Supply Dynamics Insights
With the 1st quarter behind us, do you know what forces have impacted (or will impact) your supply chain this year?
Supply Dynamics’ founder and CEO, Trevor Stansbury, does and he has a lot to say about it. In December, Stansbury was invited by the U.S. Department of Commerce to speak at its flagship event series, the Discover Global Markets Conference, and he shared his thoughts during a presentation entitled, “Trade Talks—Mitigating Supply Chain Risk During Times of Uncertainty: Leveraging Data Visualization and Predictive Analytics.” Stansbury also participated on a panel entitled, “Supply Chain Optimization in the Face of Innovation and Disruption" with senior executives from Boeing, Lockheed Martin, and General Electric. Additionally, in March, Stansbury spoke at the 9th Annual Aerospace Raw Materials & Manufacturers Supply Chain Conference in Beverly Hills, California.
During both conferences, he identified key trends that could affect your supply chain this year as well as how multi-enterprise platforms and end-to-end (E2E) visibility are the keys to leveraging transformational technologies and mitigating risk. Read on as he shares his insights on these industry forces and how OEMs can mitigate risk in the face of disruptive technologies and a volatile market.
Q: With such sophisticated technological advances—such as AI, blockchain, and predictive analytics—on the horizon, why is E2E visibility more important than ever?
A: Blockchain and machine learning hold enormous promise for better managing the seamless flow of information and materials from one economic actor to another in extended global supply chains. E2E supply chain visibility is the desired outcome—one that enables a prime contractor to see and influence interactions between subcontractors in a way that has never been possible before. However, you must approach the introduction of these new technologies in a sensible way. There is a maturity path to consider. First, good, structured data is the foundation for exploiting the kinds of technological advances we are talking about. Choreographing extended enterprise interactions is impossible unless you have good, clean, structured data. Without it, you’re stuck. In the world most supply chain executives inhabit, there is a notion of the “Iceberg of Ignorance” that people and companies are mired in. It’s clear that, without comprehensive E2E visibility, the “Primes” (or Original Equipment Manufacturers) at the top of the proverbial food chain, possess at best, a superficial level understanding of their supply chains and any associated bottlenecks or problems in the Tier 1- Tier N supply chain.
Q: In addition to technological advancements, what are some other noteworthy trends?
A: As a whole, expect to see increased transparency across the board. After years of outsourcing and with the growing recognition of the importance of E2E supply chain visibility, Original Equipment Manufacturers now recognize how crucial it is to account for any "blind spots" in their extended supply chains. However, one of the biggest impediments to the E2E supply chain is your old and expensive ERP—it is the proverbial ball and chain of the 21st century. In fact, ERPs (in general) are not designed to manage the complexities of the multi-tier raw material supply chain. The good news is that you don’t have to replace your old ERP, you just have to marry it with the right multi-enterprise platform. There are inexpensive cloud-based options that, in conjunction with your legacy ERP systems, yield the visibility most companies are looking for. For an OEM, a cloud-based supply chain can turn points of pain and inefficiency into points of excellence and differentiation.
Another trend to note is that most companies are replacing the old “hold your cards close to your chest” way of doing business with something that is more "open book.” Long gone are the days of buried overhead costs; the open book method promotes complete transparency on all components of product cost requiring subcontractors to disclose, for example, value added versus raw material costs.
Finally, I think large OEMs are turning from expensive, heavily integrated supply chain solutions to non-invasive, just-in-time creation and the decommissioning of computing environments (which I touched on earlier). I think there used to be this myth of the “holistic solution"—one technology solution that would address every need and problem under the sun. That idea has largely been debunked. Knitting the right combination of new and legacy technology solutions together in an initially, non-invasive way, allows for experimentation and proof-of-concept validation. Not only is this approach order of magnitudes cheaper, but it allows OEMs to experiment with new technology in a way that is not disruptive to the existing business and that does not require costly multi-year solution deployment and roll-outs.
Q: With all this forward momentum, it’s important to acknowledge any factors that could disrupt it. How have tariffs impacted the industry?
A: The impact of tariffs has varied from industry to industry. Its biggest impact has been on the automotive, oil and gas and agricultural industries. In aerospace, it has been a nuisance but (at least so-far) nothing more. It’s interesting to observe that as of September 2018, tariff exemptions had been granted to over 370 companies impacting over 4.1 M tons of steel imports. On 37,000 tariff exemption requests, only 1,800 had been denied.
The sanctions have made domestic steel manufacturing healthier—US Steel is restarting their blast furnace in Granite City, Illinois and Nucor is expanding production in Kentucky (and elsewhere). And, although volatile aluminum prices remain a risk, with some analysts suggesting that prices of new, top-selling model cars could rise to anywhere between $1,400 and $7,000 per vehicle, the automotive industry has thus far absorbed the tariff impact. If economic recovery sticks and trade disputes are not settled, tariffs will continue to provide price support for aluminum, nickel, stainless steel and titanium in 2019.
