Recent events and new technology models are transforming logistics in manufacturing to be more resilient, agile, and adaptive
Adopting a short-term approach to operational resiliency reduces impact from third-party partners and disruptions.
Using a long-term, holistic strategy can embed agility and resiliency in the face of disruption.
Embracing new technologies, like 3D printing, will soon change the face of manufacturing forever.
According to the World Bank, COVID-19 has led to a reduction in global exports by 4.6% and global gross domestic product (GDP) by 3.9%1, which has disrupted the global manufacturing supply chain. And while the priorities of organizations around the world are to first safeguard their employees, another key priority is to also revive the business quickly.
During the initial pandemic period, the focus of supply chain leaders was on short-term stability, which was mainly focused on operational resilience. As the economy stabilizes and business continues, there is an immediate need to revive the global logistics system, which has not received adequate attention from company board rooms in recent times, especially in the area of offshore manufacturing. There is a short-term need to redesign the end-to-end process to drive efficiency and a long-term need to redefine manufacturing policies and supply chain strategies.
According to a report from the World Bank, COVID-19 has driven:
4.6% reduction in global exports.
3.9% reduction in global gross domestic product (GDP)
Rethinking logistics holistically
Much has been said about effective logistics management to gain competitive advantage and creating a dominant position over competitors. To gain competitive advantage, companies either generate internal efficiency or provide value advantage to their customers. Strategically, many successful companies look up to efficient logistics to gain these advantages to not only reduce significant costs but also use logistics as a strategic tool for competitive advantage.
The total logistics costs includes the cost of transportation, warehousing, ordering, and inventory carrying. To deliver high quality products and services, successful companies focus on total logistics cost reduction by means of redesigning logistics processes continually combined with technology innovation solutions.
What are 4IR technologies?
The Fourth Industrial Revolution (or Industry 4.0) is about transforming the economies by means of automation of traditional manufacturing and industrial practices using modern smart technologies like the internet of things (IoT), machine learning (ML), artificial intelligence (AI), Block Chain, 3D printing, robotics, cloud computing other technologies.
The need for a highly resilient logistics system
Many successful companies have adopted policies of offshore manufacturing to gain cost/productivity advantage plus a value advantage. It’s easy to assume they have stable logistics systems and their plants are well aligned with suppliers and their suppliers. However, in reality, their supply chain is fragile and is likely to be impacted from unplanned disruptive events (such as the current shutdowns due to a global pandemic). The industries involved in these kinds of offshore manufacturing scenarios need to build flexibility into logistics systems to respond with greater resiliency.
Impact of offshore manufacturing policy
Offshore manufacturing significantly lowers production cost. The manufacturing policies of offshore manufacturing have created variations in logistics processes and production control areas (such as quality, quantity, and time). For production and manufacturing, various best practices like Lean and Six Sigma are adopted to reduce variations and improve efficiencies. But, no such practices of improvement are being adopted for logistics processes, despite most activities in logistics processes not being supervised. Decisions regarding logistics are continuously being made based on visible costs (like transportation or warehousing) and not on total logistics costs (the sum of transportation, warehousing, ordering costs and inventory carrying costs).
In offshore manufacturing, failing to visualize logistics from its total cost concept directly impacts various business value drivers such as:
Cost of goods sold
Selling and administrative costs
As indicated in an April 2020 IDC report on COVID-19 Impact on Business and IT Services Spending2, many respondents across the globe have begun to look for alternative manufacturing hubs.
Short term: Redesign logistics processes within the next 8-12 months
According to the same IDC report, global supply chain leaders are predicted to drive process efficiencies to expedite supply chain recovery, estimate lead times, and determine optimal inventory volumes.
Lead-time management, speed, and flexibility become critical for those companies who have been ambitious in meeting customer demands and deliver their needs on time, every time. Dramatic process redesigns are called usually to reduce lead time and order fulfillment.
