The news reports show the magnitude of the problem: “This is going to be a huge test of global supply chains,” “Many plants are closed for days,” and “Restart dates remain uncertain.” But they’re not talking about a pipeline cyberattack, a ship stuck in the Suez Canal, or winter storms in Texas. These comments date back to the aftermath of the Japanese tsunami of 2011.
Ten years on, supply chain disruptions are again dominating the headlines and have become a top-three C-suite concern. Even a short disruption of 30 days or fewer can put 3 to 5 percent of EBITDA margin at stake, according to McKinsey. The combination of surges in demand, shortages, and transportation upsets have caught companies flat footed. Almost every automaker has curtailed production due to chip shortages. One machinery supplier’s recent comments encapsulate the problem: “Demand continues to be very strong. But supply chain delays hamper our availability and ability to sell more.” The impact is felt in rising input costs, delays for consumers, and ultimately, if unchecked, inflation.
The good news is that advances in technology over the past decade make it possible for manufacturers to strike a new balance between hyper-efficient, just-in-time supply chain models versus a retreat to vertical integration. Advanced automation, additive manufacturing, PLM software, and AI open up an entirely new supply chain logic for manufacturers. Advanced digital technologies enable manufacturers to gain speed, transparency, and flexibility to better manage their supply chains. The result: rapid decision making based on customer needs and real-time market conditions.
Advances in technology over the past decade make it possible for manufacturers to strike a new balance between hyper-efficient, just-in-time supply chain models versus a retreat to vertical integration. Advanced automation, additive manufacturing, PLM software, and AI open up an entirely new supply chain logic for manufacturers.
Speed, Transparency, Flexibility
A great example of speed is the pioneering work of BioNTech based in Mainz, Germany during the Covid-19 pandemic. BioNTech acquired a facility in the fall of 2020 in order to produce the vaccine which it had developed in partnership with Pfizer. The start-up process would normally take about one year. But by using Siemens automation and digitalization solutions, BioNTech was able to shorten that timeline to just five months.
BioNTech’s production processes could be automatically developed, optimized and managed, including the paperless record of production, to immediately fulfill all documentation requirements. Even before the production phase, the holistic Digital Twin from Siemens' Digital Enterprise portfolio enables pharmaceutical companies to accelerate R&D and reduce time to market bringing life-saving treatments and vaccines to patients faster.
Digitalization also means generating deep supply chain insights by capturing the vast amounts of data that a factory generates. A single factory can produce over 2,200 terabytes of data in just one month— the equivalent of 500,000 movies. For scale, that would be 130 times more movies than are currently in the entire Netflix library. In other words, a lot of data.
For supply chain management, capturing this data means having transparency into inventory, demand, supplier stocks, and alternate sources. Artificial Intelligence platforms are critical. Think about Amazon: Big data allows the online behemoth to know what shoppers want before they do, delivering personalized recommendations that account for some 35 percent of its annual sales. This same logic can be applied to the manufacturing sector. AI platforms help operations managers see bottlenecks before they happen and allow them to initiate contingency plans.
Another benefit of digitalization for supply chains is flexibility. Having a digital twin of your plant means being able to make rapid changes to production as needed—in some cases making an entirely new product. Spectrum Brands, based in Middleton, Wisconsin did precisely that in the spring of 2020 when stores were running out of cleaning and disinfecting products. Spectrum shifted production at a Blacksburg, Virginia plant from Cutter Insect Repellent to hand sanitizer. They managed the changeover in just few weeks thanks to digitally enabled, flexible manufacturing technology from Siemens.
Digital technology is the connective tissue enabling companies to work together. But a willingness to collaborate comes only when companies have the mindset to act as part of an ecosystem. Sharing insights, best practices, long-term plans, and sometimes even financial services with partners can help build strategic supply chain resilience.
Breaking down silos is imperative, both within companies and across companies. In some cases, collaboration can focus on both, such as the partnership created by Siemens and SAP to help manufacturers smash the divide that exists between the engineering and business sides of the house so that there is more transparency into product lifecycle and asset and supply chain management.
As the Association for Supply Chain Management’s benchmark study recently concluded, when faced with disruption, the most successful companies will be able not only to “bounce back” but to “bounce forward” by rapidly adapting to a new normal. And that resilience depends not just on embracing digitalization but on the ability and willingness to act as part of an ecosystem.
Published: May 26, 2021