Why supply chains must move to technology-enabled ecosystems

COOs are building more resilient and sustainable supply chains in conjunction with technology partners and suppliers.

In brief

• To effectively sense and respond to disruption, supply chain leaders must peer into their networks beyond tier one suppliers.
• Cost reduction is one of many strategies to help enterprises become more resilient.
• Advanced technologies can help digitize the supply chain to increase supply chain visibility.

The future of the supply chain lies in the journey to automation and sustainability. Chief operating officers (COOs)and chief supply chain officers (CSCOs) are shedding earlier concepts of supply chain design from decades ago and adopting strategies that are leading to systems that are agile and networked while keeping demands of environmental and regulatory compliance in mind.

Supply chains must become more resilient to thrive in this new era of constant disruption. “Resilience means resistance to shocks,” says Sean Harapko, Principal, Supply Chain and Operations, Ernst & Young LLP. “Knowing that disruption is now commonplace, it is critical to understand how your company prepares and manages events when they happen so that your supply chain is seamless and keeps products on the shelf or showroom. Resilience is not a one-time event; it is a way of life for the top supply chains in the world.”

That the global supply chain is experiencing serious disruptions, and that countries and companies are still trying to put the pieces together, is hardly news anymore. Shortages of critical inputs and raw materials have hit the output of practically every manufacturer around the world. There has also been a surge in commodity prices as countries and firms have had to scramble for alternate suppliers because of global tensions.

Each crisis, however, also presents an opportunity to look at old issues afresh. Firms across the world are redesigning their supply chain operating models and changing the priorities and goals for delivering goods efficiently. Most companies are now moving away from the old paradigm, which focused primarily on cost reduction and efficiency, to one that puts a premium on resilience.

The shift is not just about finding alternate suppliers for critical inputs. It has meant a complete change in the architecture of the supply chain system, helped in no small measure by advanced technologies in planning, procurement, manufacturing and distribution. The priority now, according to EY research, is visibility of the supply chain at every point and with alternate suppliers having real-time access to the demand and inventory at every level and geography.

A digitally networked supply chain

Accessing real-time data across the value chain in near real time is essential, unlike traditional models of local optimization within distinct entities. Thus, when a change in customer demand is captured, it can be seen at all levels — by manufacturers, distributors, original equipment manufacturers (OEMs), suppliers, and their own suppliers. Changes can be implemented simultaneously across the network, and production schedules can be aligned accordingly.

Manufacturing companies are currently relooking at the strategic architecture of their supply chains. Starting with the number of plants and warehousing facilities to their locations and the need for spares to be maintained at multiple geographies, companies are also pulling in vendors into their core supply chain IT systems.

A networked system provides supply chain visibility, which enhances transparency and resiliency. With supply chain risk management systems, digital twins, supply chain planning and early warning systems, organizations can improve visibility and upgrade their response to disruptions.

Along with visibility, a resilient supply chain requires agility that will lead to information- or data-based actions. To achieve a highly sensitive flow, along with end-to-end visibility, simulation and risk monitoring, supply chain practitioners need to develop capabilities across omni-capable networks. Such operating models and a trained workforce will create a trusted and secure supply chain that aids companies to react swiftly and shift operations when a disruption occurs.

It is crucial to build a sustainable supply chain for another reason: the next-generation ecosystem. Along with speed, cost competitiveness and quality, the definition of “supply chain” has expanded to include social and environmental compliance, extending to eliminating human rights violations, ensuring sustainable and diverse sourcing and reducing carbon emissions across all tiers of the network.

Ashish Nanda, EY India Business Consulting Leader, contributed to this article.