Lean and Six Sigma are the two business management strategies used to primarily identify/rectify the errors and defects in a manufacturing or service process. Similarly, it can also improvise and redesign logistics processes to help companies with the ongoing transformation by eliminating waste and inefficiencies in Inventory, Transportation, Warehousing, Packaging, Time, Knowledge and Administration.
As the current scenario continues to change the way we all do business, companies must look at embracing Lean and Six Sigma techniques to eliminate waste and inefficiency and reduce variations in logistics systems.
Many tools, technologies and concepts can help provide direction and scope for Lean and Six Sigma logistics implementation as shown in the following graphic.
Long-term: Redefine manufacturing technologies for the future vision
Industry 4.0—the digitalization of the production process across the value chain, coupled with data analytics, provides the ability for real-time decision making. This capability relies on a suite of digital technologies (including 5G, block chain, sensor technology, augmented reality, digital twins, and cloud platforms). Companies employing these technologies are stepping up to do more than merely survive but actually thrive during the current crisis.
Another important technology is 3D printing, which lets the manufacturer base their production facilities much closer to the end market and frees the company from relying on offshore manufacturing locations, delivering “least production” cost benefits. Many industry players involved in automotive, tires, aerospace, construction, spare parts, and engine production have begun embracing this technology and are exploring options for increasing its usage.
In 3D printing, the intermediate goods in the supply chain will be replaced by the raw materials needed to make the printing materials. Inventories held in upstream and downstream will be eliminated as the need to move them from one location to another on global basis will no longer be required. Instead, much simpler supply chains involving the bulk storage and movement of printer materials will develop.
For example, in the face of a global face mask shortage, as part of comprehensive precautionary measures against COVID-19, the Dubai Health Authority (DHA) was able to make face masks using 3D printing technology. In spite of a shortage of supply, the DHA provided over 1,000 face shields to its officials fighting the pandemic at the forefront.
Recognizing the importance of 3D printing, logistics companies too are investing heavily in this technology. Logistics major UPS launched its 3D printing manufacturing network in 2016. In collaboration with SAP, it rolled out 3D printers and a 3D printing factory, providing “manufacturing as service.” Similarly, FedEx created designated locations for 3D printing, which is at its early stage of development. (DB Schenker organizes the printing and delivery via its data platform.)
As more manufacturers adopt and use 3D printing technology, it is destined to revolutionize the face of manufacturing forever.
Summary: Embedding resiliency with a multifaceted approach
Logistics is all about people, processes, and technology.
It is about people who execute the processes. To attain business and operational excellence, logistics processes need to be redesigned on Six Sigma principles the same way that manufacturing functions do.
Technology innovations not only drive process efficiencies but can also completely transform operations and business models—like 3D printing technology. Leading technology partners can also help effectively enhance and manage a dynamic supply chain ecosystem by leveraging digital technologies and enabling data-driven insights to identify new, proactive approaches, opportunities, and driving informed, timely decisions. These technologies include enterprise applications, cloud computing, IoT, analytics, blockchain, mobility, drones, location sensing, satellite positioning, big data computing, and others.
The takeaway? It’s imperative that companies revive, reevaluate and redesign their logistics ecosystem to be more efficient, resilient and adaptable to withstand future shocks, achieve cost reductions and optimization, increase competitive advantage and achieve market growth—right now and for the long-term future.
1Source: The Potential Impact of COVID-19 on GDP and Trade; World Bank group East Asia and the Pacific Region Office of the Chief Economist & Macroeconomics, Trade and Investment Global Practice April 2020; p7-8
2Source: COVID-19 Impact on Business and IT Services Spending; by Chad Huston, Gard Little, Rebecca Segal
About the author(s)
Avinash Mishra is a Consultant with Consulting & Service Integration (C&SI) Supply Chain practice team of TCS. He has about 16 years of total work experience and has previously worked in Logistics Operations leadership roles in an engineering and manufacturing company and a global leading shipping and logistics company. He holds a degree in mechanical engineering, an MBA, and is a qualified Six Sigma Black Belt. He has worked with clients across industries and geographies, designing, developing and deploying leading-edge SCM practices.