Digital Transformation – A Means to Build Operational Resilience
Published on : Monday 13-07-2020
Organisations with strides towards DX seem to be much more resilient and are expected to recover and ramp-up faster, emphasises Sampath Kumar Venkataswamy.
Resilience is defined as the ability of an organisation to pre-empt a market disruption and react by rebalancing or resequencing its shop floor operations to minimise the overall effect on business profitability and revenue. Data will be the foundation upon which the overall strategy around mitigatory plans are built. But generating and storing data can be quite challenging without an enabling process core ably supported by technologies such as IoT, Cloud and BDA. The overall process of using data in creating insights that feed into the decision-making frameworks is what can be termed as Digital Transformation (DX). The focus of DX drive should be skewed towards creating a highly transparent, automated, coordinated and a collaborative ecosystem.
Digital Supply Chain and its role in building visibility
The upstream value chain can be extremely complex, and the point of contention has always been how far should I be able to see in terms of my supplier operations and the answer is quite simple – it's all the way! With one part of the world shutting down (China), most organisations woke up to a rude realisation that their strategies have hinged around cost reduction rather than risk mitigation. Starting off with absolute shutdowns to delayed shipments due to logistics meltdowns and confusion across customs clearances, the situation and the associated challenges became multi- fold.
From an operational point of view, we already see a lot of traction from the supply chain line of businesses (LOBs) for identifying the need for applications and technologies that can help them with increased visibility of raw material inventory and safety stocks. For instance, most of the manufacturers, in anticipation of the cyclical supply crunch that happens during the Lunar New Year have stocked up extra inventory during the last quarter of 2019. In normal circumstances, the extra inventory buffer would last a month, but because of the Covid-19 induced crisis, organisations were able to draw it out further because of tepid market demand.
Forward-looking companies have built in contingencies in the form of increased inventory holdings to mitigate themselves from potential supply shortfalls and have additionally invested in technologies that enable them to identify symptoms way ahead of time. For example, these organisations have relied on Machine Learning (ML) algorithms to identify lagging indicators such as the increasing number of infections in China towards the end of 2019 and can communicate to their dormant supplier base to be on stand-by in addition to padding extra inventory. But the situation changed drastically after the 1st quarter of 2020, with organisations highlighting substantial demand slowdowns and reduced discretionary spend, the challenge then was to reduce the inventory holding because of uncertain market demand. And having surplus is as bad as having shortages and again data would act as the channel that helps align the S&OP metrics with the manufacturers supply requirements.
In terms of situational preparedness, the data across the supply chain would aid in creating what- if scenarios and solutions which can be triggered to be executed whenever a leading or a lagging indicator gets flagged for inducing a potential disruption. These solutions can then adjust variables within the value chain that can be optimised to ensure that the effect on the shop floor operations is as minimal as possible. By segmenting the raw materials into high, medium and low risk buckets organisations can look at several mitigatory measures by considering trade-offs such as ‘make vs buy’, ‘single vs multi sourcing’, ‘stocking vs leaning’, etc., all with an intention of reducing operational risks.
Automation and robots to the rescue
When the supply side challenges are sorted, organisations would then need to focus on their in- house operations and ways to make sure that they are in sync with the New Normal Post the lockdown relaxations, lot of organisations are finding ways to maintain their productivity levels with reduced human workforce along with the added responsibilities of increased monitoring. Havells, for instance, started using artificial intelligence product called Trust AI which along with IoT analyses live data feed and send out alerts whenever employees breach the minimum distancing thresholds. The product also flags whenever PPE or safety gear regulations are not adhered to by sending out notifications to operations supervisor.
One other way to work around increased physical distancing norms is by implementing solutions not to replace workforce but to augment in the form of collaborative robots (cobots). Traditional robotic deployments are quite elaborate and can be time consuming; in the current business climate, organisations are more comfortable and prone to creating a hybrid environment which can aid in addressing the distancing norms while reducing human fatigue generated through repetitive actions. For example, organisations such as Bajaj auto have already implemented cobots which have proven effective under the current circumstances for addressing the vacuum created due to lack of workforce availability.
Robotic process automation (RPA) for reducing transaction times
Lack of workforce to process approvals and paperwork has resulted in payment claim delays for the ecosystem stakeholders. The implementation of intelligent data-driven decision-making platforms aids in reducing the efforts related to purchase order creation, quotation management, bill of materials (BOM) creation, homologation documentation and compliance while matching invoices with delivery and shipment notifications. Organisations which have implemented RPAs have managed to achieve efficiencies of over 25% in processing invoices despite the unavailability of support staff. The underlying thread continues to be the presence of data which can help in integrating the various silos for creating a single comprehensive view that is both efficient and effortless.
Is DX the panacea for every challenge?
Organisations with strides towards DX seem to be much more resilient and are expected to recover and ramp-up faster than the rest. As the following figure indicates, the recovery time is substantially lower for organisations that are invested into DX initiatives. Though the impact on
revenues depends heavily on the sector and the products that the industry caters to. For instance Elgi, a compressed air equipment maker, was one of the several companies that managed to weather the crisis through a series of data-enabled processes such as advanced inventory planning, product prioritisation, shop floor layout redesigns, purchasing decision logics, payment extensions, renegotiated transportation contracts and topped up with automation drives on the shop floor which was possible because of their pro-activeness and long-term vision centred around lead time reduction.
Can organisations attempt a DX drive in midst of the current crisis – the answer is probably NO because the focus for several organisations currently is to keep the shop floor operational. Organisations are lamenting on the fact that they should have acted earlier and should have enabled infrastructure that allows remote connectivity and virtualisation options to keep the peripheral processes running. But the downtime is also an opportunity for the digital laggards to start identifying the process gaps and look at investments that can bridge them through a combination of optimisation drives supported by emerging technologies. The idea is to build on these digital initiatives and find ways to increase the benefits by both resisting the similar disruptions and learning from the current crisis to become resilient.
What is the cost for doing nothing? – A call for action
Organisations have begun to understand that the ‘cost of doing nothing’ is extremely high and directly impacts its standing in an increasingly demanding market where competitive differentiation is determined by the ability to subsume operational data. And DX initiatives are no longer considered as part of the discretionary spend in an organisation's budget but rather a non-negotiable aspect which would be considered essential and necessary to support the growth of the organisation. As they say ‘Never let a good crisis go for waste’, it is imperative that organisations understand that disruptions are more like stress tests that allows them to benchmark their current business processes and also an opportunity to redefine their ability to stay agile in an increasingly uncertain market.
Sampath Kumar Venkataswamy is a Research Manager for IDC Asia/Pacific Manufacturing Insights based in Bangalore. He is responsible for research and analyses of key trends, best practices, and applications for manufacturing operations technologies. He is also responsible for delivering custom research that assists clients in making key technology investment decisions, advisory and competitive landscape for the next wave of manufacturing value chains. Mr Venkataswamy has over 13 years of manufacturing and consulting experience in TPM, six- sigma, supply chain planning and execution across the manufacturing space. He is also a co- holder of 2 engineering patents and prior to joining IDC, he worked as a supply chain and manufacturing operations consultant with ITC Infotech and was the chassis engineering lead for Tier-4 locomotives at GE Transportation.