The impact of transparency in optimizing the supply chain
The COVID-19 pandemic has shed light on the shortcomings of today’s industry supply chains. They were disrupted due to border closings in 2020 to avoid the spread of the virus. This revealed that many companies were not really aware of their (global) supply chains, the transportation service providers involved, the transportation means, or the routes taken. The pandemic is not 100% to blame for everything, but it did underscore the supply chain problems many companies were facing before COVID.
Transportation is a key for the supply chain
The pandemic and other factors like the advent of trade wars, restrictions, and new, non-traditional competitors in many industries (such as Amazon or Tesla) necessitate a rethinking of the traditional supply chain. The first step to understanding and reshaping the supply chain is to create transparency —i.e. to gather a complete, real-time picture to localize procured goods on their way from suppliers to original equipment manufacturers (OEM) and from the OEM to its final customers.
A main player in this theater of inbound and outbound logistics are the transportation services providers or forwarders. The 2017 bankruptcy of the Korean shipping company Hanjin is a good example of the lack of transparency between the different players in transportation: carriers, brokers and forwarders.
The importance of transportation to the supply chain is supported by the fact that approximately 66% of the logistic costs are incurred by fuel and freight costs1. Therefore, OEMs must closely monitor transportation activities and the transportation service providers they employ.
Digitization will bring transparency
So, what digitalization tools will bring transparency, and who will lead the development? First, OEMs must be at the forefront of the digitization of their inbound and outbound logistics, closely integrating their transportation partners. Transparency will have a major impact on OEMs, since it will improve control over the supply chain — delivering the following positive effects:
1. Reduction in disruptive, last-minute production schedule changes
2. Improved management of warehouse inventory levels
3. Reduction of carbon footprint and support for sustainability goals by improved transportation routing
4. Improved control over logistics flow (quantity and quality)
5. Reduction of working capital and related capital costs
This improved control will especially cover the area of transportation. New applications such as precise time of arrival (PTA) will vastly improve the accuracy of predicted arrival and departure times. By leveraging geopositioning and external data such as traffic, calendar, weather and transit time data, the arrival predictions are vastly improved. Since not only road traffic data but also rail, sea and air traffic data are incorporated in the data analytics algorithms, it will also help intermodal transportation determine the global sourcing of material and components for manufacturers.
According to one an automotive OEM executive I have spoken to, this precision will play a decisive role in improving their material coverage planning. Atos calculations have shown that PTA can increase the turnover of inventory, which led to an inventory reduction of more than €100 million per year for one automotive supplier and reduced the capital cost over the same period by more than €1 million.
The COVID-19 pandemic has shed light on the shortcomings of today’s industry supply chains — revealing that many companies were not aware of their (gobal) supply chains. Creating transparency is necessary to understand and reshape the supply chain, and data analytics that integrate external and internal data is the key.
In addition, to create transparency on the timeliness of transportation, the condition of the goods can also be tracked. For industries like food and beverage, it is crucial that fruits or vegetables arrive at their premises not only on-time, but in a good condition to be used in production. Solutions such as in-transport visibility provide insights into the conditions in which goods are transported, using sensors attached to boxes, pallets or containers and mobile networks and/or GPS to transmit the data. Alarms that indicate a given parameter (like temperature or humidity) has been exceeded will enable the manufacturer to take action to save the goods destined for production.
The reward will be less waste and associated cost, as well as improved production planning. Optimizing the planning of transportation routes is another angle of supply chain optimization. Considering external factors like road restrictions for dangerous goods, as well as internal limitations such as budgets, production schedules and carbon footprint will determine the best route for transportation that might different transportation means.
Data analytics that integrate external and internal data is the key to more transparency and, therefore, the foundation of in- and outbound logistics. Nevertheless, it will require close collaboration between suppliers, transport service providers and OEMs to exploit the full benefits of supply chain digitalization.