Toss the loss: building new opportunities with more intelligent supply chains

Traditional approaches to managing supply chains no longer provide the stability and cost benefit to businesses. Massive, globe-spanning disruptions – from the COVID-19 pandemic to the ongoing conflict in Ukraine, to increasing occurrences of extreme weather events – have made many manufacturers painfully aware of the fragility of their supply chains.

But it doesn’t have to be this way.

Capgemini’s Sergey Patsko and Christopher Scheefer are helping companies transform their supply chains to address these challenges – and more. Here, they explain how embracing the intelligent supply-chain model helps companies become more resilient and sustainable – and even how to turn a supply chain into a profit center for the business.

Why are current supply chains so prone to disruption?

Christopher Scheefer: Up to now, supply-chain management has largely consisted of “confirm and deliver” models, in which data is locked into silos. But today, supply chains are predominantly global in nature and in the current, highly volatile environment, that’s no longer sufficient. The past couple of years has demonstrated that it’s too easy to disrupt traditional supply chains – and that any disruption, even one involving a simple component, has a cascading effect.

We’ve seen food and beverage makers run short of basic ingredients such as sugar. We’ve seen aerospace companies miss completion dates for multimillion-dollar aircraft because they couldn’t source a simple fastener. We’ve seen technology companies – even those with tightly controlled supply chains – miss launch dates for important consumer products because of an issue with a component supplier.

Sergey Patsko: Supply chains have also been disrupted by innovations in both products and distribution models. As an example of product innovation, life-sciences companies are manufacturing more personalized drugs in smaller batches. This requires more visibility into their supply chain. That’s why many of our clients have engaged Capgemini to provide them with a supply-chain control tower – where they can see all of their suppliers and all of the raw materials, and then use AI to predict where disruptions may occur. This is important because even if a pharmaceutical company cannot substitute a different raw material, they could at least rework their production schedule so their specialized manufacturing facilities are not sitting idle.

On the distribution side, the pandemic encouraged more companies to embrace e-commerce to sell directly to their customers, rather than through traditional channels. Capgemini’s research has revealed the number of companies and people who now purchase online has risen by 50 percent since the start of the pandemic. We also learned that the top two customer demands are “more customized products and services” and “faster order fulfillment times.” To address these demands, companies need to answer several important questions. Do they have the right number of fulfillment centers? Are they located in the right places? And do they have the right mix of inventory in each? Those are hard questions to answer using a traditional supply-chain model where the required data is locked in silos.

Given that traditional supply chain models are not working, what’s the alternative?

Scheefer: The alternative is the intelligent supply chain – a connected, AI-enabled solution that delivers competitive advantage and enhanced value across the business.

It starts with being connected. Supply chains are complex networks – from the planning and sourcing side, through the making and distributing of the product, to the fulfillment at the customer end. Companies have told us they need better visibility into those networks, so that when something goes wrong they can take action.

But it’s not just about visibility. With AI, companies can play the “What if?” game. They can model different aspects of their supply chain to identify risks, and because it’s data-driven they can create workaround solutions with confidence. They can run scenarios to reroute goods. They can consider other suppliers within their ecosystem.

What other benefits does an intelligent supply chain enable?

Patsko: There are many, but one of the most topical is the contribution that intelligent supply chains make to a company’s sustainability performance. Sustainability is a huge issue right now, which is why many companies have committed to achieving net zero by 2050.

But in its Data for Net Zero report, the Capgemini Research Institute notes only 23 percent of organizations have visibility into the emissions hotspots within their supply chains. Most companies cannot identify which of their suppliers account for most of their scope 3 emissions. Those are responsible for 65 to 95 percent of a company’s carbon footprint, so that’s a huge gap.

Scheefer: The added resilience of an intelligent supply chain also presents an opportunity to turn it into a profit center. For example, a fully connected supply chain and the predictive modeling that AI enables can identify suppliers with excess inventory. This represents an opportunity for the manufacturer to acquire materials at a discount, which increases the profit margin on the final product.

Given the many compelling reasons to upgrade to an intelligent supply chain, what prevents manufacturers from embracing this?

Patsko: Manufacturers traditionally have relied solely on internal data to manage their supply chain. The intelligent supply chain requires a collaborative approach, in which companies share data throughout their ecosystem. Every company in this system must trust that their data is secure – that they’re not losing control of competitive information, for example. The participating companies must also organize the technology to make that secure sharing possible.

Scheefer: The good news is, we’ve done this. Capgemini has created these secure networks for some of the largest companies around the globe, involving thousands or even tens of thousands of suppliers. We have pre-built components – not just the technology, but also things like data-sharing agreements – so we have made it easy for companies to make this transformation and then bring new partners into their supply chains.

Patsko: Ease of adoption is critical and we enable this in many ways. For example, we help companies define the strategy for their supply-chain transformation. We ensure that the intelligent supply chain accommodates any existing ERP applications such as SAP and Oracle. And through our business-services division, Capgemini can even take over non-core aspects of the supply chain operation for our clients.

What sorts of outcomes can a company expect by upgrading its supply chains to a connected, AI-enabled solution?

Scheefer: Capgemini has deployed intelligent supply chains to increase forecast accuracy for major clients, which has driven real channel throughput. It accelerates speed to market, which results in significant savings. Clients have enjoyed working-capital improvements of 20 to 30 percent. And they’ve reduced inventory aging, which has decreased carrying costs by 10 to 20 percent. For a multinational company with billions of dollars of goods on the water or in transit, that’s huge.

Patsko: In terms of sustainability, we’ve seen in some cases a 15 to 20 percent reduction in scope 1 and scope 2 emissions and a 15 to 20 percent reduction in business waste.

Scheefer: We’ve also improved our client’s on-time delivery performance and customer satisfaction.

There really is no downside to this.

Our Intelligent Supply Chain offer transforms your supply chain from a cost center into an integrated, frictionless function that delivers competitive advantage and enhanced value across your business. This includes enhanced agility, increased scalability, improved decision-making, and greater transparency.