There are 415,000 metal producing jobs in the United States. In contrast, there are 4.6 million metal consuming jobs. Think about that. The potential downside to tariffs is far greater than any potential upside for the steel industry. I am betting cooler heads will prevail this year. In the end, I am hopeful that there will be some minor modifications to various multilateral and bilateral trade agreements around the world and that life will go on.
Q: Is blockchain as big a deal as people seem to think or is it over-hyped?
What does blockchain do for a company at the end of the day? That’s simple—it reduces the cost of networking and verification. Think about the cost of verification in your supply chain for a minute. In aerospace or other heavily regulated industries, like banking, it’s huge.
A blockchain allows a decentralized network of economic agents to agree, at regular intervals, about the true state of shared data. For manufacturing, there are lots of interesting advantages that blockchain has to offer other than the obvious immutability of the records stored in a distributed ledger and the fact that it often eliminates the need for traditional intermediaries or, at least changes the nature of intermediation. I like the potential blockchain holds for tracking transaction attributes, settling trades, and enforcing contracts across a wide variety of digital assets without traditional intermediaries taking a cut.
Until Bitcoin, digital goods had one main drawback—they were extremely easy to copy. Bitcoin solved this problem. One need only to think back to the days of Napster to recall the problems it created in the music industry. But what the advent of Bitcoin really did was provide a way for a digital original to be distinguished from any copies. Once technology made that possible, it was now feasible to assign property rights to digital assets so that you could move them through the economy as unique instances of the asset they represent. For the first time in history, you can distinguish between a digital asset original and a copy. What is significant about this is that blockchain now allows for the secure transfer and enforcement of property rights.
Q: So, that sounds exciting. Will blockchain be a game changer in the manufacturing supply chain?
Look, it’s a general-purpose technology which tends to take a long time to diffuse through an economy—years and, in some cases, a decade or more. Most people don’t realize that people were tinkering with communications protocols like TCP/IP (precursors to the internet) for years before the internet ever emerged as a game changer.
The short answer is that blockchain is already creating big waves in places where data about “things” and “transactions” are stored digitally and subscribe to a fairly standard naming convention and data taxonomy, and, where large, established intermediaries have traditionally served as gatekeepers between consumers and producers of goods and services. This is why you hear so much about blockchain in relation to Fintech, real-estate, banking, and legal/professional services. In the long term, I believe blockchain will lead to widespread productivity gains across multiple industries, including in manufacturing. In the short term, however, the inability of potential users in the manufacturing supply chain to exploit or assimilate the technology means that adoption will be slow.
The problem in the manufacturing supply chain is that most data about “things” and transactions is a hot mess. This goes back to some of the foundational things I discussed earlier. The data stored in most OEMs' ERPs or in the IT systems and solutions used by their subcontractors can hardly be described as "structured” or standardized. Therein lies the first problem. When it comes to blockchain or the exploitation of many other promising technologies (like AI), most companies have a lot of housekeeping to do before they can take advantage. A logical interim step before blockchain can be harnessed will likely be the adoption of multi-enterprise platforms to coordinate things like the timely purchase and supply of raw material, or the exchange of documentation and approvals between supply chain stakeholders. This inherently requires greater and greater levels of data standardization and moves a company in the right direction to adopt even more advanced solutions. The devil is, as they say, in the details. Finally, at the interface between the offline world and its digital representation (between a digital record and a physical individual, business, device or event), the usefulness of blockchain technology still critically depends on trusted intermediaries or innovative technologies to effectively bridge the “last mile.” IoT (things like RFID tags) is one example of a technology that can be used in certain circumstances to bridge the gap. The bottom line is that it will take standardization of the way records are kept and creative solutions to the last mile conundrum before blockchain really impacts the manufacturing supply chain. I predict that the real breakthroughs will be hybrid solutions that combine multi-enterprise platforms with elements of blockchain and IoT. Until then, most companies would be well advised to fix their data governance problems and complement their legacy ERP/IT/Engineering solutions with a decent multi-enterprise platform delivered in a SaaS model.
Q: Given the kinds of disruptions and technology innovations we have discussed, what advice do you have for OEMs and their supply partners?
A: I believe that, as Clayton Christensen described, disruptive innovation will continue to threaten entrenched incumbent players in many industries including automotive, aerospace, heavy industry, consumer packaged goods, medical devices, and so forth. OEMs can’t afford to be complacent. Eric Shinseki said it best – “If you don’t like change, you’ll like irrelevance even less.” The companies that figure out how to adopt and exploit recent technology advances (like multi-enterprise platforms, AI, IoT, and blockchain) will thrive. I also think that we live in an increasingly connected world where traditional barriers between separate economic actors in a supply chain, are beginning to blur. OEMs will increasingly dictate prices and sources of supply to their supply partners. They will use technology to choreograph interactions in the same way that a conductor directs a symphony, or a quarterback calls the plays in a football game. Complete E2E visibility is vital to improving performance and diminishing risk.
About Supply Dynamics:
Supply Dynamics provides dozens of leading Fortune 500 manufacturers with real-time visibility and control over the material requirements of their extended supply chain. Our innovative supply chain analytics solutions allow our customers to improve efficiency and predictability and to reduce the cost of raw materials and component parts that go into their products. To learn more, please visit www.supplydynamics.com.
