Are we ready for Industry 4.0?

Guest Blog: Rob Stummer, CEO, Australasia, SYSPRO

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With all the discussion around Industry 4.0, how ready are we for it in this region and how many manufacturers have fully embraced it? It’s widely agreed that manufacturing has experienced a decade of productivity stagnation and demand fragmentation and the fact is that this level of innovation is long overdue. It’s been proven that the Australasian organisations that have taken Industry 4.0 innovation to scale beyond the pilot phase have experienced unprecedented increases in efficiency with minimal loss of employees.

The main issue reported by McKinsey and the World Economic Forum is that most companies appear to be stuck in the pilot phase and despite all the research and evidence saying that it will lead to a sizeable increase in global wealth production, benefiting people throughout society, the Australia and New Zealand governments have not done enough to help its advancement.

Globally it is having an impact globally across multiple sectors, simplifying things by streamlining processes, reducing human labour, fostering global interconnectedness and leading to unlimited possibilities. But is Australasia really ready for Industry 4.0?

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Automation won’t take jobs

There has been a lot of scaremongering about the risk to jobs due to automation, but technology and changing consumer preferences are driving the demand for new skills and jobs. In many cases, these emerging technologies have improved processes without shedding jobs and have made businesses more competitive than they have ever been, resulting in lower prices for consumers, higher wages for employees or higher profits, leading to increased demand and more jobs.

The previous industrial revolutions have shown us that, in the long run, technology and other labour market changes have been positive for many employees, removing the jobs that nobody wants to do as they can be unpleasant, physically exhausting and dangerous or boring and repetitive.

In smart factories, the emphasis will be on adding value, and up-skilled workers will be highly sought after for their specialist knowledge and ability to innovate.

Will bots take over the world?

There are a lot of myths surrounding AI, and science fiction movies often portray it as robots with human-like characteristics taking control and using their super-intelligence against us. There’s no doubt that AI does raise a whole host of complex questions, and that the current way the industry does certain things will become defunct.

We can’t ignore the fact that the Australian manufacturers that are leveraging AI have made their companies far more efficient and productive. This is a trend that their leaders see as inexorable, and the pressure on them to adapt and compete is huge.

Automation is essential

Automation is working extremely well in several different manufacturing scenarios, particularly when finite precision is needed, in challenging or dangerous work environments, where repetition happens and when personalisation and configuration are required.

So, what does automation look like in practice in an industrial environment? There are many tasks that could be carried out by a robot; not only would they be more efficient, but also the employees could then focus on more complex work.

The real benefits of automation are what makes it truly worth the investment, including increased efficiency, reduced costs, improved safety and wellbeing for employees, due to avoiding monotony and a clear competitive advantage over manufacturers that choose not to automate. Automation is clearly the future of Australasian manufacturing and its influence will only increase as competition from China and other developing Asian nations grows.

Rob Stummer is CEO, Australasia, SYSPRO

 

 

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Spacious Potential in the Sharing Economy

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Photo by Pixabay on Pexels.com

By ASCM CEO Abe Eshkenazi, CSCP, CPA, CAE

The sharing economy is no longer just a catchy turn of phrase; today, sharing, renting and subscription services are everywhere. AirBnB for your holiday rental; WeWork for freelancers who prefer the office environment; Rover for the pup’s midday walk; Uber and Lyft when you need someone to drive you places; and Zipcar, LimeBike or Bird Scooters when you’d rather do the driving yourself. The potential applications are endless.

Although only 19 percent of U.S. adults have engaged in a sharing-economy transaction, PwC research reveals that 83 percent of survey respondents believe these services make life more convenient and efficient, 76 percent say they are better for the environment, and 43 percent admit that owning things can feel like a burden.

As ownership becomes unfashionable, the fashion industry is also taking notice.

“In October, the mall fixture [Express] launched Style Trial, a service that allows customers to borrow up to three pieces — with no limits on exchanges, free shipping both ways and free dry cleaning — for $69.95 per month,” writes Jasmin Malik Chua in Sourcing Journal. “If a subscriber loves something to death, she can buy it at a discount for keeps. Otherwise, she can keep garments circulating in an eternally refreshed ‘closet in the cloud’ with virtually infinite options yet zero commitments.”

Jim Hilt, Express executive vice president and chief customer experience officer, explains that this allows customers to tap the company’s “full assortment and styling services without breaking the budget.”

In addition to this kind of flexibility and cost savings, sharing clothes eliminates the hassle of shopping malls and the time spent packing bags for donation — not to mention all those minutes staring at our wardrobes trying to decide if an item still sparks joy.

