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There’s no Replacement for Supply Chain Resilience
Björn Baur, Head of Consulting, Siemens Digital LogisticsIsabella Urbanke, Senior Consultant, Siemens Digital Logistics
When replacement parts are needed to keep a business running, time is of the essence. For farmers who need to harvest their crops in the span of a few precious days, having a quick and reliable supply of equipment parts is actually of existential importance. But what happens when a crisis disrupts the supply chain? Or when the main warehouse is located in a coronavirus hotspot?
New times call for new ideas. Businesses have long been thinking about how to better protect their supply chains against unforeseeable risks. Not long ago, decisions were driven primarily by cost considerations. Today, the focus is on delivery capacities and the underlying resilience of supply chains.
Caught off guard by a real-life scenario
Our customer, a manufacturer of large agricultural equipment, faces a clear question: How should logistics and service structures be set up to ensure that farmers can always count on urgently needed replacement parts during the harvest season? How can the network of sites and suppliers be made resilient against any crisis?
The motivation for this self-examination is a real-life scenario linked to the coronavirus pandemic that caught our customer by surprise. When the first wave hit the company at the end of March, followed by the lockdown, the only way to maintain the output of the main warehouse was to introduce strict hygiene measures and spread the workforce out across multiple shifts. But what would’ve happened if this scenario had caught the company unprepared at the height of the harvest? The situation would have been even more dire for our customer if a COVID-19 outbreak had occurred at the site itself. A closure of the main warehouse probably would’ve been unavoidable.
Corona isn’t the only crisis
But a global pandemic isn’t the only conceivable crisis. A fire or a disruption of the highly automated storage technology could also unleash a crisis. Even labor unrest could have far-reaching consequences for warehouse operations. This threat is not unique to the agricultural machinery sector, of course. It can affect any industry whose revenue stream or core service to customers depends heavily on the ready supply of parts.
Siemens Digital Logistics had already conducted several successful network studies with this customer in the past, and so they turned to us for consulting here as well.
How did we approach the task? A look at the initial situation showed a common scenario: a large main warehouse for the full range of replacement parts, plus several regional warehouses for parts needed frequently or locally during the harvest season. But we asked ourselves: Is this structure really flexible and resilient enough to ensure that customers get what they need when a crisis hits?
Balancing costs and service
Our vision is to provide our customers with a solution that strikes the perfect balance between cost and a reliable supply to their customers at the highest level of service. One of the tools deployed here is the digital twin, an IT consulting tool that can be used to create a dynamic model of the interplay and interdependency among various nodes in a network – and above all, under real conditions.
So we played through various scenarios with our customers: How do the number and location of sites affect supply chain performance? What would it mean to expand the supply of products available in the regional warehouses horizontally or vertically? And how secure would the supply of parts be if the end customer were supplied from a second warehouse as a fallback solution?
Data-driven planning scenarios and modern IT tools make it possible to pre-empt a crisis with sophisticated solutions before it catches you off guard. Here we were able to score yet another success in close collaboration with our customer.
It’s all starting to click
Kadir Dindar, CEO Siemens Digital Logistics
The time has come for technology skeptics to finally get off the fence. “The coming years will usher in a digital decade like nothing we’ve seen before,” predicts Oliver J. Süme, Chair of the Board at the Internet Industry Association eco. Embracing digital technology is absolutely essential for every company and business model, and decision-makers across all industries need to understand this, remarked Süme in an interview following the publication of eco’s latest study, a collaboration with management consulting firm Arthur D. Little.
It all started to click quite some time ago in the multi-trillion-dollar logistics industry, which accounts for a double-digit share of global GDP. The industry’s drive toward digital technology, bolstered by the COVID-19 pandemic, is accelerating processes of transformation. But drive alone is not enough. Those who wish to harness the power of change in their own company must be clear about their strategy, objectives, and timeline for implementing this technology.
What is the point of digital solutions if they don’t address the needs of customers? What is the benefit of increased efficiency if it’s not tied to new KPIs? What is gained by automating processes if employees are worried about losing their jobs?
