“The future winning supply chain strategy requires new strengths and competencies such as supply chain risk management, resilience, sustainability, and agility. But that is not enough. It’s time to address digital supply chain management. Digital technologies such as artificial intelligence, machine learning and the Internet of Things (IoT) are changing how supply chains operate and increasing visibility, agility, and efficiency. This creates great opportunities to lever the supply chain risk management towards next level. Digital supply chain technologies are undoubtedly the foundation of the future supply chain,” emphasizes Supply Chain & Industry 4.0 expert Dirk Stolte.
In your view, has the user industry been able to understand and embrace the wave of supply chain digitalization? What have been the challenges on the way and how can companies mitigate them?
Dirk Stolte
My observation is that more and more companies have started to understand that supply chain management is undergoing a transformation like never before. The advances in Industry 4.0 technology are leading to a paradigm shift in industry and digital supply chain. Digital technologies such as artificial intelligence, machine learning, digital twins and the Internet of Things (IoT) are changing how supply chains operate. What we are going to see is the development from today’s linear supply chain to a dynamic, networked supply chain ecosystem.
Many supply chain executives started to understand that the power of this supply chain ecosystem comes from the fact that all improvement initiatives will focus on the entire supply chain network and deliver results for all stakeholders and processes involved. That requires to embrace industry 4.0 and digital supply chain technologies as fundamental for the digital supply chain of the future. We can summarize that Digital supply chain networks and smart factories will define new standards.
There are many challenges on that way companies have to deal with…starting with the right understanding and insight as to how the future of digital supply chain management looks like and which role digital supply chain and industry 4.0 will play in this future scenario. The topic of digital supply chain is omnipresent in most of the corporations, but the maturity level to embrace digital supply chain management is quite different with regards to their industry and business model. In my experience, it all starts with the insight what these mega trends on industry 4.0 and digital supply chain technologies are about and how their can enhance the operations and deliver better business results.
Furthermore, another challenge for many organizations is associated to figuring out which technologies are supposed to be prioritized. Is Artificial Intelligence, digital twins, warehouse automation, blockchain, robotics, autonomous vehicles, AR/VR or something else going to become the game changer in their business model and industry? And when is the best time the corporation should begin investing in them? For sure, in order to upgrade supply chain operations towards state-of-the-art processes, companies need to employ the latest technologies that are most relevant to their industry and business model. But what does it mean in practice?
To address all these challenges and questions, it is required to develop a vision and roadmap for Industry 4.0 and the digital supply chain aligned with the business objectives. Developing a vision and roadmap for Industry 4.0 and digital supply chain requires a holistic approach that considers the business objectives, organizational readiness, technology solutions, processes, change management plan and ongoing monitoring and optimization. That’s the way forward-looking supply chain executives and corporations on the forefront of SCM are dealing with this topic. Which industry 4.0 maturity model is the best and recommended to be used? There are several Industry 4.0 maturity models available in the market. Very powerful concepts especially for the manufacturing sector are the “Industry 4.0 Maturity Index” based on the acatach study from 2017, and the “The Smart Industry Readiness Index (SIRI)” developed by the Singapore Economic Development Board.
Generally, the advantage of a roadmap Industry 4.0 is that it comes with a clear structure and is typically composed by the following elements such as 1) vision statement, 2) Goals and objectives, 3) maturity assessments, 4) Technology evaluation, 5) Prioritization and roadmap, 6) Change Management, 7) Governance and Stakeholder Management.
We would like to know from you the poised role that AI will play in Logistics and Supply Chain Management.
To set the record straight: AI is poised to revolutionize Logistics and Supply Chain Management. Artificial Intelligence is the technology with most relevance and can be considered as the game changer technology for the supply chain of the future. Artificial intelligence (AI)- enabled supply chain management has the potential to supercharge demand forecasting, revolutionize end-to-end transparency and boost integrated business planning. Nearly everything will be in the loop of change, for example, demand management, supply chain visibility, warehouse management, risk management, last mile delivery, sustainability and green logistics, supplier management, quality systems and so on.