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Shifting business models

Until very recently, most of us would never have considered staying in some random person’s home while on vacation, let alone sharing a sweater with a bunch of strangers. Yet today, Airbnb averages 425,000 guests per night — nearly 22 percent more than Hilton Worldwide.

“The data shows, renting and sharing are becoming increasingly popular alternatives,” the PwC report asserts. “Executives will be wise to assess the role of their product and brand in this model — are you squarely a purveyor of goods, or are you an enabler?”

For those supply chain managers bracing for change and facing some tough calls concerning clothing lifespans; quality control of shared garments; and logistics economics, especially for lower-cost items, there is some good news. The sharing economy is also flourishing in the education space, with LinkedIn Learning, Grow with Google, and a seemingly infinite number of instructive and informative videos on YouTube. Our own channel is bursting at the seams with customer success stories, webinars, research, annual conference sessions, and a multitude of supply chain education tailored to fit just right.

To join ASCM, joint membership is available through Australasian Supply Chain Institute for just $440 per annum. Visit our website for a full list of membership benefits.

Indian regulations rain on Amazon and Walmart’s e-commerce parade

By ASCM CEO Abe Eshkenazi, CSCP, CPA, CAE

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Amazon and Walmart subsidiary Flipkart is scrambling to revamp its supply chains, vendor relationships and systems. New regulations from the world’s fastest growing economy have undermined these retailers’ business models and obstructed their sales in India’s burgeoning e-commerce sector.

Previously, foreign companies were forbidden from holding their own online inventory and shipping it directly to customers. Amazon had found a workaround in the form of local subsidiaries of firms in which it had holdings, which opponents insisted was violating the spirit of the rule. Largely due to such proxy sellers, Amazon and Walmart had controlled almost 80 percent of India’s e-commerce.

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But as of February 1, such goods are not permitted for sale by foreign companies. In addition, these firms are barred from entering into exclusive online sales agreements. A vendor’s inventory also will be considered under the control of an e-commerce marketplace if more than one-quarter of its sales are derived there.

The protectionist move follows ongoing complaints from domestic retailers over anticompetitive practices. Amazon and Walmart both requested a six-month postponement of the effective date but were denied.

“Thousands of products were pulled from Amazon.com Inc.’s India website Friday — the first direct impact from the country’s new e-commerce rules,” writes Corinne Abrams in the Wall Street Journal. The article goes on to explain that the restrictions are the latest effort by India to curb U.S. tech giants’ dominance in the country and “promote homegrown companies” as Prime Minister Narendra Modi seeks a second term.

“Both Amazon and Walmart have made big bets in India, where the e-commerce market is estimated to balloon to $72 billion in 2022,” Abrams adds. “Amazon has pledged to invest $5 billion to expand in [India], while Walmart’s takeover of India’s Flipkart for $16 billion was its biggest acquisition ever.”

Global supply chain know-how

The operations of these e-commerce giants have been thrown into disarray. As these companies, and others, navigate such severe regulatory pressure, success will hinge upon the effectiveness, responsiveness and flexibility of their supply chains.

ASCM provides the resources you need to plot your own course through the ever-shifting global marketplace. The APICS Certified Supply Chain Professional (CSCP) program enables individuals to master the fundamentals of supply chain strategy, business model design, relationship-building, risk management and much more. In particular, the CSCP learning system includes a module centered around monetary, regulatory and trade considerations; negotiation and collaboration; and international standards and compliance. Begin your journey toward this world-class certification today.

The Australasian Supply Chain Institute (ASCI) is the Premier Channel Partner for APICS and offers joint memberships with ASCI for local and ASCM for global membership for both corporates and individuals. Contact us today at http://www.asci.org.au/membership or enquiries@asci.org.au.

Nufarm site visit generates sharing

As part of the ASCI Site Visit Series, ASCI arranged for 14 ASCI Members to visit the Nufarm Raymond Rd manufacturing facility on Friday 25 January 2019.

Both nbn Co and Nufarm are ASCI Corporate Members, and within the ASCI Corporate Membership package, comes the benefit of sharing and learning within the network.

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Site Manager, George Fletcher gave the group an introduction to Nufarm and the site, see picture.

According to Angus Borland, Supply Chain Planning Manager – ANZ, Nufarm, the group enjoyed the balmy 44 degrees for a walk through a number of the production lines, followed by a planning discussion he led alongside two site planners (Michael Buttigieg-Raymond Rd and Matt Calabro-Pipe Rd).

