Major retailers have utilized data analysis to streamline inventory decisions, cancel orders and solve other major issues. Fortunately, the power of digital transformation isn’t limited to large sellers and big box stores.
In this interview Ellen Wood, podcast host of Speaking of Supply Chain, speaks with Isabel Morales, CoE of Supply Chain Design at Miebach, and Madhav Durbha, Supply Chain Executive how every business, small or large, can find and adopt digital solutions to build organizational success.
Ellen: How companies are responding to risk when it comes to their strategy and network design projects? What changes have you seen in the last years with impact on supply chains?
Madhav: It was amazing how quickly companies were able to accelerate their digital journeys and digital transformation, which was pushed by the pandemic. And also your base of working changed, like as a consultant, you used to travel a lot and now you get a lot of stuff done from home. So all of us working remotely and being able to come together still as teams and trouble shoot and fix problems and keep the world running and keep the supply chains running. That's something commendable. So that's what I saw in the last couple of years.
Isabel: Yeah, I think that's a really good point and that I would like to pick on the digital aspect. I think we have definitely seen that the digital agenda has come at the top of the priority for organizations. I think in the past some of the supply chain teams had difficulties in creating a business case because oftentimes generating those returns was quite difficult to make a financial business case. But I think the pandemic actually helped in showing the organization what's the impact of not having those digital initiatives or supply chain platforms, tools, and data infrastructure in place.
Madhav: So that's definitely something we have seen, the demand for such projects. Of course, we're always feeling in the consulting site. But that's definitely at the priority of company's agendas. And I think we see great examples. I was reading a Wall Street Journal article the other day on how Macy's has addressed the inventory issues, and it was quite interesting. It mentioned about how they started analyzing their credit card information data. They have their own credit card, and then they started analyzing the consumer behavior and then based on that data, they were able to make decisions to adapt inventory, to cancel orders and so on. I think that's a really good example on how that digitalization, the usage of the data that's already being created every minute, every second in our systems, and how having a holistic view as opposed to siloed, set that company for success.
Also, when it comes to getting digital transformation efforts approved through the Finance Organization, the awareness for supply chain and the importance of supply chain got elevated in the last couple of years. Now, the reality is that the finance organization's started looking at supply chain as a motif, a strategic differentiator as opposed to just a cost center. And that has made the leader's ability to push the supply chain agenda further within the c suite as well in the boardroom.
Isabel: With making use of digitalization in your supply chain you're making sure that the business continuity is issued and the product is available when the consumer or customer needs it. So there is a revenue realization aspect to it in making sure that the products get to the right destination. And I think also that organizations have come to the realization that supply chain design, optimization, planning and analytics needs to happen at a faster speed than what it used to happen prior. The planning cycles need to be shorter, they need to be closely aligned, and they need to be holistic. And the only way to enable that speed is through technology, because otherwise it will take you forever to do it and then you lose the speed.
Most definitely, digitalization is part of the consumer journey and how people are ordering things, ordering them online. They're expecting things delivered within two days. Amazon has kind of taken over everything, and other companies are having to keep up with that Amazon model of delivering something quickly and having an easy returns process. And that means that all of that data, all of that information has to be available so that they can pivot if they need to.
Ellen: How does that affect the inventories?
Isabel: Currently, the inventory landscape, I think is probably one of the most complicated areas because we are seeing massive variants from both ends. You have from the inbound portion or from the sourcing portion, all of these delays in product coming from Asia, so that you have that great variance, and then you also have uncertainty on the customers side.
I think we're facing a holiday season now that it is being really uncertain, so consumers are also shifting buying patterns. And then historical data is not so relevant anymore. So we also need to adapt and change the way that we plan for inventory that it's not so reliant on historical data because we're not behaving the way we usually behave. And then again we need to have shorter planning cycles and for that you need also a solid tool that helps you do that.