In these days, the major focus with AI lies in the area of supply chain planning such as forecasting, demand, supply and inventory management. Recent studies have shown that 40% of the corporations’ address supply chain planning applications with AI as the area to expect the next significant breakthroughs.
But this is not the whole story. Often forgotten in the discussion of AI and supply chain is how AI will propel the operations management towards the next level of operational excellence. We speak about the management of warehouses, distribution centers, logistics platforms and manufacturing operations. That will cover nearly all aspects such as shop-floor management, intralogistics, warehouse automation, autonomous robots, distribution network optimization, logistics and freight management. That means both, how they the day-to-day operations will be managed as well the how the supply chain strategy and concepts will be defined. The key point here is to simulate supply chain scenarios and to make the best possible decision supported by AI and digital twins. Digital twin is another industry 4.0 key technology playing in here as a booster towards the future of supply chain excellence. What this technology is about? Digital twins are used to simulate and optimize the performance of real-world objects and systems. They can be used to simulate supply chain scenarios, warehouse, and distribution center operations, optimize freight management and distribution networks. Combining AI and digital twins will be the ultimate game changer for the mentioned processes. That’s why all supply chain executives are supposed to have AI and Digital Twins on the radar. Another great example where AI and digital twins are being used to a greater extent is in supply chain risk management. By simulating different scenarios, companies can identify potential risks and develop contingency plans, reducing the impact of disruptions on the supply chain. This creates great opportunities to lever the supply chain risk management towards the next level.
Why should companies embrace lean management in logistics?
Lean management is a crucial aspect of logistics and supply chain management, offering a powerful approach to enhancing company performance. Its principles focus on streamlining processes, reducing redundant tasks, and enhancing work quality. By emphasizing continuous improvement, lean management encourages businesses to eliminate unnecessary equipment, space, and process steps, allowing employees to concentrate on value-added activities for customers. This methodology facilitates positive changes at all organizational levels, promoting teamwork, ownership, and a culture that values customer input. Lean management is instrumental in minimizing waste, ensuring safety, and maintaining work quality, making it a cornerstone in the field of logistics and supply chain management.
Lean Management comes with five principles as follows:
1. Define Value, 2. Map value stream, 3. Create flow, 4. Establish Flow, 5. Continuous improvement or in other words, pursue perfection.
What can we expect as a result? A significant decrease in cost or maximizing margins and profits, improved customer satisfaction, reduced inventory levels, increased quality, and an improvement culture. That’s the way companies are using Lean Management to eliminate waste and make their manufacturing operations and supply chains more efficient. But this is not enough. By integrating and combining the concepts, methods and technologies of Industry 4.0 and LEAN management, we can establish a new standard of operational excellence of Lean Industry 4.0. Digital supply chain technologies are undoubtedly the fundamental to design the future supply chain by incorporating Lean management and digital technologies.
Are we able to harness the true potential of blockchain technology in supply chain? Is it just the beginning of the transformation in making?
In my understanding we are just somehow in the beginning of the transformation to harness the true potential of blockchain technology. In the past, a lot of attention has been given to blockchain technology as it was considered a key disruptive technology. Unfortunately, so far, there are just few use cases in some industries such as food and healthcare. That means the true potential of these technologies has remained untapped. The impressive potential of blockchain technology is that it enables transparent, secure, decentralized ledgers, smart contracts, and reliable networks for sustainable supply chains. By considering the hype we’ve experienced as well as the true potential of blockchain, I am convinced that we’ll see in the near future articles headlined such as: “The rise, fall and comeback of Blockchain technology”.
How can companies accelerate warehouse fulfilment and the last mile of the supply chain?
Thanks for raising that question. Quite often, the focus is given on the manufacturing part, the supply chain strategy, digital control towers or IoT cloud solutions more than on the warehouse operations and the last mile of the supply chain. Basically, there are three key success factors to lever the Warehouse Operations towards the next level of Excellence: People, Operational Excellence and State-of-the-art technology.