“This was a good 2-way discussion between Nufarm and nbn Co,” Angus recalls.

Ryan Jones, Manager Integrated Demand Planning, nbn Co agrees. “The two organisations couldn’t be further apart in terms of industry. However, there were so many similarities both in forecasting and planning systems; S&OP processes; safety; and challenges such as demand accuracy and the management of inventory,” he said.

“In addition, we could really appreciate the weather challenges faced by the organisation and were impressed with Nufarm’s long term strategies and predictive analysis.”

There were some key areas identified where a visit to non Co could benefit the Nufarm demand planners. Hence, the sharing and learning process is in motion!

Look out for more events within the ASCI Site Visit Series, held all over the country in 2019!

 

Embracing the IOT

By APICS CEO Abe Eshkenazi, CSCP, CPA, CAE

We keep hearing about the potential of the Internet of Things (IOT), but how will it help supply chain professionals specifically? Last week, Industrial Distribution ran “Improving Process Flows in the Delivery System through the Internet of Things,” which outlines the practical applications of IOT.

“As the development and deployment of the IOT capabilities continues to expand, [transportation and logistics] companies could eventually have visibility into every operation across the entire supply chain, from the source of the raw materials to the end use of the product,” writes Thomas Schied, vice president and director of asset management for TD Band Equipment Finance.

IOT connects devices to the internet and collects data, but Schied stresses the value is in knowing how, when and where to use the data. Predictive analytics enables business leaders to make calculations that will increase efficiencies, reduce spending and improve overall processes. For example, data from sensors can be combined with historical data to establish when assets need to be replaced. Likewise, transportation and logistics companies can use sensor data and geographic and environmental information to customize truck maintenance plans.

Further, IOT data and analytics supports organizational decision making, as experts alter routes to prevent bottlenecks at loading docks and changing inventory locations. This information improves on-time delivery and reduces fuel and labor costs.

With all the promises of IOT, Schied does mention likely challenges. These include the potential of security breaches, a reallocation of current jobs and business disruption.

“Additionally, the IOT is expensive and time consuming to implement, and the more parts of a business that are integrated into an IOT system, the more disruptions that business could face,” Schied writes. “However, integration can be conducted in stages over the course of several years.”

He adds, “As we see logistics and supply chains become more complex, implementation of IOT is necessary.”

We’ve transformed our business to help transform yours

IOT is one example of how the world of supply chain is rapidly evolving. Technological advances combined with a renewed focus on sustainability and more, make staying ahead of the curve a challenge for corporations. That’s where we come in. In January 2019, we are officially launching the Association for Supply Chain Management (ASCM). This is more than a new name or a rebrand, this is an entirely new association. With ASCM, we expand our reach and broaden our impact, becoming the leader on all things supply chain. Plus, we’ll still do what we’ve always done — give your supply chain team the tools they need to advance their careers and create value for your company.

Abe Eshkenazi
APICS CEO

Five reasons why APICS CPIM is a must for every ERP user and consultant

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For the most part of my career, I have been known to be an active member of the APICS community. This means that, quite frequently, I interact with SCM practitioners and ERP consultants from different industries and with different professional backgrounds. During discussions, I am often asked what ways are best to acquire more in-depth-knowledge of the SCM/ERP domains.

Drawing from my 9 years of extensive, hands-on experience in the fields of Supply Chain Management and SAP ECC ERP implementation/support within the Pharmaceutical and FMCG industries, and a unique techno-functional skill set in SCM enabling technologies and Domain Expertise in the SAP PP/PP-PI module, I have compiled some advice for others.

When reflecting on numerous SAP ERP implementation/improvement projects, I keep falling back on the certainty and solidarity of the APICS certification: Certified in Production and Inventory Management (CPIM) which I believe was one of the main factors that led to my implementation success. Here are five reasons why I believe the APICS CPIM is a must for every ERP user and consultant:

  1. It harnesses your talents: It is widely believed that a lack in SCM talent is the reason behind many ERP implementation failures or less than optimal ERP performances – both the user/consultant sides. And while there is no one-size-fits-all kind of advice, the APICS CPIM certification has so many benefits to both users/consultants that I almost always advise people to pursue APICS CPIM because it is more about getting the best ROI of an ERP implementation.
  2. It follows a process-orientated approach: ERP commercial packages are all built to computerise the classical value chain activities of a company. These value chain activities are resembled in the modular structure that all commercial ERP packages follow. For example, business processes relating to Supply Chain Planning including, Sales and Operations Planning, Demand Management, Production Planning/Scheduling would be found under the Production Planning “PP/PP-PI” module in SAP ECC ERP. Likewise, other business process compromising a company’s value chain would be found as “canned” business processes across different modules of an ERP solution. The CPIM follows a process orientated approach to Supply Chain planning in a fashion that’s is almost identical to what is found in a SCM/Manufacturing Modules of and ERP package. This strategic fit between how ERP systems are structured and the process-oriented structure of the CPIM courseware is what makes CPIM the most powerful framework for SCM/ERP professionals in both user/consultant roles.

