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Seamless Supply Chains – Will they exist?

26 August 2016

The idea is that these seamless supply chains can better provide full visibility and fast response with a minimum of manual involvement. Manual work can instead be directed towards exception handling and continuous improvements.

We need to change our way of thinking

In order to succeed with the idea of seamless supply chains, we have to change our way of thinking.  Today the majority of systems, and not the least ERP systems, which are used by companies to “plan, source, make and deliver” products, are adapted to a linear reference model rather than to one which is always connected to the net and reacts to needs, makes decisions and sends messages about events or decision in real time. With the new concept, you might think that the IoT can be used to a great extent to react to needs (demand sensing) and provide information about events or decisions (demand response), but that there is also a decision-making process inbetween them. This decision-making process is formed primarily by the process which is typically handled by today’s ERP systems. If we want to come even close to seamless supply chains, we have to change our view of ERP systems in relation to IoT and concepts like Industry 4.0. The following illustration can be the starting point for such a discussion.

Source: SCM World 2016

Sensing demand – A great benefit

There is a constant on-going debate about the value of forecasting systems. Millions and millions of dollars have been spent on forecasting systems each year. At the same time, one of the biggest problems within the area of supply chains is still the lack of information about what is happening in your supply chain, from demand data to how this information can be spread throughout the chain in real time, which results in flaws in the quality of forecasts. If IoT can provide assistance in sensing and spreading demand information on a large scale and if this, in turn, can be converted to more information and knowledge than is the case today, then this is of enormous value.

Spreading information about events or decisions – The easy part

Event management, or supply chain visibility on event level, is a completely different, hot area where many TMS (Transport Management Systems) and Supply Chain Integration companies have a strong positioning. In this area, many company mergers and take-overs have occurred lately, successively consolidating the market for system suppliers. In my opinion, spreading information about events or decisions within the framework of IoT isn’t the greatest challenge related to seamless supply chains – it is, rather, the easy part, assuming that the machines can transmit data to each other. There are already practical examples from real life where IoT facilitates and enhances an ongoing trend in the market.

The decision-making process on the ”plan, source, make and deliver” level – The big challenge

“A chain is no stronger or better than its weakest link”, as the saying goes. Things aren’t that bad, but in the perspective of seamless supply chains, they are. If we can’t standardize and automate processes and information exchange between companies and their ERP systems better than today, seamless supply chains will never become a reality. In this case, the IoT effect would still exist within demand sensing and demand response, which is not too bad. But if on the other hand we aim towards seamless supply chains, we need to make a real effort and work towards common industrial standards throughout supply chains. To achieve this, we need involvement from companies, standardization bodies within industry verticals and even from governmental funding. There are interesting examples of this within the Automotive industry in e.g. Sweden and Germany. ERP systems and their representatives must to a greater extent be part of the standardization, where the aim must be to create conditions for a dramatically lowered complexity and cost for system integration in favor of seamless, flexible and responsive supply chains. This would make e.g. Industry 4.0 and seamless supply chains more than a mere vision.

And the winner is…

The Internet of Things (IoT) and scenarios of the future such as Industry 4.0 are exciting concepts for everyone working with supply chain management since they create conditions for information exchange in real time and allow access to information that is not available today, which could create much more responsive supply chains. In addition, concepts like these may change global conditions, where low-cost countries would no longer be self-evident in global production. Instead companies could be able to locate production closer to their consumers for economic reasons and benefits like higher flexibility, better customer service and shorter time-to-market. This is something that has already started to happen in real life. However, IoT and high-automation production can’t solve the lead time offset and distortion of information that companies’ ERP processes give rise to today. The lack of visibility and speed in the transfer of information throughout supply chains and the interpretation and reproduction of information which occur along the way will reduce the benefits of IoT and, for example, Industry 4.0 so that only parts of the processes throughout supply chains are positively affected.

Standardization and automation can make the vision a reality

We won’t be able to have seamless supply chains until we have standardized and automated processes and exchange of information between companies and their ERP systems. Involvement and pioneering from companies and standardization bodies, and perhaps even from governmental funding, are needed. The industry(ies) and the ERP system(s), and other system suppliers, who succeed in doing this will be more competitive than their rivals. For others, seamless seems less attainable.

Hans Berggren

CEO PipeChain

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