Seeing digital transformation as a radical, holistic process of change
A study by accounting giant Deloitte found that 85 % of all companies have undergone at least one, and on average four, business transformations in recent years. And yet, just under one-third of these companies achieved the stated goal of their transformation. What’s behind this?
We must be clear that any business transformation is a radical, holistic process of change that encompasses strategic, technological, organizational, and even cultural aspects of business management. The pace at which a company transforms itself digitally depends on many factors. What ultimately matters is the willingness to turn structures, processes, and systems on their head.
Easily said. But is it also easily done? IT experts agree that two areas are key here: the corporate culture and the software that enables the technological transformation. While culture is needed as a foundation for change, software provides the tools to effect that change.
Drivers of success on the path to a digital future
A whole range of critical success factors also come into play in the digital transformation of logistics. Here are a few tips for making the most of trends in technology as we enter this unprecedented “digital decade”:
- 1. Create awareness of what tech can do
Only when all employees understand what digital technology means and how it can improve their own workflow will intentions turn into broad-based actions.
- 2. Embed technology goals in the corporate strategy
The embrace of digital technology is not an afterthought, it’s a key component of a company’s evolution. It ensures long-term viability, so it factors heavily into corporate strategy.
- 3. Put customer experience and use cases front and center
The more specific the use case, the clearer the day-to-day benefit of digital applications and processes will become. This increases acceptance among employees and boosts productivity.
- 4. Move quickly to implement
When users see the gains realized quickly, the success becomes tangible and leads to better acceptance of new applications and processes. Modest interim steps help maintain the feeling of momentum in the digital transformation process.
- 5. Set aside sufficient IT resources
The introduction of new technology requires expertise. IT expertise will be required in greater measure to ensure a successful implementation, and not just in the initial phase. It’s important to build up internal resources or ensure they are available through external partners.
- 6. Invest in intuitive, user-friendly solutions
Modern IT solutions need to be as easy to use as a smartphone app: intuitive and user-friendly. Then things will click into place from the get-go – for customers and employees alike.
One more key point: The implementation of a digital infrastructure cannot and must not falter simply because a company has a limited budget for investments or IT! Small and medium-sized businesses, which account for a big share of the industry, should have an equal opportunity to participate in technological progress. Thankfully, this is easily doable with today’s cloud-based software and platform solutions.
The 5-point check
Jürgen Schulz, VP Consulting, Siemens Digital Logistics
All change requires willingness. We need to make a move. But we can't take move forward if we have no idea of what we want to achieve with this change. As a logistics specialist, what is your understanding of the digital transformation? Are you ready for technological change? Or are you still a work in progress? The 5-point check from Siemens Digital Logistics helps you to determine your current position. And it clarifies what's important on your journey into the digital era.
1. Do you think digitally?
We write e-mails, use accounting programs, and optimise routes online. But does that make us digital? Most logistics specialists are still living with media and systems interruptions. With patchwork solutions made up of both analogue and digital applications. This is where worlds collide, costing time and money and causing errors. Digital change starts when you stop thinking in terms of departments, work areas, and data silos and start thinking in terms of processes. What's important is the seamless, automated meshing of actions and events. It's an invisible cord linking the service provider, data, and information – right from the call-off order to invoicing for a specific job. Thinking digitally primarily means thinking holistically and in terms of a series. And what do you think?
2. Is your digitalisation strategy on ice?
That's about as useful as having it just on your own desktop. After all, if you're thinking along new lines, you need to know where the lines lead. And this is important not just for management but also for the entire staff. At the end of the day, digital transformation brings about deep-reaching changes that can cause anxiety and uncertainty. Nonetheless, digitalisation can only really work if it is embraced by all of your employees. A digitalisation strategy doesn't merely define the measures and milestones of the transformation process. It's also, so to speak, a guiding principle for your emergence into a new world. Like with all major goals, easy-to-manage substeps and feedback structures help to bring about a motivational sense of achievement and enable you to shape your own change. So when's your next meeting with the project team?
