Smart OEMs Forging Smarter Supply Chains

Proactively managing risk and making supply chains resilient makes sense in the abstract, but for many organizations, those fundamentals have been lost in the maelstrom of “business-as-usual”. Covid-19, trade restrictions, shifting demands, logistics chaos, and driver shortages have brought the need for supply chain resilience front and center.

Fortunately, digital technologies that support the supply chain have come a long way—and the move toward Industry 4.0 is finally coming into its own. The challenges and unpredictability of the past several years have forced the industry to look at the supply chain in new ways, with a view toward increasing resilience.

The shift to supply networks

To mitigate potential disruptions, supply chains needed to make the shift from a linear approach to a supply network (Figure 1).¹ This is a more proactive ecosystem approach that encourages collaboration across industries to identify possible disruptions and also to determine where disruptions need to occur. It reduces the likelihood of a single point of failure taking down the supply chain by creating multiple links between various nodes.

Figure 1: Supply chains are moving from a linear to a network approach with collaborative ecosystems that identify pending disruptions and when disruptions need to occur. (Image source: HFS Research, 2022)

Reaping the technology & promise of Industry 4.0

The lack of technology available to track supply chain communication created the traditional linear approach. Digital technology supports a much more interconnected model, allowing us to enter the new era of manufacturing: Industry 4.0. Called the Fourth Industrial Revolution, Industry 4.0 is shorthand for saying smart manufacturing and points to a process that integrates a variety of technologies into the way companies manufacture, improve, and distribute their products. Of course, the supply chain is part of that as it extends between the manufacturing plant and its partners (Figure 2).²

Figure 2: Manufacturing and its associated supply chains have been around since the 19th century, but the newest iteration—Industry 4.0—is driven by the intelligent use of data to improve efficiency, resilience, and process outcomes. (Image source: Counterpoint Technology Market Research)

To operate, smart factories rely on sensors, low-power processors, wired and wireless connectivity, embedded software, and robotics to collect and analyze a broad array of data from internal and external sources in order to make smarter decisions or even automate them.

By drawing operational data from enterprise resource planning (ERP) systems, the supply chain, and other enterprise systems, OEMs can see and react to information that was previously obscured in silos. Some systems even collect data related to risk from external sources, such as weather or news sites. The end result is a value chain that is more flexible than ever before, as well as increasingly efficient and transparent in ways that support better decision-making.

A handful of promising technologies

The evolution and the increasing ubiquity of several key components have made this vision of the supply chain a reality for those who move to adopt Industry 4.0 aggressively. They include:

• Internet of Things (IoT): Using IoT in supply chain management allows logistics partners to collect and use data for better inventory management, transportation, and incident response. Machine learning models can be used to create advanced, responsive supply management solutions that predict bottlenecks, save time and money, and accelerate incident response times. Done correctly, the unrelenting shifts and demands can be predicted and addressed—before they become a problem.
• Cloud computing: The integration of cloud computing into the supply chain brings scalability (to address peaks in demand), increased security, and increased productivity, as well as automation features that can further reduce cost. Supply chain executives reported a 16% decrease in operating costs across their supply chain after switching to cloud computing, according to Accenture.³
• AI & machine learning: Artificial intelligence (AI) allows manufacturers and their customers to react more swiftly to supplier issues, monitor raw material availability, and appropriately manage the bureaucratic complexity of cross-border trade. By 2025, more than 80 percent of new supply chain applications will use AI and data science in some way, according to tech research firm Gartner.
• Edge computing: This subset to cloud computing puts the data analysis function in the location where the data is created, minimizing latency to support near-real-time responses. Because the data isn’t being moved, security is enhanced. Better data can help companies better predict and manage their various supply chain components.
• Cybersecurity: Cybercrime is on the rise, and these technologies can help OEMs actively defend against crime-related delays, data breaches, and financial losses. The supply chain is both a rich source of information and a potential doorway into financial systems, making it a critical attack vector. Blockchain capabilities increase the security of financial transactions and allow OEMs to track product as it moves through the supply chain.
• Digital twin: Manufacturers can create a digital twin, a virtual replica of the supply chain. Through simulation, it’s possible to test changes before implementing them to maximize capacity and/or minimize downtime.

A predictive and reactive supply chain is no longer something that’s just nice to have—it defines who will succeed and who will fail over the long haul. Recent challenges, from Covid-19 to weather extremes, have pushed us to get creative about how we manage our supply chains. The journey to Industry 4.0 and the smart supply chain will likewise transform the way that partners across the supply chain collaborate and share information.

References:

1: https://www.hfsresearch.com/research/industry-4-0-advancements-must-sync-with-business-transformation-for-success/

2: https://www.counterpointresearch.com/industry-4-0/

3: https://www.accenture.com/us-en/insights/supply-chain-operations/supply-chain-transformation-cloud