Why Covid-19 is the new driving force behind supply chain digitalisation

For many UK businesses, the coronavirus pandemic has acted as a catalyst and accelerator to supply chain digitalisation. Manufacturers, suppliers and wholesalers across the country have been forced to adopt new ways of working with social distancing closing offices and reducing operational capacity. At the same time, companies are also dealing with erratic customer behaviour and badly disrupted supply chains.

With little certainty about what the future holds, supply chain management (SCM) teams need ways to make their operations more agile and resilient, so they’re in the best place to respond to the ever-changing economic and social landscape.

Why Covid-19 is driving supply chain digitalisation

In the MHI’s latest Annual Industry Report “ Embracing the Digital Mindset” businesses from across the globe were surveyed at the end of 2019 and the results showed only a moderate adoption of key supply chain technologies:

The lack of investment in digitalisation — pre-Covid — is not surprising. As many managers are aware, there’s often many obstacles to digitalisation, from internal bureaucracy and justifying capex investment, to a simple reluctance to disrupt current ways of working.

However, when the coronavirus hit, it quickly exposed the flaws of many supply chains and internal operational weaknesses. Very quickly many boardrooms began to remove the barriers to change, in a battle to overcome the challenges that the coronavirus pandemic had caused. Businesses that were ‘putting off’ automation started to embrace it full-on. SCM teams, in particular, started to rapidly adopt digital processes as a way to improve their resilience and agility to deal with the evolving trading environment they faced.

This can be seen in a more recent survey carried out by IBM Services in Q3, 2020. Of over 3,800 C-suite executives across 22 industries in 20 countries, 66% said they had completed technology initiatives that had previously encountered resistance. The reason, they stated, was the lessons they had learned, and continue to learn, from Covid-19.

Many businesses are on a digital journey and, as they begin to reap the benefits of introducing new technologies, there will be no turning back. From creating connected teams using virtual streaming and collaboration tools, to increasing productivity with automation despite smaller workforces, to establishing new routes to market via ecommerce. Businesses that want to survive are transforming — and they’re using technology to do so.

And there’s already evidence that digitalisation is working. A survey by Euler Hermes in late 2020 showed that highly digitalised companies (reporting six to eight different digital activities) took significantly more actions to mitigate supply chain disruptions than less digitalised ones (reporting zero to two digital activities).

Arguably this is because they had the infrastructure, operational efficiency and data transparency to proactively respond to the global crisis.

With the impact of Covid-19 highlighting supply chain weaknesses and driving digital transformation, the adoption of new technologies could come sooner and on a much larger scale than the MHI Annual Industry Report predicted.

Unfortunately, no one knows what the future holds for UK commerce. Whilst the Government fights to bring down cases of Covid-19 and strives to speed up our vaccination programme, lockdowns of varying severities could continue into the foreseeable future, leading to stops and starts in our economy, and peaks and troughs in demand. Global supply chains could also remain disrupted, as nations battle to keep the virus under control.

Businesses that are therefore investing in digitalisation now, will be much better prepared to face the challenges ahead.

The benefits of supply chain digitalisation

There’s a growing volume of empirical evidence that suggests digitalisation can help businesses during times of economic uncertainty, e.g recessions and economic slowdowns. A study published in Harvard Business Review (HBR) in 2010 looked at 4700 public companies in the USA before, during and after the recessions of 1980, 1990 and 2000 and closely reviewed the performance of each one. It found that 9% of companies flourished after the slowdowns, with them all having a similar strategic approach:

• They cut costs through improvements in operational efficiency
• They invested in assets such as technology, plant and machinery
• They invested in R&D and marketing

This allowed them to outperform their competitors by at least 10% in terms of sales and profits growth.

In a more recent HBR article, Katy George, Senior Partner at McKinsey, provided four key reasons why investing in digitalisation is crucial to businesses looking to survive / grow during economically challenging times:

1. It helps reduce operational costs and improve productivity
2. It creates transparency across business operations and the supply chain
3. It provides the data analytics that businesses need to make informed decisions and identify areas of improvement and opportunity
4. It makes supply chains more agile and able to respond quicker to the rapid change that comes with a slowdown and subsequent period of growth

How supply chain digitalisation can support a Covid-19 recovery plan

Last year McKinsey published a six-point plan to help supply chain management teams react to the impact of Covid-19. This included:

1. Creating transparent supply chains: Identifying which inventory items are critical in the supply chain; items whose supply is most at risk of interruption and alternative sources of supply.
2. Locating available inventory in the supply chain: Identifying where there is spare inventory capacity to either keep production running (manufacturers) or fulfil important orders (suppliers).
3. Assessing customer demand: Looking for realistic demand signals hidden behind erratic customer behaviour, to ensure stock levels reflect new behaviours.
4. Adjusting production and distribution capacity: Understanding new operational capacity limits, whilst ensuringemployee and customer safety.
5. Identifying and securing logistics capacity: Being flexible on transportation modes and switching when required.
6. Managing cash and net working capital: By running stress tests to understand where supply chain issues will start to cause a financial impact.

This plan can help supply chain managers identify the risks associated with their organisation’s supply chain and how to

mitigate them to keep disruption to a minimum. McKinsey points out that digitalisation of the supply chain will be key to helping teams deal with these challenges.

Digitalising your supply chain by introducing inventory optimisation software

An inventory optimisation tool, such as EazyStock, is one way that technology can support supply chain managers with their current inventory management issues. Here’s some examples of how:

• Inventory optimisation software automates demand forecasting. This allows inventory teams to utilise statistical algorithms to generate baseline forecasts that will be more accurate and reactive than using a 30-day rolling average calculation in Excel or an ERP. The tool also let’s teams add qualitative forecasting data, such as customer feedback and market intelligence to add ‘human insights’. It also tracks demand trends, which is critical with marketplaces changing daily, so forecasts can be as accurate as possible.
• EazyStock offers functionality to help businesses manage supply and demand volatility. This includes a risk-of-run out report that details stock items that are at risk of going out of stock, so a plan of action can be formed. Demand-to-date alerts constantly check actual demand against consumption throughout the forecast period and flag when it’s deviating significantly from projections, so you can track the item more closely. At the end of a forecast period, demand fliers (anomalies) are highlighted, so you can decide whether the dip/increase is realistic and whether to allow the system to include it in future forecasts and update replenishment calculations accordingly.
• Users of EazyStock have a transparent view of their inventory, in terms of which items are in greatest demand, are picked the most frequently, have the most volatile sales patterns and cost the most to sell. Armed with this data they can then focus on investing in inventory that will generate the greatest revenue, and securing the supply of their most important stock items.
• With functionality to track supplier lead times, EazyStock adjusts reordering quantities accordingly, so if lead times increase, reorder quantities go up. Then, as they improve over time, quantities will re-adjust to help prevent a build-up of stock.

• By automating forecasting and replenishment tasks, inventory management teams will reduce their time spent churning data and manually calculating replenishment parameters, such as reorder quantities and safety stock levels. With this data automatically generated by EazyStock, teams can simply check order recommendations and send for processing in their ERP, giving them much more time to deal with other pressing matters.

If you’d like to know more about how EazyStock can support your supply chain management operations, please get in touch with a our team today.

Originally published at https://www.eazystock.com on January 31, 2021.