3. Are you trying to rediscover the world?
Then you need to be a true Hercules. Or to see your task for what it is. After all, we should never forget one thing: Digitalisation already started infiltrating our world of business when zeros and ones showed up in binary code. And decades have passed since then. In times gone by, IT was a closed book. It was a really expensive undertaking that cost companies an endless amount of effort. But in today's cloud era, nobody needs to rediscover the world or even set the world on fire. Platform solutions such as AX4 deliver the full infrastructure for the continuous digitalisation of logistical processes and smooth collaboration in logistics networks. Configured, ready-to-use software modules can be integrated into any business quickly and easily. Are you on the right track? If you've been puzzling over a new IT solution for months already but the beta phase keeps going wrong and the implementation deadline's been pushed far back, you're probably barking up the wrong tree.
4. Unsuccessful so far?
In the modern IT world, there's a shortcut for learning curves. Instead of getting a bloody nose when the forces of digital change throw you off course, why not send a colleague into the fray: a digital twin! Anything can be achieved with a virtual copy of the real world. What happens if I increase the volumes in my system by a third? What effects would a lockdown have on my logistics processes? How can I dampen the effects of a pandemic on my network? You can now run through any conceivable scenario or action without any risk! The digital twin consulting model provides companies with answers to strategic logistics questions and makes failure part of the path to success. And when did you last fall flat on your face?
5. Am I a supply chain leader?
Logistics specialists who want to know how far digitalisation has advanced in their company and where they are in comparison with the competition can carry out a digital maturity check with Siemens Digital Logistics. This allows your current position to be determined in comparison with digital supply chain leaders, provides information about possible action areas, and forms the basis for a custom key performance indicator system that constantly increases the quality of processes. Are you already a supply chain leader? Or would you like to be one in the future?
We can get you ready for the digital transformation!
What if …?
Kadir Dindar, CEO Siemens Digital Logistics
Back to business as usual? Regardless of how or even whether we’ve settled back into our old routines after the coronavirus shock, the pandemic offers us an opportunity to reshuffle the deck. I’m now seeing customers and business partners in re-invent mode. Many are using the crisis to critically examine their business model, probe their supplier structures, and put their value chains to a stress test. Good timing? An historic opportunity!
At a moment such as this, in-depth simulations are not only welcome, they may actually be urgently needed. The sudden economic halt forced upon us in recent months threw us all into a ditch. Who will help us back onto our feet? How can we get our businesses up and running again as quickly as possible? What if …? Well, what would actually happen if, after the corona timeout, we found the courage to try new things or do old things differently?
Seizing the opportunities of the crisis without provoking a new crisis
To seize the opportunities of the crisis without immediately provoking a new crisis, we must be able to try out new ideas and strategies without risk. And at a manageable price. One thing is for sure: After this state of emergency, we need to get a clear picture of how to move our businesses forward. And how we intend to deal with future situations that no supply chain manager had anticipated.
What if …? For those who want to explore this exciting question under real-world conditions, I can recommend a brilliant sparring partner: the digital twin. The digital twin has its origins in the industrial sector, where for years it has been doing great work providing virtual function-testing of new machinery and systems. The use of CAD and 3D modeling in digital product development is just one example.
Think big! Making the future predictable
The digital twin has since found its way into the logistics industry as a systemic consultant able to successfully mimic performance and execution. Here it can fine-tune logistics networks, visualize the effects on supply chains, and apply actual data to show how changes would impact existing processes, structures, and quality indicators.
Under these conditions, it becomes possible to achieve perfect predictions through digital simulation. Like image editing software that instantaneously previews changes in cropping, color saturation, and lighting, the digital twin gives a real-time glimpse into how changes will play out in your logistics. Would you like to be able to predict the future? Think big!
Defining the path to success
The nice thing about this digital consulting model is that it also works the other way around. If you project your desired results into the future, the digital twin will show you how to get there. All the parameters that define the path to success can be identified precisely in the digital model of reality. This model can even be used to make the benefits of digital technology tangible.
