The Pharma Pulse: Digital Supply Management
The need to improve supply-chain resilience in wake of disruptions caused by COVID-19 has caused a re-assessment of supply chains and manufacturing networks. What role will digital tools, such as artificial intelligence, advanced analytics, and other technologies play in supply management?
The ongoing trend to increase digitalization in supply management comes at a time, in wake of the COVID-19 pandemic, to improve supply-chain resiliency. A recent Gartner survey of more than 1,300 supply-chain professionals found that 87% of respondents plan investments in supply-chain resiliency within the next two years. The survey, conducted from September 2020 through November 2020, further showed that 89% of supply-chain professionals want to invest in agility. However, cost remains a priority, thereby challenging chief supply-chain officers to find a new balance between resiliency, cost-efficiency, and fulfilling increasing customer demands.
“Supply-chain executives overwhelmingly recognize the necessity to make their networks more resilient and agile,” said Geraint John, Vice President and Analyst with the Gartner Supply Chain Practice, in commenting on the study’s results. “At the same time, 60% admit that their supply chains have not been designed for resilience, but cost-efficiency. The challenge will be to create an operating model for supply chains that combines the best of both worlds and also delivers supreme customer service.”
Gartner defines resilience as the ability to adapt to structural changes by modifying supply-chain strategies, products, and technologies, and agility as the ability to sense and respond to unanticipated changes in demand or supply quickly and reliably without sacrificing cost or quality.
Three-quarters of respondents believe that the additional costs caused by the investments in resilience and agility will be covered by supply-chain budgets. “In practice, the concrete investments will likely be a series of activities ranging from incremental projects in small firms to transformative capital investments by global industry leaders,” Gartner’s Mr. John said. “We see that many organizations are investing in diversifying their supply base and redesigning products to mitigate risk. More collaborative relationships with key customers and suppliers are also a priority for almost all respondents.”
Pharmaceutical, healthcare, and high-tech organizations, in particular, report that national interests will have increased influence over future supply-chain decisions. This not only reflects imminent national needs, such as vaccines and personal protective equipment, but is also a result of ongoing issues, such as US–China trade relations or the impact from Brexit.
At the same time, 45% of survey respondents think that their customers favor low pricing over domestic sourcing and production. Almost half of survey respondents see lean methodologies, just-in-time systems, and low-cost country sourcing as relevant to future strategies. Despite external pressures for increasing domestic production, only 30% of survey respondents report that they are shifting from a global to a more regionalized supply-chain model. Gartner analysis shows that the high level of integration in global supply chains, the regulatory burden of moving already established supply chains to a different location, and the concentration of key suppliers in certain geographies make it difficult to completely regionalize a supply-chain network. Further, high labor costs and a shortage of skilled manufacturing workers also are factors to take into account when considering domestic production in developed Western economies.
Digital technologies, manufacturing, and the supply chain
Automation technologies, such as artificial intelligence (AI) and robotic process automation (RPA), provide opportunities to overcome this constraint. These technologies can be used on the operational level, such as to perform picking and packing task, but they can also enhance strategic planning and forecasting, improving the overall efficiency of the supply chain. Fifty-six percent of survey respondents think that automation will enable them to make onshore manufacturing economically viable.
“Ultimately, the right balance between investments in resilience and agility and cost-optimization depends on each organization’s individual circumstances, including their financial strength, market position, appetite for risk, and external factors such as regulatory requirements or supply-chain constraints. If CSCOs [chief supply-chain officers] choose their investments wisely, they can expect to see positive results as soon as the next disruption,” Gartner’s Mr. John said.
The COVID-19 pandemic amplified the need for supply-chain organizations to seek tools that help them make better and more informed decisions faster. In a separate Gartner survey, 50% of supply-chain organizations say they will invest by 2024 in applications that support AI and advanced analytics capabilities. Investments in technology to improve real-time visibility, planning, and agile supply-execution capabilities further support the interest in improving supply-chain resilience.
A recent survey and analysis by The Boston Group (BCG), Data Excellence: Transforming Manufacturing and Supply Systems,released in January 2021, showed that nearly three-quarters of 1,300 surveyed manufacturing executives consider advanced analytics to be critical for success and more important today than three years ago. However, according to the analysis, few companies are realizing the full value that data and analytics can provide with respect to manufacturing and supply-chain execution. Less than 20% of surveyed participants prioritize advanced analytics to promote either short-term cost reductions or longer-term structural cost improvements. Only 39% have managed to scale data-driven use cases beyond the production process of a single product.
“Manufacturing is on the verge of a data‑driven revolution,” says Daniel Küpper, BCG’s Managing Director and Partner and a co-author of the report, in commenting on the study “But many companies have become disillusioned because they lack the technological backbone required to effectively scale data and analytics applications. Establishing these prerequisites will be critical to success in the post-pandemic world.”
Surveyed manufacturers in the BCG study cited various challenges that impeded their efforts to further scale and implement data and analytics technologies within their plants and across networks. These included challenges in: (1) prioritizing the right value-adding use cases from a broad range of applications; (2) not having in place technological enablers, such as data security or advanced algorithms; and (3) a lack critical organizational enablers, such as skills and capabilities and effective internal governance.
The report, which features insights from over 40 manufacturing organizations identifies six priorities to capture value from data and analytics in manufacturing: (1) define a data-to-value strategy and roadmap; (2) incentivize internal and external ecosystem partners; (3) build capabilities to capture and use data; (4) implement an open platform to unlock data silos; (5) enable connectivity for low-latency, high-bandwidth data flows; and (6) ensure data security and privacy.