How networked ecosystem solutions can provide enhanced visibility in your supply chain
Today’s organizations must be able to see far beyond their four walls – not just into the availability of finished products or work in progress from their suppliers, but into the supply chains of their suppliers’ suppliers. Only then can businesses:
- Clearly comprehend order flow
- Realize what is in the overall supply chain at a given moment
- Better understand their risk
Digitally networked operations bring those vital capabilities to life to enable informed, real-time decisions.
We recently asked Sean Harapko, Principal, EY Americas Supply Chain, our most pressing questions about the imperative for supply chain transformation. Here’s what he had to say:
▉ Insight 1
What do we mean by the term “networked ecosystem”?
Harapko: According to EY research, companies are moving from a linear supply chain to a networked ecosystem.
If we look at the flow of goods and where the world’s going, you can be a manufacturer and distributor of real goods, but you can also have one of your suppliers or customers as a distributor.
So, you can have a company that’s both a customer and a competitor. Products in various stages of completion do not necessarily move in a straight line any longer – most companies rely on networks that might include hundreds or thousands of suppliers to create overly complex products such as consumer electronics or automobiles.
▉ Insight 2
What if you own a large part of a vertical?
Harapko: Even if you own a large part of a vertical, you are still going to have customers and suppliers, and you are going to need real-time transparency to make sure you can provide customers what they need at the right price at the right time and manage risk.
For an example from the COVID-19 pandemic, think of a consumer products company that makes toilet paper. The company will have a lot of insights gathered from its category sales numbers and SKUs (stock keeping units), but it also incorporates demographic and psychographic research on its customer base. But it’s the local store that has the point-of-sale data — what unique customers buy, in what quantity and when. To have a complete demand forecast, organizations need both sets of data – quantities of product shipped to distribution centers, store ordering history and point-of-sale data, while also incorporating external data sources such as social media, web traffic and even weather.
▉ Insight 3
There are a lot of pieces. How does one keep them moving forward?
Harapko: When we think about today’s supply network ecosystems, they do not need to be linear where products and information flow just one way.
In fact, we can use technology like blockchain to give trusted data transparency and visibility to the supplier from the customer to the distributor, we can take costs out and produce the products that customers actually want to buy.
▉ Insight 4
Why should companies move toward the network ecosystem model for supply chains?
Harapko: They have no choice, and the data show it. The two biggest areas of impact during the COVID-19 pandemic were demand forecasts and supply constraints.
For demand, existing historical models no longer worked. I recently spoke with the head of supply chain for a major food supplier that sells through grocery stores to consumers and to restaurants and cafeterias. The typical growth year over year for this company is 3-4%. In the consumer market – with the grocery distributor – demand went up 50%, because people were making food at home. In its restaurant and cafeteria business, demand went down. On the snack side, demand increased because it makes ingredients for those products. The pandemic made it hard to predict demand with any sense of accuracy.
▉ Insight 5
What do these supply constraints involve?
Harapko: The supply constraints involve both the distribution of your supply and your actual supply. For example, in the energy industry we saw the effect of the extreme weather in Texas this winter, as well as recent events in the Suez Canal.
In semiconductors, there is a shortage right now. How do you get real-time visibility into that? The only way is to get information from beyond your four walls — it will come from your ecosystem of suppliers, partners, distributors and even retailers.
Companies do not necessarily own the customer anymore, and they do not own all the customer data. They may be working through a distributor, like an online retailer or grocery store. Therefore, they need to get that data from data brokers or have an arrangement with partners in their ecosystem.
Consumer sentiment is changing as well. Consumers want customization, transparency into where and how things are made and insights into the sustainability of the product. Companies must collaborate across the supply chain and share data to offer these insights.
▉ Insight 6
What do we mean by supply chain resilience?
Harapko: In the supply chain, it means companies can get items to their customers when they need them. It also means agility.
Companies want to be agile, and that means not mass-producing a million things because customer demands quickly change, and it is important not to be holding too much inventory when they do.
Resilience also means resistance to shocks. There are no shortages of disruption, and I mentioned some examples earlier. Knowing that disruption is now commonplace, the better question is 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.
▉ Insight 7
What are the pitfalls that organizations should be wary of as they make the transition to a fully networked digital ecosystem?
Harapko: Organizations need to think through their core competency. They should ask themselves questions such as: do I have a brand that people are going to buy?
If I am a brand company, I am not as worried about owning the direct-to-consumer distribution. Am I an R&D company? If so, I may want to get out of owning assets like manufacturing plants or distribution centers. Am I the best company in the world at making something, and if so, do I really need to own my customer? If you are known as a customer-focused company, you may need to own that last mile of distribution to the end customer. You also must ask if you can compete. For instance, even if you are ahead of competitors in optimizing your direct-to-store distribution network, is it worth it to stay in distribution if you cannot compete with online giants on two-day delivery? You can consider options such as selling to somebody else who can provide a service back at a cheaper cost.
Now, people are considering how much medical service can be done from home or even done at drug stores. Companies should figure out where they fit in that world.
▉ Insight 8
What are the prospects for adoption rates of the digitally networked supply chain?
Harapko: We have a perfect storm happening. There is recognition at the board level that the supply chain is a key part of a company’s strategy.
There are many regulatory changes coming with the Biden administration that will require greater transparency – such as where the parts are coming from that are in your semiconductors, and is your supply chain resilient to external cybersecurity threats?
Consumers are also driving the change. People are used to full track-and-trace, integrated systems for delivery of packages and products. They also want to know where their products have been made and that they are sustainable. And when we talk about sustainability and environmental, social and governance factors, it is not just about being green. Diversity and inclusiveness and societal impacts are important; consumers want to know about those things, and they will need assurance behind it. With consumers driving these changes, we are seeing ESG (Environmental Social Governance) stocks do better, which of course gets investors’ attention about the move from shareholder to stakeholder capitalism.
▉ Insight 9
What trends/results can we expect to see in the short, mid and long term as networked ecosystems take hold?
Harapko: We expect companies will look at their internal performance metrics, determine how to get the control tower to know what is going on, then move to a digital twin, then move to autonomous.
One of the leaders in this space, a consumer products company, was at about 35% of their items being autonomously forecasted prior to COVID-19. Now it is already starting to see some completely autonomous elements.
But companies should expect another perfect storm ahead: the future of work and the changes that the employee will drive. You have people who do not want to work at factories or distribution centers, so more automation will be needed. That will require more data, because there will not be as many people on hand to make real-time corrections. In an office or home setting, people may not want to punch a keyboard or work on a line of code, so a lot of thought will go into getting people into more strategic roles.