At Siemens, we’ve always seen the digital twin as a partner. It has accompanied us and our customers on our journey to the innovations of “Industry 4.0.” Whether it’s about digital transformation, automation, or artificial intelligence: The digital twin shows its strengths in nearly every application. Its support is vital to nearly every research project.
Shaping forward-looking logistics solutions
“The best way to predict the future is to shape it yourself”: Those words, so apt today, were uttered in the last century by French economist Jean Fourastié. In my view, the best time to start shaping tomorrow’s logistics solutions and services is now.
What if …? We at Siemens Digital Logistics are ready to assist anyone who wishes to put this question to the digital twin.
Learning by Doing Digitally
Kadir Dindar, CEO Siemens Digital Logistics
Do we still need offices? Are business trips necessary? I’ve witnessed a profound change of heart in my recent conversations with customers and business partners. As we all adopt new ways of working amid the coronavirus outbreak, we’re discovering: “This actually works!” In many cases, it actually works better than ever before. Instead of sitting in traffic, we’re working on our projects. Meetings actually stay within the allotted time. The pandemic is becoming a game-changer. And working from home is accelerating our acceptance of digital technology. Stay-at-home orders? We’ll meet in the cloud! After just a few weeks, we were working normally in our virtual spaces – and just as efficiently as in our pre-pandemic business environments.
Easily transcending time, space, and self-isolation
Who could’ve imagined this? The debate over whether and how the digital revolution can succeed, the reluctance to embrace an issue long fraught with skepticism in the logistics industry – all this has given way to “learning by doing” in the digital sphere. We’re simply doing it, because there’s no other way. No one right now is feeling the pain of a long-overdue process of change. No one in these unusual times can afford to continue endless debates. The digital revolution is happening here and now – basta!
The global pandemic has forced our hand and catapulted us into real-time mode. Even those who were still on the fence now recognize the new reality – a reality much richer than the vague foreboding they felt before. The crisis has shown businesses how modern IT solutions help their teams easily overcome the limitations of time, space, and stay-at-home orders.
Digital technology has become our saving grace in a crisis. It provides the infrastructure for our economy and for an industry that the public has suddenly recognized as essential. Germany’s “Council of Logistics Experts,” drawing on a recent survey, believes that the digital transformation of the logistics industry will accelerate after the crisis. But most respondents planned to take a break from pushing ahead with such efforts in the current situation, the Council reports.
Putting aside doubts
Take a break? After the crisis? I would like to encourage my fellow logistics professionals to seize the valuable momentum that is helping us through the current situation and apply it to the digitization of logistics processes – and to put aside the pre-programmed doubts that have held up innovation in the past. Because when you get right down to it, collaborating in the supply chain with existing IT solutions is just as easy as collaborating on projects using Microsoft Teams, Skype, or Asana.
Three reasons why now is the perfect time to push forward full throttle with digital logistics:
1. Everything is already in place
Digital supply chain management solutions and services already have a long and successful track record – and are now ready to go with the click of a mouse. This includes cloud-based platforms and tools for integrating service partners, managing orders, and achieving end-to-end visibility of supply chain processes. State-of-the-art APIs make it quick and easy to integrate existing systems.
2. There’s zero risk
Logistics lives from constantly recurring, comparable processes and scenarios. We’ve studied this in thousands of projects and used our insights to develop software and consulting tools that fit any scenario. The “digital twin” consulting tool that we use at Siemens Digital Logistics makes it possible to fully simulate logistical concepts based on actual conditions and real-time data – while taking into account all conceivable contributing factors. This eliminates the risk of long implementation phases and expensive learning curves.
3. Ecosystems ensure growth
Standalone solutions leave you standing alone. They make it harder for you to adapt your logistics networks to new customers and new challenges. Today’s ecosystems provide the IT infrastructure for dynamic, flexible growth in all directions. They offer innovative IT solutions that are continually evolving. They make it possible to utilize and share data, make more informed decisions, and streamline processes.
