Managing Supply Chain uncertainties with Analytics

Supply Chain is a complex network of cross-functional facilities and products and very hard
to optimize. The demand is evolving, dynamic and seasonal, making the process of planning
and forecasting more ambiguous. A company or a country must be insured against the
dynamic nature of the supply chain to sustain in the long run. Studies highlight that the
global industry lost 1.1 trillion dollars due to the overstocking of products or the
understocking of products. Getting the key decisions right in the supply chain will help firm
mitigate the risks to achieve better performance and improved profits. This improvement in
operational efficiency and effectiveness can be achieved by enabling data-driven decisions
at all levels of operations and strategies. Supply Chain analytics can benefit the complete
value chain: Sourcing, manufacturing, distribution, logistics and Sales/Services.
Analytics in Sourcing
The key term used in Sourcing Analytics is Spend Analytics. Spend Analytics is a process of
optimizing the performance in the supply side by using the historical insights on product
pricing and vendors to strengthen the organisation’s negotiating position and drive better
pricing. The main pain points in sourcing are high purchasing cost, unreliable supplier base
are order-inventory management. Analytics can help in delivering better results and address
these pain points.
Organisations can achieve lower purchasing cost by tactical negotiations. Spend analytics
can provide real-time information of the total spend by the factory, by material category,
type of contract or vendor and in terms of the dollar value of percentage. Using analytics,
we can track issues like contracts compliance risks, supplier bankruptcy risks, inconsistent
supplier performance and tracking external abnormalities and the companies can strongly
negotiate using these insights. E.g. Avebe, a leading potato starch producer leverages spend
analytics to standardize and optimize payment schedules, resolve price-point variances and
supplier performances.

Analytics in Manufacturing
Manufacturing is increasingly under pressure to increase the productivity under the
constraints of increasing raw material prices, competition and political uncertainty.
Companies are moving from its tried and tested traditional methods to more advanced
processes to boost productivity and profitability. The biggest asset in manufacturing is its
data. Process industries produce large volumes of data, but they haven’t fully utilised this
mountain of data. Analytics can use this data to manage machines, workforce and materials
in an effective way to improve productivity. Analytics can help manufacturing in the
following ways:
a) Use of predictive maintenance to decrease downtime in manufacturing.
 b) Optimizing complex production networks and providing sensible counterintuitive
improvements.

Some industries using manufacturing analytics are:

 Kroger, the American retail company uses predictive analytics to monitor economic
and customer trends. They use the knowledge of data to make merchandising
decisions.
 Black & Decker (B&D) turned to CISCO to provided IOT solutions to its manufacturing
to decrease the complexity in its manufacturing plants in Mexico. This allowed B&D
to monitor the production process in every step and evaluate the performance of
the workforce. The plant achieved 10% labour efficiency and improved its machine
utilization rates.

Analytics in Distribution and Logistics

Balancing the logistics and distribution channels is a tough task in a supply chain. A supply
chain must match its shipping and inventory cost but they are hard to balance due to their
conflicting requirements. Frequent shipping will reduce inventory cost but increase the
shipping cost and vice versa. Failing to balance shipping and inventory, the company may
face poor customer level or higher costs. Analytics can improve distribution and logistics in
the following ways:
a) Advanced transportation analytics: Analytics can aid in optimize freight
movement, optimize fleet operations, increase safety and reduce environmental
impacts. DHL express is currently investing to improve the system and the
realities of e-commerce, in turn increasing the profitability.
b) Route optimization and planning: Managers can integrate data from various
sources like vehicles, sensors, scanners and live weather reports to manage and
deploy their assets.
c) Warehouse Automation: Walmart relies on big-data and real-time analytics to
manage the flow from its distribution centres to its stores and e-commerce
website. With its large pool of data from various sources, the company relies on
data analytics to achieve the right product assortment.

Analytics in Sales and Services

Analytics can improve sales by improving functions like demand planning, product selection
and pricing and promotions.
Demand is hardly predictable thus it is hard to plan for capacity, supply and workforces. A
sophisticated mathematical model can study the various variables of product that impact
sales and predict future sales. Starbucks gain insights from predictive analytics and the
customer insights are obtained through Starbucks loyalty card. Starbucks, powered with
analytics are now offering more personalized services to its customers.
Product selection is another pain point for many companies because they have a large
amount of assets tied up in inventory and many of them don’t sell well and thus
unproductive. Holding unproductive inventory is a waste of money and space. This is
common in restaurant businesses and studies by BCG show that Data analytics programmes
in restaurants yielded a 5-10% increase in revenue, a 10-15% reduction in store operating
costs and a 10-20% improvements in EBITDA. A fertilizer company struggling with inefficient
manufacturing plans and high inventory levels turned to data analytics which improved its
distribution efficiency (at 80%) and gave the company an efficient distributor targeting
method.
Pricing and promotion is another typical problem in sales. Companies offer price discounts
to customers to increase the demand but sometimes, the demand does not increase and
companies lose profits. At other times demand might skyrocket and the company may
suffer from stock-outs and loss of sales and customer faith. Analytics can help predict the
price elasticity of products and companies can achieve better sales through lesser discounts.

Supply chain is an important part of any organisations and many times it makes or breaks
the organisation. The high volatility and high uncertainty of supply chains requires managers
to place intelligent bets. Advanced analytics equip managers with a more detailed and
accurate picture of the risks in economy, and guide companies to achieve certainty and
higher payoff in the long run. Companies, with analytical tools can handle their suppliers
and raw material efficiently, manage the bottlenecks in manufacturing, optimize its logistics
and distribution network and improve revenue without risking customer satisfaction.
References

https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-analytics-
harness-uncertainty-with-smarter-bets

https://www.bcg.com/en-in/capabilities/operations/turning-visibility-value-digital-supply-
chains.aspx

https://www.mckinsey.com/business-functions/operations/our-insights/the-era-of-advanced-
analytics-in-procurement-has-begun

http://simfoni.com/analytics/spend-analytics/what-is-the-importance-of-spend-analytics/

https://www.capgemini.com/wp-content/uploads/2017/07/supply_chain_analytics_0.pdf

https://www.mckinsey.com/business-functions/operations/our-insights/manufacturing-analytics-
unleashes-productivity-and-profitability

https://enterpriseiotinsights.com/20180102/smart-factory/three-smart-manufacturing-case-studies-
tag23-tag99

https://www.forbes.com/sites/kinetica/2018/05/25/4-ways-to-change-the-game-for-logistics-
analytics/#d9252a676728

https://www.analyticsindiamag.com/big-data-and-analytics-is-helping-retailers-and-e-commerce-
firms-streamline-warehouse-operations/