Madhav: Another aspect to this, as well as the flow packs to the market also radically shifted over the last couple of years, whether it is because of pot congestions, transportation capacity shortages. What that means is now my shipping from location has changed, so accordingly, my inventory levels and the form and function of inventory needs to flex as well. The optimization efforts need to be looked at in tandem with the floorpaths to market and how the supplies in design itself is involving.
Ellen: Yeah, that's a good point that inventory optimization actually goes hand in hand with that flow path optimization and also actually with network design as well. So if you think about, what are the drivers of the inventory issues that especially retailers are experimenting?
Isabel: It's because of this sourcing from Asia, with really long lead times, very little flexibility in terms of canceling and order or changing in order. They are really long times. Because of that lack of flexibility, companies are forced to buy in advance of the season, to buy in massive quantities for the whole season, and then in the end that ends up adding inventory and also adding risk for situation situations like the ones that we're seeing at the moment. So when you think about inventory optimization from a network design perspective, and if we blend in near shoring, it's not only about saving transportation costs, it's about also saving inventory and protecting yourself against these variances that we're seeing at the moment.
Madhav: You triggered an interesting topic right there about reshoring or on shoring or even I hear about the term French shoring, right. So when you look at these kinds of trends, especially besides the lead time compression when it comes to near shoring, one of the things that we see is also the environmental sustainability aspects of it, because when you reduce the amount of distances that goods need to travel, there is a carbon footprint benefit that can be associated with that. Besides to speed to market, however, you know, when you're talking about near shoring or re shoring, it also has got a cost implication. Now, whether it is CAPEX investments, whether it is labor costs that could potentially go even if I can offset some of that with transportation costs. So all that again has got significant implications in terms of supply chain design.
Isabel: Yeah, that's a really important point on emissions and something that we are incorporating in network studies is actually the footprint and sustainability associated to being in a specific country. That's not something that has typically been a huge focus, at least here in the US. I know in Europe is a little bit ahead of the US in terms of some of those environmental policies But when you seeing those trends globally that are becoming more of a factor when people are looking to make changes or adaptations to their network.
We see this in I think every global study that we're doing at the moment, so not only in regional studies at a European level, but also global studies. And now there's definitely a push for switching to ocean mode all those lanes that were still served by air mode so I think it's probably the key KPIs are operational cost, inventory cost, but now risk and emissions are part of the basics of any networks study.
Ellen: So where do we go from here? What will success look like in the future for our supply chain leaders?
Isabel: I'll bring it back to where we started this conversation what I said in the beginning, which is the supply chain that is shifting from being a mere cost center to something that is a strategic enabler for the business. So the chief supply chain officer now has a seat at the table and the bonus is upon us to deliver on the promise to make sure that supply chain continues to serve as a differentiating function, not just as a cost center. So that's going to be top of mind for a lot of the chief supply chain officers. Now a couple of headwinds that I see coming our way. The people aspect is one crucial thing. How do you make sure that they have the right retention mechanisms in place and talent attraction mechanisms in place as well? And the other topic is sustainability. International Maritime Organization is going to tighten the regulation around the emissions around the ocean vessels and start grading vessels into a A B C D based on the emissions.
What that translates to is increased lead time so the kind of disruptions is going to continue, and just giving a couple of examples of that, right, So how do you balance these and still push that supply chain agenda to make sure that it becomes a strategic differentiator? And see is that way that's going to be the the big challenge on the opportunity for the supply chain leaders.
Madhav: I fully agree with you just said. If I had to prioritize or summarize, only two points for the supply chain leadership is to not lose momentum and prioritize the digital agenda and the organizational agenda. Because you can implement a supply chain data leg you can implement a supply chain design tool or holistic supply chain planning too. But if you don't have the processes in place and the people to drive value out of them, then the piece of the puzzle is incomplete. And if you think about the maturity stages from Gardner and supply chain planning, I think you have people, technology, KPIs, and processes and if I had to prioritize two of those would be technology and people.
Ellen: Fantastic! Thank you so much Madhav and Isabel for the interview. I hope everyone enjoyed the conversation.
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