Germany’s KfW development bank believes that the coronavirus crisis will unleash a digital boom in the small and medium-sized business sector. “Corona is forcing smaller companies to up their game,” the banking giant observes. I wouldn’t see this as something forced. I see it as an opportunity to set aside skepticism and finally implement long-deferred digital upgrades.
New top decision-maker in logistics
Jürgen Schulz, VP Consulting , Siemens Digital Logistics
Supply chains are sensitive. They are vulnerable to strikes, weather disasters, pandemics. The larger the network of suppliers and production partners, the more influencing factors determine the performance of the supply quality. How can reliable decisions be made at all on the basis of this permanent volatility? How can supply chain managers reliably evaluate the effects of failures or deviations on subsequent events?
Anyone who makes decisions of great importance for the supply of his customers and the development of the company from the gut risks more than an upset stomach. At best, the gut evaluates the situation as it presents itself – on the basis of key data and empirical values, but not on the basis of dynamically developing parameters.
Entrepreneurial foresight is now supported by data. A picture that reflects the current operational status emerges from a mass of validated, project-related data. But what happens when the lines and contours of this picture shift, when colours and shapes change?
With the Digital Twin you can sketch exactly that. The IT tool is used to create a virtual image of the real logistics network down to the last detail, which relates the complex, interdependent things and conditions in logistics networks to one another.
Mit dem Digital Twin lässt sich genau das skizzieren. Bis ins Detail wird mithilfe des IT-Instrumentes ein virtuelles Abbild des realen Logistiknetzwerks erzeugt, das die komplexen, voneinander abhängigen Dinge und Zustände in logistischen Netzwerken in Beziehung zueinander setzt.
Deficits can also be brought to light with the Digital Twin
In this phase of decision-making, logistics experts can playfully try out how different concepts and ideas affect practice before they are implemented in reality. They can simulate how events and changes – including unpredictable ones – affect the supply chain. This makes the Digital Twin a classic Decision Support System.
Even existing deficits can be brought to light with the Digital Twin. In projects for food companies, for example, we have been able to use Digital Twin to find out that a certain product group generates large volume flows but only generates a very small contribution margin. At the same time, we were able to show how costs and margins develop with changing volumes.
Is the customer important for me?
Those who consult the Digital Twin have no problem breaking down the total cost of their logistics to a single customer order in order to get a clear picture of elementary issues: Is this customer important for me? Do I still achieve a positive margin with the customer? Do I want to keep him supplied? What would I have to do to get a better deal at the end of the day? And how would individual measures and marketing campaigns affect business development with the customer?
But Decision Support goes much further. For example, the development of new services and products can be evaluated in advance. Existing product portfolios and ranges can also be examined from the perspective of whether and how they are profitable for the company.
The changing times in which we live make it clear: It will not become easier for anyone to act with foresight and make the right decisions. It's good to have a top decision-maker like the Digital Twin at your side in this situation.
Just think about the customer: What those of us in logistics can learn from US companies
Jürgen Schulz, VP Consulting, Siemens Digital Logistics
Customer habits can be hard to understand. Sometimes they queue for hours to get their hands on a hot product. Other times they seem not to care about the first-class services and solutions that a company has to offer. Why is this?
If you want to win customers over, you need to understand them. You need to know what motivates them, what they are looking for and how you can meet their needs in an impressive way. That has never been easier than in today's digital world.
If you look for data about how customers come into contact with your company, and if you glean valuable information from this data, you are sure to make progress towards fulfilling your desires. Logistics adopts a central role here as the interface between customers and suppliers.
Valuable knowledge for customer-oriented operations
Knowledge about customers and their requirements and needs starts at the end of the process chain. Which products from a whole range of articles do customers want delivered within just a few hours? What degree of custom finishing do these products require? What added value is used? A look at logistics, which is where the order requirements of customers are ultimately fulfilled, provides valuable information here that enables customer-oriented operations and good ratings.
Consequently, successful business development does not start in production, purchasing or marketing; it starts with a focus on the customer. US groups like Amazon show us how this is done. Solutions such as Amazon Prime, where the company delivers certain goods in just three hours via premium shipping, are the result of a steadfast focus on customers.
