Digital S&OP — English
The Opportunity of Updating Supply Chain Management
According to a study conducted by McKinsey, Supply Chain management is one of the areas in which companies worldwide have been slower to adopt new technologies. And this makes sense, as managing these processes is complex, and changes a lot from company to company. For these reasons, corporations need to rely on tailor-made solutions which often require them to combine a series of platforms and technologies, and even add their legacy systems the mix. And this is complicated, expensive and, above all, risky.
But what many companies don’t fully realize is that, while the risk of innovating is high, failing to innovate can be even more dangerous. According to McKinsey, the companies that manage to aggressively digitalize their supply chain register an average 3.2% increase in their EBIT (income before taxes and interests). This has a huge impact in terms of productivity and may mean a significant strategic advantage against competing companies.
But innovating from within is not always easy. For that reason, an increasing number of companies are relying on entrepreneurs and new startups to help them adopt the latest technologies in order to optimize their supply chains. Next, we will get to know some of the most promising technologies currently being developed within this vertical:
Blockchain: A Revolutionary Technology
One of the technologies that can truly revolutionize supply chain management is Blockchain. Best known for being the secret sauce behind Bitcoin and other cryptocurrencies, these huge databases operate by creating encrypted blocks of indestructible data, which are stored permanently and can be verified upon every operation. This way, they eliminate all intermediaries, cut transaction time to zero, and add transparency to every exchange — be it monetary or of any other kind of merchandise.
For this reason, a growing number of startups are working on the application of blockchain technologies for other purposes beyond monetary ones. The first of these uses and perhaps the most promising one when it comes to handling relations with suppliers is smart contracts.
Unlike traditional contracts, which require human oversight and action, Smart contracts fulfill themselves. This means these contracts are made up of code which performs a specific action that is triggered once a previous transaction occurs. For example, if two companies sign a contract that states that company A will pay an x amount of money to company B once an n amount of product has been delivered to its warehouses, the smart contract will keep track of the amount of product delivered, and will automatically make the payment once the n amount has been reached.
These kinds of contracts allow companies and users to drastically reduce costs and the time invested in carrying out administrative tasks. According to Material Handling & Logistics Magazine, clunky payment practices are costing companies over 6,500 man-hours a year, which means implementing a smart contract solution can turn into massive savings. At the same time, these contracts increase transparency, as they subordinate payments to a previous transaction, thus eliminating discretionally, and other typical inefficiencies — not to mention any possibility of corruption — from these processes.
Another way in which blockchain technology has proven to be very positive is in paper reduction, by eliminating the need to keep large volumes of records. This is possible because every transaction is registered in the chain, and thus is easy to track and impossible to delete.
There are many cases worth looking throughout the world of startups using blockchain technologies to make the supply chain more efficient overall or to resolve some specific problems within it. Some companies are, for example, working on apps that track product deliveries in real-time, or that automate the payment of port fares for companies that handle large volumes of exports, among other use cases.
Latin America and Argentina in special is a strong region in blockchain-based technologies. An example worth highlighting is Kleros, a French-Argentine company based in Buenos Aires and Paris that uses smart contracts to arbitrate in legal disputes. Like this startup, many others are starting to venture into this tech to find new solutions for very old problems.
AI and Supply Chain Automation
Another technology that is generating massive disruption in the supply chain is Artificial Intelligence. Using Machine Learning, companies can rapidly analyze large volumes of data and obtain reports with precise predictions on customer demand for different goods based on a wide number of data points. This way, they can optimize production, storage, shipping, and even payment schedules and not waste money, time or resources in the process. Another path some companies are taking is completely automating their process, allowing computers to take over data collection and analysis, thus removing the human factor. This can be scary, as the way computers reach conclusions is not always clear, but it has proven to work for many industries, allowing them to become far more efficient.
Using machine learning for supply chain management is not new. For over 20 years companies have been using this kind of technology — albeit, with more rudimentary implementations of what’s available today –, with great levels of success. However, systems today can take into account more variables than ever, including demand for each product, availability, the price at every single point of sale, competing product prices, and even the weather and fuel prices to plan efficient routes to plan distribution. And thanks to the interconnectivity, some of this information can be obtained in real-time from sensors located within trucks and stores, making data even more reliable.
There is an ever-increasing number of applications for AI in all of its forms. The use of these technologies is already extensive in fields like digital marketing, on customer support services, in customer experience personalization services, and processes automation in industrial and distribution plants. However, there aren’t many companies developing comprehensive solutions to tackle supply management, even though there are a few very promising examples.
One of such cases is Alloy, a Company based in San Francisco that offers analytics solutions for retailers that uses AI to predict demand and report it through an integrated platform. Founded in 2012, the company has, to this date, raised $12 million$12 million dollars.
But there are countless other opportunities to innovate and to take this technology to large corporations to help them make their processes more efficient, and overall become more competitive.
Both Artificial Intelligence and blockchain — and eventually other technologies that might be applied to solve the challenges posed by efficient management of the supply chain — have a virtually limitless potential to create innovative solutions that can solve real pains and scale into sustainable business models. For this reason, we will undoubtedly see more and more new companies working on new platforms on this vertical. However, given the strategic nature their supply chains have for all companies, most of these new solutions will undoubtedly have to take into account to need to customize their platforms for every client’s need. More than in any other vertical, startups creating supply chain applications and solutions will benefit from spaces of collaboration with corporations and established companies.
In this context, it is essential that startups in this field manage to create a model that allows them to grow through strategic partnerships with companies that can offer them insights, and which can, in turn, apply and experiment new solutions in order to validate their value and the business model with which they are being commercialized.