Does Lean Have a Limit?
Since the 1980s, the supply chain industry has enthusiastically embraced just-in-time (JIT) inventory management and lean manufacturing in the search for cost optimization. This resulted in highly streamlined processes and impressive efficiencies.
But in the past year, we’ve seen there are limits to lean operations—one being we need the ability to adapt quickly when unexpected disruptions occur. Automation and intelligence will be key tools in developing this resilience. Often referred to as Supply Chain 4.0, logistics warehouses are among the first places organizations are looking to apply intelligence and automation as they seek to avoid another year like 2020.
According to McKinsey, “a single prolonged production-only shock” could cut most companies’ annual EBITDA—Earnings Before Interest, Taxes, Depreciation and Amortization—by as much as half. The prolonged shock of COVID-19 has left many in the supply chain industry not only struggling to meet demand, but facing reduced earnings as well. Not only that, EY and Fortune reported that 94% of Fortune 1000 companies have experienced supply chain disruptions as a result of the pandemic. As such, it has become clear that lean JIT operations with almost no buffers haven't worked when conditions are no longer predictable.
Learning from experience
While there is no way to foresee what the next watershed event might be, we can learn from how our systems have responded and adapt them to be more resilient in the face of future disruptions. The key to this new resilience will be increasing the data we collect throughout the supply chain and employing analytics software to enable us to more intelligently manage and adapt when disruptions occur and the normal patterns of production and consumption change.
Transforming to full Supply Chain 4.0, however, is going to take time and incremental steps. Logistics warehouses provide a convenient and practical starting point for quick gains by deploying new technologies and reimagining material and business process workflows—with robotics and intelligently automated processes.
Three key enablers
Specifically, supply chain operators can start by implementing three key enablers: pervasive high-bandwidth and scalable connectivity; massive Internet of Things (IoT) adoption and integration; and predictive and prescriptive analytics.
- Pervasive high-bandwidth and scalable connectivity is one of the easier but also necessary first steps. Warehouses can be outfitted relatively quickly with high-performing wireless networks that extend to every corner of the operation and communicate with other warehouse locations. This provides a crucial platform for all of the other smart processes in the warehouse.
- Massive Internet of Things (IoT) adoption and integration become much simpler with the network in place. All the devices, machines, and people in the warehouse can be connected to each other and to the local cloud computing presence. Robots and other automated systems rely on this connectivity to take direction from software that determines where they move and carry out tasks including packing, assembly, inventory, and cleaning. Essentially, IoT sensors and cameras map the physical operation, transforming it into a digital operation.
- Analytics software is then fed with data from the IoT network to model the end-to-end operations using artificial intelligence and machine learning. Software systems can monitor worker safety, predict supply chain-impacting events, assess alternate flows, and proactively monitor system maintenance needs. For example, infrared cameras can perform temperature checks and identify workers running a fever so they can receive appropriate medical intervention, as well as identify workers who may have been in contact for proactive testing to help contain potential outbreaks.
Flexibility and agility
Empowered by these capabilities, asset management systems can predict maintenance needs and automatically or prescriptively shift flows to ensure optimum system performance with little to no disruption. At the same time, predictive systems can assess the impact on the supply chain and leverage digital twins to plan, test, and propose measures to ensure continuity.
By moving toward greater automation and the use of robotics, it is estimated that warehouse operators can save 70% in overall operating costs while continuing to meet customer service needs and achieving greater operational flexibility. It is that flexibility, rather than whose operations are “leanest,” that will provide the resilience needed when the next disruption occurs.
Venkatesh Ramakrishnan heads the Global Logistics Vertical within Nokia Enterprise. His work includes consulting and helping enterprises with their supply chain digitization/automation vision, rolling out dedicated LTE/5G networks, and deploying use cases with strong business benefits for the end customer. He is based out of Munich, Germany.