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    Australasian Supply Chain Institute offers the CPIM Learning System for self study or together with Guided Learning sessions, available right across Australia

  3. It mirrors the same language as your ERP: The concepts and terminology of an SCM/Manufacturing module of an ERP system, such as MPS/MRP, BOM, phantom assemblies, time fences and forecast consumption techniques, just to name a few, that prove tricky for most users/consultants to grasp are explored in-depth in the CPIM courseware in an a clear and easy to follow approach with plenty of real life examples. This helps to better utilise system functionalities/features that are likely to be ignored due to the lack of underrating of such concepts.
  4. It builds confidence to apply a configuration effort: CPIM equips designees with knowledge that proves critical to guide system configuration efforts in the SCM area.
  5. It results in better, more streamlined implementations and a higher ROI for digital transformation efforts: Many companies the likes of BASF, DuPont and Intel have adopted APICS frameworks which helped them achieve organisational goals and increase the efficiency of their systems and people. It’s why over 110,000 other SCM practitioners around the world have attained the CPIM. Now it’s up to you. https://www.apics.org/apics-for-business/customer-stories

By Hatem Abu Nusair, M.Sc. Engineering, CPIM-F, CSCP-F, SAP Certified Application Associate, APICS Master Instructor

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Hatem is a Global Supply Chain Management & ERP Expert. He is currently the Production Planner at Tip Top, one of GWF’s divisions in Sydney, having moved from Jordan where he worked for a blue-chip international company that grew rapidly. Here, Hatem founded the Regional Middle East & North Africa (MENA) Supply Chain Department with the purpose of optimising Supply Chain performance across 13 subsidiaries through demand management and forecasting, capacity management, inventory control, and special projects, which entails: IT initiatives, ERP implementation, re-engineering of Supply Chain processes and other relevant matters.

Hatem is a qualified Industrial Engineer and a Master of Manufacturing Engineering candidate at UNSW. He is a Certified Fellow in Production and Inventory Management (CPIM-F) by APICS, a Certified Fellow Supply Chain Professional (CSCP-F) by APICS and a Certified Application Associate by SAP SE.

Hatem will be facilitator for Term 4 CPIM Part 2 Guided Learning for Australasian Supply Chain Institute where will be share his passion of streamlining supply chain processes, eliminating redundancies and utilising enabling technology to achieve operational goals with CPIM Part 2 students.

 

 

Warehouse of the Future: Adopting Automation within Your Supply Chain – Part 1 of 2

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There’s currently a digital supply chain transformation that’s happening faster than the physical supply chain can react, requiring hybrid solutions in semi-automated environments where humans and robots work in tandem. New incentives to modernize operational capabilities should be added that capture efficiencies not previously achieved, while laying the foundation of a digitalized supply chain, continuously re-evaluating plans and evolving for performance.

Automation has been looked at as a solution to operational challenges, but trends in the marketplace signify an unprecedented rate of adoption taking hold in the coming decade. E-commerce is driving service expectations to levels that may not be achieved without the use of highspeed picking alternatives to manual operations. The aging generations in mature economies and challenges securing a loyal millennial workforce for repetitive tasks are creating increased disruption to staffing, forcing employers to look to automation to offset risk of labor shortages. Continued innovation has reduced costs of entry for automated capabilities, delivering improved business case justification for automation of many forms.

With such a strong justification, operations leaders across the globe are seeking ways to capture the potential that automation offers. Large scale transformation of distribution networks is capital intensive, however, and rarely warranted given the pace of change – however rapid – and market uncertainties. Therefore, we’re forced to look within existing environments to identify opportunities to introduce automation into existing facilities, combining automated equipment with manual operations, which requires the added complexity of orchestrating work across semiautomated operations. This scenario introduces the question of how to create an optimal environment allowing warehouse management systems (WMS) to orchestrate work across manual and automated areas to ensure efficient operations and maintain quality and service levels.

