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An integrated approach to create a resilient supply chain
Articles- Apr 05,24
In this concluding article of the 3-part series, R Jayaraman explains the importance of adopting an integrated approach for creating a resilient supply chain (RSC).
In Part I, we introduced the concept of the ISC (Integrated Supply Chain). Figure 1 recapitulates the concept of ISC diagram.
The main theme developed was that: to create resilient supply chains, one needs to take an integrated view, and not merely attend to the strengthening of the back end of the ISC. This was illustrated in the case of an MBA school (refer Figure 2).
It was explained that, to create an RSC (Resilient Supply Chain), one must take an integrated approach. We will now proceed to explain in detail what this approach is, how it is different from the current ones, and how it is built on the new realities emerging in the business arena.
The industry 4.0, which is the current business paradigm, common to both manufacturing and services industries, includes and is built on IOT, AI, ML, Big Data Analytics, Cloud Computing, social media, 5G Connectivity. In order to build an RSC, one needs to find solutions that link all the boxes. The trigger for resilience can be from either of the ends or even from the central box. Let’s see which actions have such ‘linkage embedment’.
In the back-end box, a greater number of suppliers, for each part and components and raw materials could be one such solution. This has been tried in the past, and does not suit the present-day business scenario. New solutions should be sought through creation of a ‘suppliers collaborative’ for the supply of a group of inputs, with the aim to service all the varying needs arising, with the ability to supply substitutes. These substitutes must be so designed that they do not use the disrupted inputs, but provide alternatives to produce the same or alternate products, which are ‘full substitutes’. This is possible only by developing design capabilities in the central box. This should be buttressed with the procurement of a ‘suite’ of products from the collaborative.
The ‘suites’ are self-contained list of substitutable inputs, which can be switched as and when needed. Presently, companies develop sources in several geographical locations, but this can be quite expensive. And not provide timely supplies in an emergency. However, a collaborative will be a functional entity, continuously in service, and hence efficient. From time to time, the company should ask for substitutes, and use them for value addition in the central box. This will keep the ISC in fine fettle. Another solution is the ‘toll production’ used by many companies in the past, especially steel and pharma. Going forward, companies will have to look at creating the ISC at each location. This configuration will surely create an RSC. Such examples already exist – Coca Cola, Unilever, Nestle, Maruti and many others.
These companies were not as affected as the others who did not, a prime example being the auto industry, which uses global supply chains. Boeing is another classic case. The point being made is, supply chains have to be designed with the considerations of ‘suppliers collaborative’, toll manufacturing, localized ISC’s. The Toyota formula of Platform Manufacturing is not in consonance with this, and hence, could be in trouble in future.
In the Central box, which is the heart of the value creation, additional skills and departments need to be created. First, one should keep ‘spare capacity’, which can be brought into value creation at short notice. This should be done scientifically, through OR studies, using Big Data Analytics. Toyota has been practising this in a few of its auto plants, where the ideal of ‘a batch size of one’ is possible. What this means is that each car being produced can be of a specific model, and this is possible due to production design, taking into account tooling, parts availability, JIT supplies etc.
‘Modular Production Assets’ is another concept which needs to be looked at carefully. The idea here is, in case of a disruption, then a new product can be produced at short notice. In the extreme, a production shop should house an ‘annexe’, which contains these ‘extra’ assets, which can be put into use quickly. The SMED process has led to the maintenance of ‘ready to produce’ production equipment, which can be brought in quickly, in case of serious disruptions. The design department becomes a central clearing house for all these efforts.
Another area which should be tightly integrated with is the front-end of the ISC. To do this, the central box must decide on transit warehouse/ storage, owning some amount of transport capability either directly or through equity interests in 3PL or 4PL suppliers. Toll Manufacturing is a way of dealing with disruptions, and, going forward, corporate planning MUST include the planning of a front-end toll manufacturing collaborative. This will add to the cost, but could save cost in times of disruption. This would mean an additional burden on the management, developing skills in non-core areas. But this argument does not hold, as in an ISC, ALL areas are core, and needed to function at peak for the business to succeed. What this means is that the ‘span of control’, a classic management concept spoken about by Peter Drucker, will become longer. However, due to Industry 4.0 tools, this should be much easier to deal with than before. That is the value-add due to Industry 4.0 – an ISC can be operated efficiently.
Finally, in the front-end of the ISC, there are many issues which could disrupt the business. A transport strike, a farmers agitation (these are increasing), lack of good roads/ rail, could all lead to higher cost in the last mile. Warranty claims settlement, customer after sales service, should all now be covered by Industry 4.0 practices, if not, the severity of competition can be fatally disruptive. As already mentioned, the Red Sea is now a hotspot, and the suggestion to develop the India Europe corridor is a move in the right direction. However, it can be seen that such programs, like the Chinese BRI, are very expensive, involve several countries, and take time to get built under severe risk. Once again, a collaborative work will be a good solution. This is already happening, with specialist all-purpose warehouses springing-up in many locations.
The lesson to be learnt to operate a successful ISC is: go retail, but with collaboratives. And Industry 4.0 can make this happen cost effectively. So, what would the ISC of an organisation look like in the future?
There are three collaboratives (refer Figure 3). The back end collaborative, where vendors are connected with the middle box (and, sometime later, with the front end as well) and with each other, as relevant; the middle box, which is directly connected with the ‘toll manufacturing’ box, and, finally, the front end box, consisting of the distributors who send out the goods to the retailers.
(This is the third article of 3-Part series column)
About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.
R Jayaraman
Resilient supply chain
Integrated Supply Chain
Covid
Industry 4.0
B Schools
Coca Cola
Unilever
Nestle
global supply chains
Boeing
Toyota
Platform Manufacturing
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