Supply Chain Digitisation – Written by Dave Christie

DIGITAL TECHNOLOGY FOR SUPPLY CHAINS, TO THE LAST BUS STOP ON THE PLANET!

Hopefully, that title has piqued your interest. It is taken from a paper written for the New Zealand Productivity Commission by David Skilling, from Landfall Strategy Group. The paper is a very good read and I recommend any supply chain professional take time to digest it, as it provides broader context around the global ecosystem within which New Zealand supply chains operate.

In his paper, Skilling highlights that New Zealand, a small economy that is geographically distant from most of our offshore markets, is uniquely exposed to the global dynamics of political and economic changes.  He specifically states that “New Zealand has one of the most exposed supply chain positions across advanced economies.”  When looking forward, Skilling comments, “New Zealand will be deeply challenged by macro-dynamics that are shaping global supply chains,” before adding, “many of these dynamics are challenging firms, particularly smaller firms.”

While many now think the Covid-driven supply chain disruptions are behind us, others like David Skilling and myself believe there will continue to be variability, uncertainty, and therefore heightened levels of risk across global supply chains.

TECHNOLOGY WITHIN NEW ZEALAND SUPPLY CHAINS – SCM 4.0

As a supply chain professional, it’s very likely you would’ve heard much about digitisation and Supply Chain 4.0. Despite this, most businesses I am working with are yet to start the digitisation journey and in truth, most don’t know where to start.

What is meant by SCM 4.0 and Digital Supply Chains?

This terminology references the stages of the industrial revolution, as depicted in the below diagram.  Industry 4.0 is the ongoing transformation of traditional manufacturing and industrial practices combined with smart technology.

The focus is on machine-to-machine communication, and Internet of Things (IoT) deployments to provide increased automation.  Essentially, improved communication and self-monitoring as well as smart machines that can analyse and diagnose issues without the need for human intervention.

SCM 4.0 or Digital Supply Chains are supply chains that incorporate a variety of Industry 4.0 technologies like IoT, AI, cloud, and big data.

Analog stage: Everything is done manually as in traditional supply chains. The buyer, operator, and supplier relationship in particular is governed by one-off emails, Excel spreadsheets and disconnected data.

Digital Functions stage: Individual operations or functions such as planning, sourcing, manufacturing, warehousing, transportation, and customer service are starting to be digitised and automated.

Digital Supply Chain stage: Linking these individual digitised, automated processes together. For example, through a digital sales and operations planning platform which merges the different types of planning related to material availability, capacity, revenue forecasting and more, an end-to-end visibility platform.

Digital Value Chain stage: A connected value chain for at least one customer, linking all of the suppliers and steps that help execute that customer’s order. Customer-specific intelligence is fed back into this value chain to optimise activities for this particular customer.

Digital Ecosystem stage:  A company has connected value chains for all of its suppliers and customers. Industry platforms and solutions help manage all of these connections, including the qualifications of each supplier, the quality of each item received or shipped and delivery information for each item. This level of digital integration offers the most seamless model and delivers the best customer experience.

Applying this model and criteria, my view is that most New Zealand businesses are either at stage one or two, reflecting that 97% of New Zealand businesses are SMEs, with less than $20m revenue and 20 FTEs.  We do have a few businesses at level three and four, but these are typically medium-sized multinationals or very large domestic businesses with scale and internal supply chain/technology capabilities.

How is this new digital technology playing out in the New Zealand marketplace?

There are a number of common themes and approaches being applied across various industries, sectors, and regions in New Zealand:

Process automation – often referred to as RPA (Robotic Process Automation). Where smart pieces of technology automate business processes and functions that are normally manual, time-consuming practices, such as invoicing, customer services, order management, data entry, employee or vendor onboarding, and system queries.  The RPA business case typically centres around fewer staff costs vs the cost of the software. At current investment levels, it appears many NZ SME businesses don’t have the number of transactions or staff to justify the capital expense.

Physical automation – this is where the robots come in.  Typically seen in manufacturing plants or warehouses performing manual, repetitive tasks such as welding, assembly, sortation, and pallet stacking. As technology advances, so too do the robots or machines, performing more complex and multi-faceted tasks.

Automated Guided Vehicles (AGVs) fall into this category.  There is some localised adoption of AGVs across large Kiwi businesses, where they can control and safely isolate the activity. This type of technology is becoming more prevalent, but it’s not an automatic ‘win’ for widespread use in supply chains – think the self-drive capability of Tesla contrasted with Port of Auckland’s cancellation of their automated straddle project.

The very first, large-scale (almost) fully automated warehouse in New Zealand is currently being built by Cardinal Logistics in Drury, Auckland.  Where normally they would employ 150 people, this site is planning on having 15 staff in total.  The business investment for this type of automation is very high and therefore needs to be offset by high volumes and delivering lower operating costs, improved productivity, better service, and higher quality.