Part 1 of this 2-part blog series will take a deeper dive into today’s automation systems landscape and retrofitting today’s supply chain with automation. Part 2 of the series will cover disruptive technologies and digitalization and next generation capabilities.

The Current Landscape of Automation Systems

In automated environments, WMS often work alongside warehouse control systems (WCS) that manage the routing of containers as they traverse the material handling equipment, and warehouse execution systems (WES) which often have basic task management capabilities but not the level of control or optimization of a WMS. Below are a few general groupings of automation that typically leverage these entities in different ways.

  • Conveyors and sortation equipment receive destination / routing information from the WMS and leverage the WCS to divert containers to the appropriate location.
  • Pick execution equipment, including pick-to-light, carousels, or A-frames will receive pick instructions from the WMS and rely on the WCS to control the MHE. At times, these devices will manage task distribution and user interfaces for the performance of picks, though often, the WMS will manage the tasks through prioritization, and provide a common user experience (using consistent equipment where appropriate) for work performed in the pick modules and in bulk storage which feeds it (this work would include putaways, cycle counting, and picks where appropriate). Often, a WES has been sufficient for high volume outbound operations in retail, but with increasing emphasis on service levels, the advanced functionality of a WMS specific to inventory accuracy, pick module replenishment, cross-docking, and exception handling, the WMS brings a strong justification for a two-pronged approach.
  • Automated guided vehicles (AGVs) and automated storage and retrieval systems (ASRS) are well established, though adoption is increasing as more forklift providers offer driverless units. These units can take direction from a WMS (typical when involved in semi-automated environments) or WES (often used in ASRS racking systems where materials are commingled or when the vehicles can follow multiple routes to alleviate congestion). In either scenario, a WMS is often utilized to manage inventory allocation to customer and order.
  • Palletizers use visual determination for pallet building capabilities, but most in use require some level of consistency in product dimensions at the layer level. Advanced pallet building and robotic arm picking capabilities are increasing in use, but require some consistency in dimensions. Improvements in digital sensing will soon be changing the game here.

Retrofitting Today’s Supply Chain with Automation

Automation adoption will continue to accelerate in response to advanced service level expectations and e-commerce, with a focus on scale and speed, whereas a continued migration of margin focused businesses will drive adoption of driverless vehicles and high-density storage modules, especially in cold storage or mega-cities with high volume real estate. The introduction of automation into the existing facilities will bring challenges, such as:

  • Traditional footprints, system capabilities, and business processes will be challenged when faced with the introduction of conveyance, sortation, and pick execution equipment. A natural inclination to delineate businesses, and potentially create channel-specific operations, can result in artificially inflated inventory levels and/or reduced service levels in increasingly sensitive environments to failures in this area. Multi-channel capabilities can be achieved, often driving operational leaders to adopt pick execution capabilities to distribute work without recognizing the backlash to overall service levels of having disparate capabilities with traditional WMS controlled processes. The results, if not thought through, can have repercussions on inventory accuracy, exception management, and operational efficiency.
  • The introduction of driverless vehicles (AGV or ASRS) offer strong advantages in terms of scale and cost, ROI projections in union environments can often deliver break even points less than a year after go-live, even in new projects. However, legacy storage equipment and material flow can introduce limitations. The environments best prepared for the introduction of driverless forklifts are those managing full pallets in bulk locations (where dimensions are predictable and stack requirements are well documented), or those where racking capacity is capable of managing fixed locations that can be tracked in the WMS (if locations can be dedicated to a specific lot), or in the WCS (where multiple pallet locations can be managed by the WCS but the WMS can manage storage/allocation in concert with non-automated areas). In more complex operations, the WCS can take a more active role in determining work and allocation, but this often drives customization and redundancy with WMS functions specific to the needs of the business.
  • More robust, piece level management in advanced pick modules controlled by ASRS such as goods-to-person automation, offer advanced capabilities for high volume distributors and e-tailers. Often, this will require tote storage of product to standardize the storage capabilities, though concessions for non-conveyables must be considered. Integrating pick and pack operations with traditional areas of the same operation also force decisions on how to integrate inventory management with shipping capabilities, adding complexity to projects as WMS and WCS providers offer similar capabilities.

Check back for part-2 of the blog series, where we’ll go into more detail around the technologies driving next generation warehouse automation and digitalization and next generation capabilities.

For more information download the Future Series white paper, “Adopting automation in the digital age.”

About the Author

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Matthew Butler, Industry Strategies Director, JDA Software

More more information contact, 0414 966 232.