First and foremost, the most important priority in today’s and tomorrow’s operations are the people. Especially for the Future of warehouses, logistics platforms and distribution centers, it is crucial to value people and to put value on their development. Or in other words, we speak here about organizational development, talent management, mentoring and coaching. The workforce on shops floor is the ultimate differentiator in any warehouse and distribution center.
Second, operational excellence and continuous improvement. That is a MUST and has to be part of the company culture. Whatever methodology and philosophy is employed – LEAN Management, Six Sigma, TQM, Kaizen, CIP – it is imperative that the organization has a standardized framework for change management, a suitable toolset of methods and the right mindset to strive for operational excellence as part of their DNA. It should be noted that LEAN management goes beyond a tool set of methods as it is a philosophy how to work.
The third element is to strive for innovation and to upgrade warehouses and distribution centers with state-of-the-art technology. While traditional distribution methods and processes have been considered best practices for many years, they will no longer be suitable for tomorrow’s market conditions. There is supposed to be a particular focus on a) automating labor-intensive tasks and repetitive processes, b) autonomous mobile robots to perform the order fulfillment, c) digital twins underlined with data analytics and artificial intelligence to improve efficiency and optimize operations. It is important for companies to start planning for investments in these technologies sooner rather than later, as the market is becoming increasingly competitive and dynamic. Especially, for warehousing and distribution centers, there is plenty room for manoeuvre by leveraging digital supply chain technologies and building tomorrow’s operating models of distribution excellence.
Regarding the last mile of delivery of the supply chain, I recommend here as well to focus on the employment of digital supply chain technology. AI algorithms can help to optimize last-mile delivery routes, considering factors like traffic, delivery windows and customer preferences. The target here is to make the last-mile logistics more efficient, to improve customer satisfaction and reduce the operational cost. I expect significant enhancements in that area in the next future.
Overall, my advice No.1 for Warehouses and distribution centers is the following: “Invest in people and organization to develop future-ready capabilities for Industry 4.0 & Digital Transformation.”
How can companies ready themselves to mitigate the next global or regional supply chain disruptions?
First of all, it starts with the right mindset. Companies and their supply chains must be prepared for the fact that supply chain disruptions caused by economic, political and technological change will continue to be on the agenda in the future. Secondly, the risk of supply chain disruptions is omnipresent and unpredictable at the same time. Being able to deal with such shifts in the global economy including the associated risks has rather become a core competence for competitive supply chain management. The VUCA world was becoming a challenge during the last years. Whatever the root causes of future supply chain disruptions will be – economic crises, wars, pandemics, inflation, stagflation, trade wars, shortages of raw materials, high freight prices, shortages of skilled workers or something else – being able to manage and mitigate the risks is a must. For sure, this represents a major challenge for all corporations, especially if they operate globally. In consequence, existing supply chain concepts and designs are needed to be revaluated and redefined.
Digital technologies such as artificial intelligence, machine learning, and the Internet of Things (IoT) are revolutionizing how supply chains operate, enhancing visibility, agility, and efficiency. These technologies are not only transforming supply chain management but also addressing key challenges such as risk management, resilience, sustainability, and agility. For instance, digital twins can significantly improve supply chain risk management by simulating various scenarios and enabling companies to develop effective contingency plans, minimizing the impact of disruptions. Embracing digital supply chain technologies is crucial for staying competitive and ensuring future success in logistics and supply chain management.
What are the key strategies to transform the supply chain landscape and empower leaders in the pursuit of excellence?
I’d like to start with the topic of how to empower supply chain leaders in their pursuit for excellence. Certainly, supply chain leaders play the key role in leveraging digital supply chain technologies to drive improvements in their supply chain performance and business results. To do this, they need to understand the potential of these technologies. Staying abreast of the latest trends, best practices and standards of excellence is a must to succeed in these challenging times. This will enable them to inspire their teams and foster a culture of continuous improvement that includes the use of the latest technologies. This starts with training, workshops and specially designed mentoring programs.