Productivity improvement – technology solutions used to reduce costs and improve performance.  Optimisation systems are central here, often focussing on very specific, localised problems such as load optimisation, inventory optimisation, warehouse optimisation and network optimisation.  Many of these tools, especially those developed locally, are quite affordable, relevant to New Zealand businesses, and deliver short time-to-value horizons.

Supply chain visibility or control towers – real-time dashboards for operational performance across the business and the wider supply chain. This is the natural evolution of the Big Data revolution.  As more IoT technologies are being deployed, more advanced processes and systems are utilised to assist decision-making. Real time dashboards help to improve monitoring and management of the end-to-end supply chain, enabling fast and data-driven decision making which drives improved agility, responsiveness, and resilience.  It also assists businesses to better manage customer delivery performance and expectations.

Historically, the barrier to developing these platforms has been the ability to capture the data, but the maturing of cloud-based platforms and RFID (Radio Frequency Identification) has meant this use-case has become more achievable.

Digital Twins  – virtual (digital) models of physical systems, built to simulate real world conditions have three main purposes:

1. Analyse options for decision making
2. Monitor performance, often using IoT devices
3. Optimise in real time.

Digital twins across supply chain networks help identify bottleneck, optimise omnichannel inventory, and improve delivery performance.

Agriculture – optimising crop production, improving resource management, and enhancing overall efficiencies is a continuous focus of farmers. Many are applying Kiwi ingenuity using drones and IoT to manage livestock with wearable devices to monitor animal health, as well as to fine tune water usage, various sprays based on soil and weather monitoring. RFID is used to track and trace quality of produce as well as provide the records needed for provenance of authentic New Zealand grown food and beverages.

Quality and assurance – this is a sub-set of the above supply chain visibility theme, but the focus here is predominantly in food or pharma supply chains, where there are high regulatory compliance standards and there is a need for real-time tracking of items as they proceed through the supply chain to ensure they are ‘in-spec’ at all times.  Again, new technology is enabling this use-case, with mobile devices or chemical labels able to determine if a specific environmental condition – for example temperature, humidity, shock, or light is breached.  The cost of the devices still remains a barrier for saturation across all products, so currently we are typically seeing localised application of these into high-value or high-risk sectors of the supply chain.

SCM 4.0 is enabled by technology.  Some of the newer technologies that we’re seeing in New Zealand supply chains are:

RFID (Radio Frequency Identification) – the replacement of barcodes and even QR labels in digital supply chains.  RFID has been around for over four decades, but the technology has developed significantly in recent years and the cost-points are dropping fast.  RFID provides the ability to capture vast amounts of data, automatically with no requirement for manual scanning, at all points across a supply chain.  This data informs supply chain visibility platforms or control towers, so businesses can better manage supply chain performance.  With leading companies like Walmart and UPS mandating all products and parcels to now use RFID, this technology is fast becoming the norm in leading offshore markets. Importantly for New Zealand businesses, new mid-tier cloud-based workflow platforms are making this functionality more accessible in the mid-market for affordable workflow solutions, removing the human cost and error element.  We are seeing paybacks in 1-2 years depending on the use-case.

Environmental sensors – able to record specific environmental conditions such as temperature, humidity, shock, and light as a product makes its journey through a supply chain.  The more affordable versions of these products capture the data while in transit and then at the end of the journey the data needs to be downloaded so it can be reviewed after the event.  The more expensive versions are digital devices that can transmit data in real-time while in transit, so businesses can manage performance in (near) real-time.

Temperature labels – the ‘newest kid on the block,’ with leading global providers only now doing market trials on these. They are physical labels which show when a product has exceeded a set temperature range.  These labels use chemical reactions to change the colour and/or image on the label, to show there has been a temperature excursion against what was programmed into the label.  Current versions have visual indicators only.  In future these will also provide a RFID data signal as well, which means this will provide an extremely low-cost way to manage temperature across a supply chain.

Artificial Intelligence (AI) – probably the most discussed, and controversial technology solution in business these days.  AI refers to a machine’s ability to perform a task that would have previously required human intelligence. Today’s AI systems might demonstrate some traits of human intelligence, including learning, problem-solving, perception, and even a limited spectrum of creativity and social intelligence. ChatGPT is a recent and very accessible AI platform which seems to be providing new use-cases every day.

The scope and potential of AI is enormous, yet there is a growing body of opinion that the potential risks are equally significant.  Across New Zealand supply chains, there appears to be ad hoc adoption of AI.  Many modern computer systems have some form of AI embedded in their functionality, but there isn’t yet widespread adoption of AI because it is still in the developmental stage.

As global conditions continue to change and economic impacts start to bite, the technology landscape is constantly evolving. In amongst all this change, there are some really useful and quick-to-value supply chain technology solutions which can help businesses not only survive, but thrive during these challenging times