A strategic component of digital transformation
Companies acquire the required knowledge for this through the digitalisation of logistics processes. Logistics must therefore be understood as an integral part of business processes, and not as a downstream accessory.
Companies that view logistics as a strategic component of digital transformation will find it easier to quickly and flexibly adjust their business model in line with dynamically changing customer requirements. This requires "translators" that transform data into relevant information and develop business options from this information to enable logistics to become the enabler of sustainably successful business development.
Cloud-based logistics IT platforms act as translators of this kind. This is because they bundle together data from different sources, validate it and make it available for a range of different analysis and management tools. They also link together the complex processes in a logistics network to create a convincing solution that focuses on customers and their requirements.
The digital twin
Jürgen Schulz, VP Consulting, Siemens Digital Logistics
Successful logistics experts are looking to the future. They are constantly developing their portfolio of services, adapting it dynamically to customer requirements and keeping a close eye on possible risks. More and more frequently, they are turning to a virtual consultant whose talent is enabling it to position itself as a rising superstar in the field of logistics: the digital twin.
You may have already come across the digital twin concept in industry, since that is where it got its start. The digital twin has been forging a career for itself for years as an intelligent advice-giver in product development, machine and plant operations, and process optimisation.
Its stage is the virtual world but its script is what happens in real life. In other words, a digital twin gives you a 1:1 preplay of how a wind turbine, combined heat and power station, or logistics process will behave in certain conditions, clarifying when there's a risk of a failure and how you can reduce operating costs by tweaking the settings. It also allows you to simulate conditions and constellations taking all conceivable aspects into account.
Decision-making with a high degree of certainty
The digital twin concept is winning more and more acclaim in the logistics sector. And with good reason: it can help to clarify the cause and effect of events in the supply chain with a level of precision that was previously unknown.
A digital twin provides a detailed virtual copy of the real logistics network and the processes used there. It connects the operational level with the strategic decision level. This means that each turn of a screw in the operational system can be "performed" ahead of time and its effect on the overall process can be evaluated on the basis of real data. A digital twin is therefore the ideal simulation and consulting tool. Its users are able to make tactical and strategic decisions with a high degree of certainty.
"What if..." scenarios can be preplayed to predict all their consequences. For example, what effect would a site relocation have on existing procurement and distribution processes? What consequences would extending the product assortment have on delivery frequency? How can the existing resources in a company be used in the best possible way? With a digital twin, these situations can be depicted, planned, controlled and optimised on the basis of real job and order data along with actual routing rules, all with no operational risk. A digital twin therefore adds reliability to decision-making processes for logistics concepts and cost calculations based on real data.
So it is not surprising that international consulting firms such as Gartner count the digital twin concept among their ten top technology trends. The maturity level of the solution is now so high that it offers a clear competitive advantage for supply chain companies thanks to its usage possibilities. Ongoing process monitoring using a digital twin also allows you to work on the basis of optimum operating parameters and therefore ensures efficient processes at low operating costs, which is key given the fact that supply chain costs are constantly on the rise.
Transparency across the entire supply chain process
If you are considering involving a digital twin in your company, however, you should bear in mind certain influencing factors that are key to ensuring you use your digital consultant in the best way possible. To successfully develop a digital twin approach, a combination of project experience, logistical know-how, and extensive knowledge of data, tools and digital twin technology are vital. Just an advisor (without a tool) or just a tool (without experienced configuration support) is often insufficient, since then the set of goals and interests is not sufficient to create a cross-silo digital twin concept.. In practice, we therefore generally use a mixed team of consultants and software experts. This team helps the solution to progress from strategic planning to tactical planning and then to the actual operation of the simulated solution, creating a high level of transparency across the entire supply chain process.
A digital twin pays off in many ways for logistics experts. For example, increased transparency avoids slack operational processes and ensures that capacities are utilised evenly. In our overall experience, even in logistics systems that have already been optimised, a digital twin solution can yield additional savings to the value of five to eight per cent. This is sure to make the digital twin even more popular in the future.