Visit www.jda.com

Building the Business Case for Digital Transformation of Supply Chain Planning

It seems like the phrase “digital transformation” is everywhere these days. There are as many definitions for digital transformation and articles on the subject. I like the definition provided in i-scoop’s online guide to digital transformation.

“Digital transformation is the profound transformation of business and organisational activities, processes, competencies and models to fully leverage the changes and opportunities of a mix of digital technologies and their accelerating impact across society in a strategic and prioritised way, with present and future shifts in mind.”

The digitisation of a supply chain involves creating a detailed data model that mirrors the intricacies of an actual end-to-end supply chain network. (Learn more in Technology Evaluation Center’s report, The Impact of Digital Transformation on the Supply Chain.) Done right, a digital twin will have enough detail to model the information, money, and product flow from acquisition of components, through production, distribution and fulfilment to the customer. Model element include forecasts, capacities, inventory positions, lead-times, resource availability, costs, revenues, and profits. Finally, the model needs constant updates of customer, production, purchase, and distribution order status to ensure analysis and resulting actions reflect what is currently happening in the physical supply chain.

The benefits of digital transformation are plentiful. Below are three tangible benefits of digitally transforming your supply chain:

Process Automation:

A very visible benefit of building a digital twin of your supply chain is the ability to use the information to automate routine process steps and free up resources to work on more value-added activities. Advanced supply chain systems have exception-based workflow and active alerts that when used in conjunction with user-defined limits can automatically process purchase, manufacturing, distribution and customer orders. Human intervention only takes place when plans, transactions, orders, etc. fall outside of defined limits.

Continuous Planning & Optimal Response:

Digitization of the supply chain unleashes the full capabilities of today’s powerful supply chain solutions leading to game changing competitive breakthroughs in customer service and value creation. One such capability is the application of algorithmic optimization in the areas of demand, inventory, supply, manufacturing, and transportation planning. The rich supply chain data available through a digital twin provides the foundation and inputs required for effective algorithmic optimization.

Another advanced supply chain capability is continuous planning. A supply chain digital twin contains up-to-date information on capacities and transactions. As new events take place (for example a new customer order, or a delayed replenishment) a planner can quickly determine an optimal response. Continuous planning and optimal response capabilities often lead to reduction in costs (manufacturing, inventory, transportation) and improvements in customer service (fill-rates, cycle-times).

Advanced Analytics:

Often the largest benefits from digitizing the supply chain come from new insights gained from the ability to conduct in-depth end-to-end analysis. The ability to analyze expected demand versus capacitated supply and determine financial impacts of multiple “what-if” scenarios provides the information needed to head off potential risks and fully embrace opportunities. A digital twin of the supply chain provides the information needed to make smart decisions on when to enter new markets, where to introduce new products, when and where to increase production capacity, and how to effectively compete. A digital twin provides a rich environment for running “what-if” scenarios of likely disruptions to determine the appropriate response before they happen. When the disruption does take place, a pre-established plan can be executed beating competitors to market.

How might a digital supply chain transformation change your daily life?

  • You have real-time, accurate information, eliminating the need for data manipulationPicture1blog
  • Collaboration on actual supply chain activities is online and in real-time
  • “What-If” scenarios and simulations are automatic, intelligent and include sufficient data to make informed decisions
  • Supply chain decisions move from calendar driven to continuous optimal response

A digital transformation of your supply chain can help you harness visibility, velocity and value and allow you to compete and win in today’s competitive marketplace.

To learn more about digital transformation, read Technology Evaluation Center’s report, The Impact of Digital Transformation on the Supply Chain.

 

About the author 

Hank Canitz PictureHenry Canitz is The Product Marketing & Business Development Director at Logility. To read more of Henry’s insights visit www.logility.com/blog.

Changing the Status Quo to Stay Ahead of the Amazon Effect

By Henry Canitz

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Planning teams face multiple dilemmas including promoting and supporting top line growth, containing cost, efficiently managing on-going operations and finding new ways to drive innovation. To complicate matters, supply chains are growing more complex as product proliferation and customer service expectations rise driven in part by the “Amazons” of the world.

Increasing complexity due to larger product portfolios drives demand volatility, more distribution channels and wider-spread supply chain networks. Traditionally, complexity required increasing inventory levels to buffer against the unknown, which in turn brought about more scrutiny from senior management as working capital increased. The answer, while simple to state, seems to allude many organisations: hold the right amount of inventory in the right locations to improve cash flow and provide better responsiveness to dynamic customer demand. Industry research and surveys point to Inventory Optimisation (IO) as a key capability to combat these growing supply chain stresses.

