Intelligent supply chain refers to the next generation methods for procuring materials and producing and managing the physical goods necessary to fulfill on orders from your clients. It tries to enable value maximization, cost optimization, risk minimization, and business automation through harnessing the value of data, technology, and transformed procurement processes in fulfilling these orders. Traditional sourcing practices rely on a multitude of assumptions and are prone to unpredictability in both supplier performance and market conditions. Inefficiencies can occur at all levels of the supply chain. Intelligent supply chains overcome these inefficiencies by enabling organizations to secure capacity with world-class suppliers at predictable costs; collaborate with strategic suppliers to accelerate innovation; transform the experience of internal customers through automated requisitions, contract management, and touch-less invoicing; and monitor supply risks in real time to proactively optimize end-to-end operations.
Intelligent supply chains seamlessly integrate the strategic, operational, and tactical source-to-cash activities through the series of new capabilities. These crucial new capabilities include intelligent sourcing, contract management, category management, supplier network collaboration and supplier analytics.
Intelligent Sourcing
By nature, traditional sourcing is a laborious, time-intensive, and error-prone manual process. It is typical for even leading organizations to have a big team performing detailed manual transactions involving order release, quantity confirmation, material delivery notification, price matching, invoice matching, payment clearance, and settlement. The different ERP systems involved in this process usually do not talk to each other and have different document formats, further complicating this process. A massive level of efficiency is lost here, when one calculates how much time is consumed in transactional activities by the strategic sourcing team.
With the advent of intelligent supply chains, most types of transactions can be automated, resulting in an immense gain in efficiency, higher accuracy, and enabling supply chain managers to be engaged in more value-adding activities. This extends to their vendor partners, who can be seamlessly connected with the organization’s network, gaining access to demand forecast visibility and real-time inventory. Based on the demand signal, an automated purchase order can be released by the organization, the supplier’s system reads this order, a warehouse order is created referring to the date and the quantity of the purchase order; then a shipment order is created automatically that is used for the transportation and sending shipment notification to the organization along with the invoice. Finally, the material is received by the organization’s warehouse; the supply is matched against the requirement; and the invoice is paid automatically as per the payment term. With intelligent supply, this entire set of activities can be performed automatically. Weeks spent on order matching, invoice matching, manual payment processing, and settlement can become activities of the past.
Intelligent supply chains incorporate systems that accommodate multiple formats and channels to receive invoices, and systematically convert purchasing orders (POs) to invoices for touchless transaction processing. These systems use numerous electronic invoicing technologies to process all invoice types. Techniques such as automated two-way and three-way matching and streamlined exception resolution minimize invoice processing time and enhance supply chain financing and dynamic discounting capabilities. Only outlier cases flagged by the system need human attention.
For new supplier identification and onboarding, intelligent supply chains can digitize sourcing processes for quick screening and setup, including self-service registration for suppliers, competitive bidding, contract compliance, and online negotiations. It provides real-time ability to assess a supplier quote against decision criteria, including comparing it with cost analytics and commodity index, to select the best supplier. Intelligent supply chains can also leverage cognitive analytical tools to identify a best-case scenario for the award of a contract and generate insights for price negotiations, ensuring savings in time and resources. Rate validation bid analysis and compliance could be performed through software suites with artificial intelligence and robotic process automation. Once onboard, automatic demand sensing and quotes of new products and services can be enabled to add value and efficiency in the identification of the execution process.
For an end-to-end automation with strategic sourcing, a smart contract enabled with blockchain is also getting popular. It automatically executes the transactions against the predefined rules of the contract that have been encoded in the blockchain. Transactions like delivery, quality checking, payment, and settlement will happen through smart contract rules without the necessity of contacting a centralized authority like a bank.
Intelligent supply with connected and automated processes also streamlines compliance through real-time monitoring and control. Compliance rules in the system generate the alerts for review as soon as the system senses any noncompliant activity. Machine learning algorithms can be used to predict a noncompliance before it happens to allow preventive measures to take place. In essence, smart sourcing execution automates the vendor selection-to-sourcing execution transactions in a transparent, connected, compliant environment.
Intelligent Contract Management
A contract is a binding agreement between the organization and its vendor partner. The contracts are written to detail the terms of supply, quality, and payment while hedging the risks inherent in the relationship. Risk factors like order lead time, product quality, payment terms, and so on can be reduced through performance clauses in the contract. In traditional supply chain management, substantial manual effort is involved in writing contracts, negotiating terms, and monitoring performance execution against the contracts.
Intelligent supply promotes proactive contract management by using digital tools to create the contract and then manage it. The contract lifecycle and activities are facilitated through customized workflows. Contracts can be created and negotiated based on automated rule systems that enable both parties to define and negotiate the terms in a clear and transparent manner. The contract negotiation is inherently iterative and the artifacts of the process can be stored on blockchain to enable complete transparency and enable verification. Once the terms have been defined, they can be encoded into smart contracts on the blockchain used to track all of the interactions with the vendor partner.
This connected, always-on system monitors the performance relative to the contract over the lifetime of an order. With any detected deviation, an alert is generated, triggering an agreed upon action. Key performance indicators (KPIs) are continuously monitored in real time and are compared against the contract terms. Machine learning algorithms along with sensors on the materials are connected through a digital network and can be used to predict a violation or spawn an early preventative action.
Most traditional procurement contracts are written to minimize the risk of the involved parties. In the digital supply chain environment, end-to-end transparency and connected data systems foster trust to build a collaborative contract in which the terms are guided by the shared vision of mutual benefits, trust, and fairness.
