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The insight-driven supply chain: What's it all about?
What do we mean by the term "insight-driven supply chain"? The answer rests upon a company's ability to fully leverage—that is, to identify, obtain, analyze, and act upon—available data and contextual information from a variety of sources. While most companies are doing this to some degree, their efforts are often very limited in scope, and the benefits of data-driven initiatives are not shared across their supply chains. Companies that truly leverage the insights afforded by data, however, are achieving measurable, and in some cases, extraordinary improvement in costs, working capital, and shareholder value.
To learn more, CSCMP's Supply Chain Quarterly interviewed Adrian Penka, Cathy Chinich, and Jean Collard of Capgemini Consulting about the supply chain revolution brought about by an insight-driven supply chain.
[Figure 1] Game-changing components of an insight-driven supply chain Enlarge this image
[Figure 2] Benefits some companies have achieved from an insight-driven supply chain Enlarge this image
What is an insight-driven supply chain, and what value will it create?
Adrian Penka: An insight-driven supply chain leverages real-time analytics, customer data, abstract and concrete data sources, and contextual information to help the business make more informed, proactive, intelligent, and, most importantly, customer-centric decisions.
These insights enable flexibility that is not available in a traditional supply chain model. They also provide the ability to tailor activities to customer preferences, something that is becoming increasingly important. We are at a pivotal moment where companies are identifying and responding to customer preferences with impressive speed. For example, same-day delivery wasn't an expectation a year ago, and now customers have grown accustomed to it. Expectations will continue to grow; in the near future, customers will demand delivery within a few hours to their geolocation, which may not have a street address.
An insight-driven supply chain paves the way to increased sales by better understanding what customers are expecting as well as by avoiding lost sales related to a lack of coordination or anticipation in the supply chain. It also will help companies reduce costs. Where it will have the biggest impact depends on your economic model. In retail, for instance, increasing revenues will be the primary driver for moving toward an insight-driven supply chain. In other industries, like manufacturing, where sales volatility is more common, the effort will mainly focus on cost reduction.
In short, the insight-driven supply chain can provide a significant competitive advantage for businesses that embrace it, often in conjunction with other supply chain enhancements, such as a "smart plant"—a manufacturing facility enhanced with Internet of Things (IoT) capabilities. Leaders in this space will gain market share and efficiency, while others not armed with these kinds of forward-thinking approaches will slowly lose ground.
What enables an insight-driven supply chain?
Cathy Chinich: Digital technologies allow for aggregation and management of vast amounts of data. On top of that, artificial intelligence (AI) is able to understand complex problems faster than humans can, which is opening the door to new opportunities that humans can't identify on their own. For example, one emerging trend is to create an insight-driven supply chain where data is shared beyond company borders to identify new optimums while humans oversee and arbitrate AI decisions as needed. Further data transparency among businesses, suppliers, and supply chain partners can only bolster AI decision-making. As the global datasphere continues to grow exponentially, and technology drives down the cost of data storage and computing performance, these insights are becoming available at lower costs.
How do you implement it? Where do you start?
Chinich: On a strategic level, companies should pay attention to where startups are addressing pain points and think hard about leading-indicator data and why unconventional data is gaining popularity. For example, looking at new products from an unconventional competitor that are gaining popularity could be an early warning sign of disruption.1 Of course, companies have to start somewhere, but they should aim to reach digital mastery, where they not only build digital innovations, but also drive enterprisewide transformation. Developing a strong digital vision and supporting leadership capability will provide a competitive advantage over companies that are still beginners or those that have experimented with various digital technologies without building a strong, revolutionary operating model.2
Jean Collard: On an operational level, to implement an insight-driven supply chain, you need to acquire, aggregate, and analyze data in order to drive business decisions. Depending on the ideas you generate, you then have to identify what insights will be valuable regarding the company's internal data, your partners' data, or external data, and how the insights will impact your company and those you work with. It's therefore recommended that companies go through an ideation and synthesis workshop to evaluate how each idea would affect their organization. A first step in that process is to leverage past-use cases, observe the market, and share findings with the appropriate teams. The next step is to identify which ideas will be key enablers or fundamental game changers—see Figure 1 for some examples—and then test them. If the test is successful, that initiative can be scaled up. We've found that a typical return on investment for such a project is one to two years. But there isn't a one-size-fits-all approach; you need to identify the way that best suits your organization.
Can you provide some examples of the kinds of data companies are leveraging?
Penka: One of the most common—and successful—applications of an insight-driven supply chain is in the area of planning. Many consumer packaged goods companies (CPGs) and retailers have made considerable investments to proactively understand customer demand and ensure the right products and quantities are staged and available ahead of that demand. Examples of common sources of consumer insights include weather patterns (think Ben and Jerry's ice cream ahead of a hot day) or social media (forecasting a run on a certain product based on social sentiment).
