There is a big loophole in the current state of supply chain management — the infrastructure is fragmented into offline and online components. As a result, this has led to misplacement of product and mismanagement of inventory; the supply chain management system is neither a single entity nor transparent.
There are various nodes in the supply chain:
- Sources of the raw materials
- Materials in process
- Finished goods
- Distribution network to deliver the finished goods
Out of these four primary nodes, the supply chain passes through millions of people along the way from harvesting the resource, distribution of the products and shelving the products for sales. When there are defects in a product, it becomes difficult for the manufacturer to trace the root of the problem. Another issue stems from unethical supply chain management to achieve cost savings.
As globalisation starts to pick up the pace, Nike was exposed as the epitome of ‘sweatshop labour’. In order to save cost, companies would outsource production to low-cost suppliers situated in developing countries. In turn, the supplier leverages its remoteness to hire underage labourers and severely undercut them. Though Nike knows nothing about the working conditions of the contracted labourers, they have faced reputational damage till today.
The supply chain management system is in dire needs of reform and OpenText (TSE: OTEX) — a tech giant in Canada and the inventor of search engine — has a solution. OpenText proposes the convergence of blockchain, IoT & AI to build a single and seamless network that connects all the nodes of the supply chain.
Internet of Things (IoT)
Traditionally, inventory management and forecast in a factory relies heavily on the audit of inventory every day. Worst of all, lead delivery time is forecasted based on past dealings with the contracted distributors. With sensors and IoT connections implanted on the machinery, the supply chain journey becomes ‘live’ and fully visible to the manufacturers. Thus, managers could track the delivery conditions such as weather patterns or travelling speed to predict delivery lead time better. Consequently, trust is built within the ecosystem.
Furthermore, the key decision makers could use the data collected to make timely business decisions. As stated in a report by OpenText, IoT could enrich the understanding of supply chain processes and transit monitoring, or provide ongoing connections for aftersales care, updates, and maintenance.
A large consumer goods company hire sixty crews on average to audit their inventory and capture the supposed gains. Ernst and Young (EY) decided to put blockchain to test. The report released in 2017 by EY concluded that it could inspect the stock without human labour. Blockchain proves to be not just a buzzword but of actual applicability.
According to OpenText, there are two ways that blockchain could boost efficiency in supply chain management.
- Smart contract: U.S. Fortune 100 companies have more than 60 days of sales outstanding. Smart contracts could automatically trigger digital invoice and payment once there is a proof of delivery. Thus, improving the efficiency and trust between companies.
- Public Distributed ledger: blockchain provides an immutable register to track every component and route of the product. For example, blockchain allows the traceability of high valued goods; cancelling out counterfeit items and illegally sourced raw materials. Blockchain also enables transparency in the supply chain system and reinforce brand ethics.
Artificial Intelligence (AI)/ Machine Learning
In 2017, Gartner reported that the rate of adoption for supply chain management software grew by 13.9% to $12.2 billion. Mr Balaji Abbabatulla, the Research Director of Gartner, said the accelerated growth is due to the crucial role SCM technologies play in delivering digital business strategies.
“As artificial intelligence matures, it can bring productivity by automating routine task and provide more effective support for complex decisions,” he continued.
Therefore, AI is needed in the mix to allow full automation to occur. Machine learning could be added as a layer on top of existing systems to learn the existing behaviour of business models and assets (from IoT and blockchain).
AI would then establish feedback loops making the whole system smarter. For example, artificial intelligence could forecast the amount of inventory to be sold and delivered for the following month based on consumer behaviour and delivery situations collected on IoT and blockchain. Ultimately, this would drive down the cost of holding the inventory and disposal of unsold products.
“We aim to use disruptive technologies like AI, IoT and blockchain to transform the supply chain industry and provide a digital vault for clients’ information,” Mr Mark Morley, Director of Strategic Product Marketing, Business Networks told Block Asia.
He further explains, “Our main focal points are to support the integration of the new technologies with clients’ existing system and provide institutional grade security for their data.”
With proper implementation of SCM systems, it can lead to improved supply chain ethics and reach optimum production levels. Most importantly, this would lead to lower production cost and increased revenue for every node in the manufacturing sector.
Image Credits: Google Image
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Originally published at www.blockasia.io on Dec 28, 2018.