The transformation of the supply chain landscape is highly dependent on the industry in which we operate and the business model. It is true that there is a trend to change the supply chain landscape from global to more regional based. But what is needed - globalization, regionalization, insourcing, outsourcing, offshoring or nearshoring - cannot be answered with a one-size-fits-all solution.
From an outsider’s perspective, how do you foresee India’s role in upping the supply chain & logistics game globally?
In the light of the quick turnaround time, India became a favored business location during and after the covid pandemic. As corporations approached to repair their damaged supply value chains in challenging times and reduce supply chain risks on long term, India was becoming an alternative to fill the distribution network. On top we have a large talented workforce making India attractive as a market and a source. The further development of India’s manufacturing industry, shipping capabilities and supply chain will be advantageous as well as aspiring to become a dynamic player in global trade. Following that, the role of India in the global supply chain has been increasing and is poised to become a major player in the global supply chain to a greater extent.
On your recent posts, I had come across an interesting article, ‘Is The Art Of Logistics Disappearing With Automation?’ What’s your take on this?
The art of logistics is, for sure, not disappearing with automation. What we are going to see here is a new quality of the art of logistics. Increased automation in logistics driven by the latest technology will open many doors to improve the efficiency and cost-effectiveness of supply chains. The development from today’s linear supply chain to a dynamic, networked supply chain ecosystem requires embracing digital supply chain technologies and automation. That creates a new challenge. What matters the most here are the people. We need to have a skilled workforce empowered to manage the new technologies as well as understand how the supply chain network needs to be operated. What plays here in is organizational development composed by training, mentoring and coaching. I can’t say it often enough. People are the ultimate differentiator. It’s the people who make the difference. They will create the new art of logistics by orchestrating the workforces, technologies, and supply chain networks.
What are the upcoming technology trends that you are most excited about?
Artificial intelligence combined with digital twins will be the game changer. I am also excited about all the technologies that support the workforce on the shop floor. This could be augmented reality to support assembly processes as part of value-added services (VAS) in logistics platforms and distribution centers, virtual reality to design specific training for manufacturing operations and warehouse and distribution centers processes. This could be, for example, VR-supported forklift driving training to improve safety performance and process training for excellence standards. In addition to advances in digital technology, I am also interested in how ergonomics and safety can be improved on the shop floor. For example, I see that ergonomic exoskeletons will improve the shop floor conditions for our workers.
As we just touched on the shops floor operations in distribution centers and warehouses, I am excited to see how digital twins and AI will leverage the solutions and improvements of existing labor-intensive tasks and repetitive processes with autonomous robots (AMR) to take order fulfillment to the next level. This can be linked to the other emerging solutions for the basic processes on the shop floor, such as smart glasses, pick-by-voice technology and smart gloves.
What do you consider the major challenge in Supply Chain Management? And what are the key topics and trends in SCM to be addressed as we progress towards 2024?
Companies and their supply chains need to be prepared for the fact that supply chain disruptions will continue to be on the agenda. The risk of supply chain disruption is unpredictable. The VUCA world has been a challenge in recent years and will be remain the same. Whatever the causes of future supply chain disruptions will be – economic crises, wars, pandemics, inflation, stagflation, trade wars, raw material shortages, high freight prices, skills shortages or something else – the capability to manage and mitigate the risks is a must. That is the major challenge for all companies. For sure, we have seen many improvements over the past three years. Companies have learned their lessons from the disruptions, resulting in improved supply chain planning, alternative sourcing strategies, contingency plans as an integrated core element of supply chain risk management, supply chain resilience initiatives, a revised supply base and better E2E visibility. Many of these improvements have been enabled by digital supply chain and Industry 4.0 technologies. This needs to continue, recognizing that new disruptors, as well as technological advances, will emerge and define the supply chain landscape in 2024.
The key topics and trends in SCM to be considered for 2024 are the following themes:
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