However, as Figure 1 shows, there is a treasure trove of other possibilities beyond the planning component. We have found a much smaller number of companies leveraging alternative data sources to build a more flexible and customer-centric supply chain, and this is where we see companies distancing themselves from their competition. Looking at both internal and external as well as structured and unstructured data inspires us to think differently about data sources. Here are a couple of examples that demonstrate how companies are exploiting the benefits of alternative data sources to drive their supply chains:
- One major CPG company leveraged satellite imagery and data sensors to monitor and hedge commodity crops that provided a key input to its product. Data from the sky provided insight into the density of the crop, and sensors in the field measured soil conditions and moisture levels. These two factors together enable insights into crop yield levels by region and allowed the CPG to predict a key input price, which in turn supported its procurement strategy.
- Another company leveraged data from a startup that tracked traffic and pedestrian activity by monitoring traffic-light patterns in major U.S. cities. Using this data, the company planned routes for last-mile delivery. This data enabled the company to commit to same-day delivery in some markets, allowing it to meet a new customer demand and capture an area of the market that was once out of reach.
Those are good examples of insights based on data from technology providers. What about data from within the supply chain?
Collard: Insights can be collected from various sources. Your own operational ecosystem, for example, provides information on your products, ranging from where they are stored and how fast they move through the value chain, to their associated costs and customer demand. For that to happen, though, the inherent silos between companies need to come down in order to enhance supplier and vendor partnerships. For instance, Wal-Mart Stores has recently upgraded its supplier network portal to provide suppliers with visibility to optimal stock levels, which will help to eliminate excess inventory situations. At the same time, Wal-Mart developed a new smartphone application called "MyProductivity" that provides store staff and managers with a real-time view of stock, inventory levels, and customer feedback. This allows them to take real-time action on the sales floor as problems develop.3
On the other side of the value chain, the consumer electronics company Samsung monitored and controlled the flow of product from distribution points to its retailer customers. Its information technology (IT) system captured transportation costs and shipping lane details, which were used to update the carrier-selection process and optimize truck routes. This efficiency was passed on to the customer, along with lower product pricing.
The last source of insight is the customer itself. In business-to-consumer (B2C) marketplaces, most insights are freely available, as consumers are willing to share feedback via social media or product reviews. Data collected on the Internet provides an endless source of insights that can be broadly scanned and analyzed via "big data" technologies. In the business-to-business (B2B) space, on the other hand, companies have acquired a lot of customer data through third-party syndicated sources, but it hasn't yet become mainstream to share this information between businesses.
Can you provide some examples of best practices or leaders in implementing an insight-driven supply chain?
Chinich: We see best practices in many different companies, ranging from giants like Amazon.com to smaller players like Navistar. Amazon, for example, has patented an "anticipatory shipping model" to accurately predict items that will be ordered by customers. The company ships a product to the nearest warehouse or distribution center, where the product waits for the customer to place an order. Strategically located warehouses with minimal distance to vendors and in densely populated customer areas, together with personalized feeds to customers based on their search and order history, have helped to avoid out-of-stocks, speed up delivery, and reduce shipping costs by 10-40 percent. Amazon has also introduced IoT sensors in homes with products like Dash, an electronic button that uses wi-fi to provide one-touch order placement, and the Echo smart speaker that accepts verbal commands.
In another example, Navistar, a commercial truck and bus manufacturer, has leveraged data via predictive analytics to improve its demand forecasting and telematics to predict when and where service parts will be needed. This supply chain digitization has led to a reduction in back orders, improved fill rates, and reduced dwell times.
In our experience, companies in consumer products and retail have uncovered value not only in the area of supply chain, but also within their marketing and sales organizations. In supply chain, they have seen a 10 percent improvement in working capital and a 10 to 15 percent reduction in inventory carrying costs. Figure 2 summarizes the types of improvements we have observed.4
What is the outlook for insight-driven supply chains?
Chinich: Digital technologies continue to have disruptive impacts on supply chains around the globe. According to studies published by the Massachusetts Institute of Technology (MIT) and Capgemini Consulting, we are in the fourth Industrial Revolution, where connected customers and products are forcing companies to rethink value creation and supply chain models.5 In response to digital disruption, success ultimately lies in an openness to change.
1. Capgemini Consulting Digital Transformation Research Institute, Digital Transformation Review, Number 7 (February 2015)
2. Capgemini Consulting and the MIT Center for Digital Business, The Digital Advantage—How Digital Leaders Outperform Their Peers in Every Industry (November 5, 2012); Capgemini Consulting and the MIT Center for Digital Business, Digital Transformation—A Road-Map for Billion-Dollar Organizations (November 17, 2011)
3. "How a Walmart App Speeds Inventory Control," RTInsights.com (June 13, 2016)
4. Capgemini, Becoming an Insight-Driven Business: the Journey for Consumer Products and Retail Companies (August 2017)
5. Capgemini Consulting, Industry 4.0: The Capgemini Consulting View: Sharpening the Picture Beyond the Hype
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