
Supply chain systems architecture may, of course, vary when comparing different companies and organizations for a number of reasons, dependent on size, structure, global reach, product type and customer type, amongst others possible differences. Thus, it is no easy task to compose a systems architecture diagram that is appropriate to all. However, there are many elements that may be identifiable and these can be used to illustrate an overview of a “typical” supply chain systems architecture. The key element that acts as an overarching link is the main transaction system, usually an enterprise-wide information system. Various planning and operational systems, such as the transport management system (TMS), are to be found within the structure. These are, generally, internal and associated with a particular logistics component such as storage or delivery. However, sometimes they may be external and supplying or receiving vital information that allows the overall supply chain system to work effectively, such as linking with suppliers or customers.
The development of the digital supply chain is just one major, but key, aspect of logistics and supply chain management that can be found in the new edition of The Handbook of Logistics and Distribution Management. The broad scope of the book covers the breadth and depth of logistics from informational to physical, supply to demand, planning to operations, warehousing to transport, efficiency to sustainability, profitability to humanitarian, inventory to just-in-time, supplier to customer. Worth a look? It should be, especially if you are in any way involved or associated with such topics as these. We all are.