The scale and complexity of global trade networks are astounding. Each day, we encounter the outcomes of these intricate networks, rarely thinking about the processes that make it all possible.
In a recent blog, we looked at how data and technology can help organisations to identify and address inefficiency. In this blog, we’ll look more closely at the supply chain process and consider how minor issues can have a major impact on how well an organisation operates, and look at the ways by which data and technology can help.
Inefficiency in supply
In the 1990s, Proctor & Gamble (P&G) encountered a problem in the supply chain of Pampers. Despite a relatively consistent demand from consumers, orders from suppliers, distributors, and wholesalers fluctuated widely.
This phenomenon became known as the “Bullwhip effect” (see the graphic below) and frequently occurs when suppliers, distributors, and wholesalers overcompensate for relatively minor shifts in customer buying behaviour. Much like the crack of a “bullwhip”, small variations at one end of the supply chain amplify over time and lead to major variations at the other.Image source | commons.wikimedia.org
The “Bullwhip effect” perfectly illustrates the way by which minor issues, such as poor communication, can often amplify over time and lead to a variety of much larger issues, including:
- Ineffective resource management | Space, raw materials, labour and energy are finite resources. Deriving maximum value from a product requires that these resources are effectively managed.
- Poor customer experience | Poor product accessibility and order backlogs can have a negative impact on customer experience.
- Lost revenue | Increased material and production cost, corrective measures to address production issues and the deterioration of product quality can all lead to lost revenue for an organisation.
- Forecasting | Issues in the supply process can make forecasting much more difficult as models are often based on distorted, inaccurate or incorrect data.
Addressing the issue
In order to address inefficiency in the supply chain process, organisations must first take steps to identify the issue. In the case of P&G, issues in the supply chain were identified and addressed through the effective use of data.
By looking more closely at the relationship between various customers, distributors, wholesalers, and suppliers, P&G was able to identify that order variations grew in intensity as they moved up through the supply chain.
In order to rectify the issue in the Pampers supply chain, P&G implemented a vendor-managed inventory (VMI) program, that helped to establish more effective lines of communication, collaboration and information sharing between various stakeholders, specifically 3M, their supplier, and Walmart, their customer.
Today, P&G is recognised as “best-in-class” for supply chain planning, having recently developed an online planning system that allows distributors to more easily participate and collaborate in the sales and operation planning process. This collaboration, alongside advanced planning algorithms and a self-tuning forecasting engine, enables P&G to more accurately forecast, predict and manage their supply chains.
Tampering and fraud
Another aspect of the supply chain process that data and analytics can help to address is fraud. A recent study by Deloitte found that in 2017, 39.1% of respondents reported instances of supply chain abuse over the previous 12 months. These sentiments are echoed in a similar report from KPMG, noting that “enabled by the increasing complexity of supplier networks, technology, and the global reach of manufacturing operations, supply chain fraud is on the rise.”
Analytics Engines is presently involved in Food Fortress for raw materials and ingredients in Europe – Gaining Consumer trust through transparency, a project which seeks to address food-fraud in two specific supply chains – beef, and herbs and spices. Our application is designed to help food manufacturers and processors understand and manage risks in their supply chains. This includes capturing and categorising horizon scanning activities for use in building predictive models and visual analytics designed to collate information that can be displayed via interactive web-based dashboards and reporting tools.
The complexity of supply chains often means that very minor issues can have a significant impact on how a business performs. The effective use of data can help organisations to identify and address minor issues before they worsen. To find out more about how we help organisations improve their operations through the intelligent use of data, contact us using the form below.