A form of prescriptive analytics, IO determines where and how much inventory to hold to meet a designated service level while complying with specific inventory policies. Through sophisticated algorithms, IO makes stocking recommendations to satisfy demand with the least amount of inventory. Inventory Optimisation can have a huge financial impact by minimizing inventory and freeing up working capital while guaranteeing the right stock is on hand, when and where needed.

Change the Status Quo through Multi-echelon Inventory Optimisation

Multi-echelon Inventory Optimisation (MEIO) goes a step further to simultaneously optimize stock locations and amounts across all inventory types in a supply chain network. Through advanced mathematical algorithms, MEIO models inventory flows through every interdependent stage and location of a supply chain to create an optimal configuration of internal and external inventory buffers to handleScreen Shot 2018-02-13 at 12.18.12 pm demand and supply uncertainty. MEIO can model component/raw, work-in-process (WIP) and finished goods inventory to ensure the right amount of each is stocked in the right locations enabling powerful postponement strategies.

MEIO’s rapid “what-if” scenario analysis to modify stock buffers (lowering some, raising others) and revamped policies and targets around the supply chain has shown in the real world to reduce inventory 10% to 30%, freeing millions (and in some cases, billions) in working capital that was trapped in excess stock and carrying costs.

Multi-echelon Inventory Optimisation, at its simplest form, enables the trade-off between service level and inventory cost modelled across the efficient frontier (see Figure 1). The Inventory Efficient Frontier shows that, for any status quo, it will always cost more to achieve higher service levels. However, through MEIO initiatives we can change the status quo and create a series of new curves that deliver a desired service level at less cost than the formerstate allowed.

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Figure 1: The Inventory Efficient Frontier

 

MEIO’s Impact on the Supply Chain

MEIO modelling compares actual demand to forecast, and actual receipt of goods to the plan for each SKU. MEIO models identifies forecast accuracy and safety stock issues while factoring historical forecast accuracy into the equation enabling predictive service level calculations. This fact-based approach to inventory targets allows you to right-size inventory by SKU and location.

MEIO strategic inventory modelling answers more difficult questions, i.e. where to make or stock products or the impact of distribution or manufacturing facility closures and openings. Strategic inventory modelling can provide quick, side-by-side scenario analysis to help make the right decisions. MEIO enables timely answers to complex “what-if” questions including impacts of channel changes and stocking policies across a complex and volatile omni-channel distribution network.

 

A Proven Three Step Approach to MEIO:

A simple three-step approach has been proven effective to achieving a successful MEIO initiative:

  1. Assess your organization’s capabilities from the perspectives listed below to understand your current state and to lay the foundation for a solid business case that delivers real-world results:
  • Inventory performance
  • Business process and inventory management expertise
  • Technology and organizational readiness
  1. Create a future state MEIO capability—process, technology, organization—that provides your supply chain team with a roadmap to success.
  2. Drive fundamental strategic changes that create greater resiliency and agility throughout the supply chain and establish a cycle of continuous improvement.

 

Time for Change

The benefits of Multi-echelon Inventory Optimization (MEIO) are well established by hundreds of companies of all sizes and in many industries. Leading organisations have shown that right-sizing inventory buffers and restructuring where and in what form inventory is held can drive powerful financial benefits. Inventory Optimisation provides a knowledge platform for better decision-making and enables organizations to use inventory as a lever for balancing supply and demand.

Amazon and other large e-retailers appeal to consumers on product offering, price and speed of delivery. They are able to effectively compete in these areas due to economies of scale that lower operating costs. To compete against the “Amazons” of the world, companies must find ways to simultaneously lower costs and improve customer service. MEIO is a modern weapon that does just that by enabling companies to selectively pick where to engage. MEIO allows companies to optimize inventory for the markets they want the battle to be fought in, for select customers, and select products.

 

About the author

Hank Canitz Picture

Henry Canitz is The Product Marketing & Business Development Director at Logility. To read more of Henry’s insights visit www.logility.com/blog.

BAEP’s Beaumont on understanding the economics of innovation

1515326886990by Julian Beaumont

For all the interest in self-driving vehicles, blockchain, 3D printing and the like, very little time is spent by investors in understanding the economics of new innovation and who might actually benefit.

Most investors in these hot industries can’t fathom anything other than a bright future. With the benefit of hindsight, however, investing in the latest hi-tech industry isn’t necessarily the easy path to riches most might presume.