The digital technologies support contract management built on a foundation of trust and are shaped by a shared vision and six universal guiding principles: reciprocity, autonomy, honesty, loyalty, equity, and integrity. Reciprocity aims for the terms and decisions for mutual benefit; autonomy harnesses the freedom to make a decision based on value addition; honesty and loyalty are about the intention to do the right thing for the mutual long-term benefit instead of short-term risk hedging; equity is about being fair with the other party’s business; and integrity is the alignment of agreement, intention, and action.
Higher automation of work activities can be achieved through a “smart contract” coded on the blockchain. Both traditional and digital contracts have historically required a centralized institution like a bank to honor the transactions as per the terms of the contract. A smart contract decentralizes and automates the transactions based on the rules coded in the blockchain-enabled contract. Hence, as soon as an activity is confirmed, say a material delivery against a purchase order, the payment automatically gets processed as agreed by the terms and as coded in the smart contract.
In summary, collaboration in writing the rules of the game, monitoring them and enforcing them is completely changed in the new paradigm of an intelligent supply chain.
Category and Product Management
A category and product management strategy is essential to business strategy; the category managers, while working with the business units, identify the supplier and product category for business planning and execution. Categories are generally identified for product groups or supplier groups. MRO, direct material, IT, logistics, and professional services are examples of commonly used categories. In intelligent supply chain for category management involves re-imagining processes and digital technologies to identify the category, develop a coherent category strategy, and then support execution workflows necessary to fulfill that strategy.
Spend management tools and spend analytics are used to identify categories with reference to past actual expenditures and future plans. Along with advanced demand sensing capabilities, these inputs can be used by both the organization and it’s vendor partners to optimize both their individual and joint business objectives. Collaboration tools can be used to share the forecast and budget plan with the suppliers to enable truly synchronized planning.
Real-time market intelligence about suppliers, commodities, and other product groups supports strategy execution, monitoring results and providing alerts and proactive actions when supply chain disruptions are likely to occur. These control towers can coordinate information and actions across multiple ERP systems to enable visibility into sensor data, market information, pricing, and demand-supply fluctuations. These enable the supply chain analyst to intuitively understand what is going on in their business and take real-time actions related to category management.
Supplier Network Collaboration
Supplier network collaboration is one of the most critical capabilities of intelligent supply chains. This level of partnership, which was only dreamed of in the past, can be achieved now with the usage of Multi-Enterprise Business Supply Chain Networks. Supply network collaboration fosters innovation, increases revenue through a faster product development cycles and improved customer satisfaction and reduces costs through higher operational efficiency.
Building control towers and execution applications on top of this network enables them to benefit from the real-time exchange of information between organizations and their vendor partners. Suppliers and contract manufacturers can receive demand forecasts from the organization, share their capacities, and confirm their commitments against the demand. For any mismatch of the demand with the supplier commitment, an optimization engine can help to synchronize planning across the network and make adjustments as market and supply conditions change. The inclusion of the supplier and contract manufacturers with real-time data and real-time collaboration can dramatically reduce the current operational drags from insufficient information or ineffective communications.
The supplier network is an integral part of innovation and product development strategy. The speed to market for a new product or service can be improved by using supplier networks for their technology, specialized knowledge, and processes for bringing new products to life. A supplier connected through the organization’s network plays a more active role in product development, design validation, prototype development, testing, and logistics validation.
The power to innovate can be multiplied by collaborating with other organizations to manage an innovation ecosystem. An innovation ecosystem can be viewed as the “melting pot” of different organizations in buyer-supplier relationships involved with product design, manufacturing, marketing, testing, personnel supply, and so on. These participants work on one connected network to inspire, design, manufacture, and distribute the products that serve their market. All of the participants in the ecosystem gain from the collaboration. The ecosystem systematically increases the knowledge, capability, and involvement of key parties and generates greater potential for success by merging R&D strategy with a supplier management strategy. Innovation work can further benefit by involving a larger and more diverse population through crowdsourcing. There are multiple technologies to support crowdsourcing and numerous successful examples in which the organizations have tapped their supplier network for crowdsourcing product and service innovation.
Intelligent supply chains can act as a platform to provide structured and effective collaboration between buyers and suppliers by providing them with real-time visibility to transactions (orders, invoices, ship notifications, payments) and performance metrics. It leads to reduced risk, improved contract performance, and higher savings. It also enhances supplier partnership in mitigating risks and generating mutual value by using shared financials, forecasts, and alerts.
Supplier Analytics
The KPI metric mostly used in the SCM process is an “on time in full” (OTIF) score for a supplier. Based on this, suppliers are ranked in the context of their product and spending value categories. Intelligent supply chains can enable enhanced supplier analytics to understand the characteristics of the supplier and their processes that lead to better OTIF scores. At the same time, the system generates and monitors multiple other indicators related to purchasing, costing, lead time, category management, and delivery performance for a holistic understanding of the busines and how it generates value for the organization.
Holistic supplier analytics can be represented through a supplier control tower where dynamic performance analytics are generated in the cloud and shared with suppliers. Transformed supplier analytics enable predictive supplier management with early insights about risk, shutdowns, shipping issues, and capacity constraints. Alerts can be generated based on the actual or predictive failure (through anomaly detection algorithms), and workflows automatically be triggered for responsive action. The control tower integrates the synchronized planning and dynamic fulfillment capabilities to sense the demand in real time and react to it. It has complete supply network transparency as products and materials move through the workflows of vendors, manufacturing, logistics and fulfillment.
Understanding each component of cost, margins, critical design elements, technology, and process constraints enable companies to collaborate in optimizing across the network, reducing both costs and risks. The expected level of collaboration and information sharing about the cost and margin can only take place in a trusted relationship guided by the shared profit. The trust generation is fortified through the transparency available through the network and the blockchain tracking each transaction.
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