Market Overview

How Incremental Automation Adds Resilience To Supply Chains

Share:
How Incremental Automation Adds Resilience To Supply Chains

Globalized supply chains are long and complex, involving many moving partners: supply chains evolved this way to reduce cost and optimize inventories and transit times, but complexity brings enhanced risks. These risks come from weather, geopolitics, infrastructure bottlenecks, supply and demand imbalances, and regulatory changes. In response to these risks, companies with exposure to supply chain shocks are automating workflows and creating artificially intelligent assistants to help human workers make better decisions faster and stay focused on strategy.

In the past year, two major regulatory changes caused severe disruptions to North American supply chains. In the run-up to the electronic logging device mandate on December 18, 2017, shippers and carriers scrambled to move freight because of the unpredictability of post-ELD freight markets. By mid-November, 28 percent of all loads tendered by shippers were being rejected by trucking carriers due to a lack of capacity or spot market volatility. This summer and fall saw a similar situation play out on the dense Transpacific maritime lanes due to the Trump administration's tariffs on Chinese imports. As shippers pulled freight forward to avoid tariff deadlines in July and January, they broke peak season in two: August, one of the strongest months for West Coast port volumes over the past eight years, was much softer than expected, while September and October saw massive surges.

Beyond the impact to freight flows, these two disruptions hit shippers' bottom lines: both trucking rates and container rates remain elevated well above historical norms. Contract rates for dry van linehaul moves are up 20.8 percent since January 2017, and container rates from Shanghai to Los Angeles are up 75 percent from the pre-Chinese New Year surge in January 2017.

Regulatory changes are perhaps the most predictable kinds of disruption — typically they are announced well in advance and supply chain players have ample time to prepare. Still, no one was able to predict the effects the ELD mandate and the China tariffs would have on freight flows. Shippers, transportation providers, and consignees were left exposed to turbulent markets and runaway costs as their networks were forced to handle unforeseen surges in volume.

In our view, digital strategies like automation, intelligent workflows, and AI are the best ways to prepare for unpredictable trade flows and volumes. Even incremental automation increases worker productivity, reduces error, and makes supply chains more responsive — and therefore more resilient — to sudden strains on capacity, infrastructure, and workforces. PricewaterhouseCoopers' 2017 survey of Asian Pacific Economic Cooperation CEOs found that 58 percent of the executives were "automating certain functions" and 40 percent were ‘investing in machine learning and emerging technologies' to adapt their supply chains and profit in an increasingly digital age.

“"It is often the 'simple' processes that result in biggest slow downs or inefficiencies. Companies can make significant strides by reducing costly human error and time to decision through automation," said Chris Kirchner, CEO of Slync.

"Our research suggests that the more aggressively companies respond to the digitization of their industries — up to and including initiating digital disruption — the better the effect on their projected revenue and profit growth," wrote McKinsey partners Jacques Bughin, Laura LaBerge, and Anette Mellbye in "The case for digital reinvention."

But digitization doesn't have to be hard — many companies make the mistake of delaying or under-investing in their digital strategies because they perceive it as an all-or-nothing proposition and think the entire business will have to be reorganized. In fact, incremental automation — digitizing first the low-hanging fruit of repetitive, tedious, data-centric tasks that are time-consuming and error-prone for humans — can help supply chain participants realize substantial benefits.

"Going digital is not about one big idea — it's about solving 1,000 small problems together as a synchronized company," Ahmad Azhar Yahya, Chief Digital Officer at Telekom Malaysia Berhad, told McKinsey in January.

Just as importantly, starting small allows teams to develop data-driven habits and encourages a data culture in the company that can serve as the foundation for further digitization and efficiency improvements.

"Many applications that make up the digital supply chain represent a radical change for most organizations, so companies should first carry out smaller pilots that showcase benefits and help develop the right capabilities," wrote PwC in its white paper "Industry 4.0: How digitization makes the supply chain more efficient, agile, and customer-focused."

Digitizing the supply chain means taking steps before leaps. Supply chain participants should focus on building company-wide data-driven processes and models before they take the leap to horizontal collaboration with their partners, which includes transparent data-sharing in the pursuit of joint business objectives and KPIs. The end goal is a complete view of the supply chain available simultaneously to all stakeholders allowing for rapid response to end customer demand changes and a natural collaboration with partners focused on commonly recognized intrinsic supply chain value opportunities.

Achieving supply chain maturity as a digital champion is an ambitious goal, but companies can start as simply as automating routine tasks like exception management, customer relationships, and correcting forecasted transit times with historical data. One of the easiest ways to start is by examining processes handled through email: many of those can be automated and accelerated, and your employees will experience fewer interruptions, giving them space to focus on high value decisions.

Posted-In: General Best of Benzinga

 

Related Articles

View Comments and Join the Discussion!

Thailand On Track To Legalize Medical Marijuana

Today's Pickup: Oil Prices Fall As OPEC Fears A Downturn