Looking out from the 1920s when air travel was just taking off and the commercial airline industry was attracting much excitement, few would have been disappointed by its subsequent growth or importance to society. Investors in airlines, however, have been losing money ever since. Indeed, many airlines have gone bankrupt, including Ansett and Compass, and most have at some time required bailouts.

Consumers, however, have benefited, especially through lower flight prices over time. And to prove innovation isn’t the key to success, the supersonic Concorde stopped its super-fast flights in 2003.

Similarly, automobiles, plastics, personal computers and dot-coms were all once new-age industries that have caused carnage for investors. Picking the few winners that will emerge from the hype is often difficult.

From the dot-com bubble, Amazon is obviously one. Other big tech winners, such as Facebook, Google and Netflix, weren’t even listed at the time.

To date at least, Amazon has won with profitless prosperity, with arguably little profits to show for its success. Online retailing has been a tough place to invest.

Here, the value of the innovation accrues to customers rather than shareholders, as those in Surfstitch and Temple & Webster can attest.

Improved range, searchability, price transparency and convenience all clearly benefit the customer, but come at a cost to retailers – particularly due to increased price competition and expensive delivery costs.

Interestingly, it has been bricks-and-mortar retailers like Zara and H&M whose fast fashion and express supply chains have been among the most profitable innovations in retail in recent years.

Right now, investors are enthusiastic about lithium stocks, disruptive tech names, pre-profit concept stocks and bitcoin. Of course, that which is new and lacks much historical track record allows this optimism, with little in the way of disproof.

The key for investors is not to focus exclusively on the importance, societal value or seemingly exponential growth of the innovation, but to understand the economics behind it.

For example, if lithium is ultimately plentiful, it won’t be lithium miners that will prosper from the electric vehicle revolution. Nor will it necessarily be Tesla, as incumbent auto manufacturers can just as easily go electric.

Ultimately, whether any one company truly benefits from innovation comes down to whether they have something unique – a competitive advantage – that limits the extent to which the value of the innovation is competed away or otherwise passed on to the customer.

A common example is where the innovation makes for a unique product or service. Often forgotten as innovators are a number of world class Australian-based healthcare companies that include Cochlear, Resmed, Sirtex and CSL.

They spend big on researching and developing new and better medicines and medical devices.

Their products are protected by intellectual property rights such as product registrations and patents, allowing them to reap the profits of their innovation. Interestingly, investors don’t seem to attribute much value to R&D spend, perhaps because it usually represents an expense and subtracts for profits.

For example, CSL’s pre-tax profits would be almost 40 percent higher but for its R&D investment, which is rarely raised by those focused on its apparently lofty earnings multiple.

Other examples on the ASX include Aristocrat, which is spending more than $300 million annually on developing new market-leading slot machines and online social games; Reliance Worldwide with its Sharkbite push-to-connect plumbing fittings that offer ease and time saving in installation, and which are taking share by disrupting the market; and Costa Group, with its intellectual property in blueberries that improves quality and all-year-round availability.

As these cases attest, seemingly boring innovation can produce exciting profits.

Another less risky way to play innovation is by understanding where it can augment a company’s competitive advantage.

For example, the stock exchange ASX Limited is soon to replace its CHESS settlement system with blockchain technology that is expected to reduce costs and provide added functionality.

Another good example is Domino’s Pizza Enterprises, which operates a franchise of pizza stores. The company has very profitably leveraged new innovation to improve the efficiency of its operations and the cost, convenience and appeal of its customer offer.

For example, new ovens cook pizzas in less than four minutes, its GPS tracker helps speed up deliveries and grows the appeal of using its online ordering app, and DRU (Domino’s Robotics Unit) delivery robots save on costs and are fun for customers.

Of course, it is hard to get ahead using innovation that is readily available – all supermarkets now get the labour savings of self-service checkouts, for example – but Domino’s has been ahead of the curve in integrating new technologies into its customer proposition and thereby advancing its competitive advantages.

There are two takeaways. Firstly, to profitably invest in innovation often means looking beyond the latest sexy sector, including to second derivative beneficiaries. And two, looked at this way, the Australian market is full of innovative companies that are worthy of investment. After all, miners like Rio Tinto have already started using driverless trucks and trains, well ahead of Silicon Valley.

Julian Beaumont is the investment director at Bennelong Australian Equity Partners.

Source: Australian Financial Review


Read more:
http://www.afr.com/markets/baeps-beaumont-on-understanding-the-economics-of-innovation-20180102-h0cdwv#ixzz53eEa52qM
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