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Trust and openness vital to get benefits from supply chain automation

Supply chain automation is benefiting from new technological developments, such as blockchain, 5G and machine learning – as companies such as Maersk, Opel and Nestlé are proving

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If every trading nation reduced common supply chain inefficiencies, they could increase global GDP by 4.7% or US$2.6tn (£2tn), according to research from the World Economic Forum, the World Bank and Bain & Company. Even getting halfway towards best practice would boost trade by 14.5% or US$1.6tn.

Such is the prize in improving efficiency in ports, shipping and global logistics, it is focusing the minds of technology firms that are looking to automate and improve the accuracy of data gathering and business processes.

Tim Lawrence, global head of manufacturing at PA Consulting, says the technological building blocks for automating and improving efficiency in global supply chains are falling into place.

Developments in the internet of things (IoT) offer insight into the movement of goods without the need for humans to log information, while the advent of 5G mobile data will offer bandwidth to more sensors and devices that can share data in real time. Advances in analytics and machine learning are also playing a role, he says.

Some of these technologies are already being applied to real-world problems (see box below), but it is blockchain that is attracting the most attention. Its ability to create an immutable ledger of events appeals to those trying to secure applications that can be trusted to share data between supply chain participants.

A joint venture between IBM and global shipping firm Maersk has culminated in the launch of a blockchain-based shipping system designed to create more efficient and secure trade between countries and across international boundaries. The platform, dubbed TradeLens, is backed by 90 organisations that are already using it or plan to do so.

Marie Wieck, IBM’s general manager for blockchain, says early work between Maersk and IBM found that a single international shipment, on average, requires about 200 pieces of communication to get it to its destination. Even if items such as customs documents and bills of lading have been digitised, they are held on multiple systems which are difficult to integrate, she says.

“Data is held in siloed applications,” says Wieck. “The majority of shipping time is not spent crossing oceans, but in the ports. There is a huge risk of waste, error and inefficiency when people pull data and information together.”

Interact more efficiently

TradeLens uses blockchain to create a single shared view of a transaction without compromising details, privacy or confidentiality, says IBM. Shippers, shipping lines, freight forwarders, port and terminal operators, inland transportation and customs authorities can interact more efficiently through real-time access to shipping data and shipping documents, it says.

The trade document module, released under the ClearWay beta program, enables importers and exporters, customs brokers and trusted third parties such as customs agencies to collaborate in cross-organisational business processes and information exchanges through so-called “smart contracts”, backed by a secure, non-repudiable audit trail, says IBM.

Maersk and IBM say one early trial reduced the transit time of a shipment of packaging materials to a production line in the US by 40%. Meanwhile, locating shipping containers was in some cases reduced from 10 steps requiring five people to one step performed by one person.

Container liners Pacific International Lines, Maersk Line and Hamburg Süd have signed up to TradeLens, together with logistics firms Agility, Ceva and Damco, and port operators PSA Singapore, International Container Terminal Services and Patrick Terminals.

IBM is publishing the TradeLens APIs (application programming interfaces) to developers and is working with on open industry standards for the technology. The system is expected to be fully commercially available by the end of 2018.

Not only blockchain: approaches to supply chain automation

Opel gains real-time visibility of supply chain cashflow

Opel Automobile is streamlining the information flow and payment processes within its global supply chain – including suppliers, dealerships and financial institutions – with payment management systems from OpenText. Using the system, Opel can integrate accounts payable and payment systems, streamlining electronic funds transfers to provide real-time visibility into cash, liquidity and financial positions. OpenText also gives Opel’s payment team strengthened control and delegation procedures, as well as improved support for global suppliers and dealerships through enhanced B2B integration and digital payment processes, the company says.

CNH gains supply chain visibility with GT Nexus

Industrial equipment manufacturer CNH chose to consolidate supply chain data on the GT Nexus platform, including information from various enterprise resource planning (ERP) systems, suppliers and carriers, third-party logistics firms and freight forwarders. Creating the network offered a single source of data visibility to understand upstream supply issues. Richard van der Meulen, director solution consulting, Emea and Apac, at GT Nexus, says the system uses machine learning to predict the arrival times of goods through the supply chain based on years of historic data.

Nestlé invests in digital warehouse

Global food and drinks company Nestlé is working with XPO Logistics to build an automated 638,000ft2 distribution centre in the UK’s East Midlands. The custom-designed distribution centre, scheduled for completion in 2020, is set to feature automated sorting systems and robotics alongside automation co-developed with Swisslog Logistics Automation. The firms aim to integrate predictive data and intelligent machines to improve supply chain speed and efficiency.

But IBM is not the only tech firm applying blockchain to the problem of international shipping and logistics.

Accenture is also working with aerospace firm Thales to exploit blockchain to authenticate component provenance through the supply chain. The project is still in development and is yet to go live.

It is also working with beverage firm AB InBev, shipping firm APL, logistics company Kuehne + Nagel and a European customs organisation to test a blockchain system designed to eliminate printed shipping documents. Ongoing results suggest the freight and logistics industry could save hundreds of millions of dollars a year by adopting the system, says Accenture.

The system would replace more than 20 different documents, many of which are often paper-based, to enable goods to move from exporter to importer more easily.

Smart contracts

Graham Richter, Accenture blockchain practice lead for the UK and Ireland, says the shared data can be used in smart contracts that can execute many of the tasks currently performed by employees. Manual interventions are necessary only when the system flags exceptions to rules, he says.

“We have built around 50 proof-of-concept applications based on blockchain technology,” says Richter. “We’ve proved it works, but in simulations based on sample data.”

The reason why supply chain participants are yet to adopt the technology is that it has only recently become mature enough to manage multimillion-dollar supply chains, says Richter. An effective system may require as many as five parties to recognise the value of the technology, agree on blockchain standards and overcome their fear of relying on a new system while live case studies remain scarce, he adds.

Using blockchain applications to run supply chains necessitates companies sharing their data across organisational boundaries – something that, understandably, makes them nervous, says Richter. But that will change in time. 

“In the next year, you will see an inflection point where the technology graduates from the lab,” he says. “Serious companies are putting serious money into moving the real world onto blockchain. Some will fail, and some will succeed. Other companies will gain confidence from the successes and the uptake will be quick.

“The technology set-up is not very different for each use case. You can adapt solutions quickly because a lot of big companies have very similar systems, based on SAP, Oracle or one of the other top five enterprise software suites. In a short time, standard connectors will be developed for common applications and it will be a case of plug and play.”

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While blockchain and other technologies promise to improve supply chain efficiency, most use cases address administrative problems, says PA Consulting’s head of manufacturing, Tim Lawrence, and the value they add will be limited unless businesses can overcome internal cultural barriers to sharing data more freely.

“The transaction layer of automation can be quite straightforward, but the operational and strategic layer is more difficult,” he says. Companies could automate decisions about where in the supply chain is best to hold inventory and at what time, for example, but they would need to overcome organisational barriers, he points out.

“That starts with collaboration within the organisation,” says Lawrence. “But you face silos – procurement, supply chain and logistics all talk to each other, but are not joined up. If you then want a supplier to share data and jointly automate decision-making, then that requires a mature discussion. As well as technology investment, you have to discuss how you will share the benefits.”

Yet attention directed towards supply chain automation is growing, and in August 2018, research firm McKinsey & Co called for a new approach. “To capture the full potential of no-touch supply chain planning, companies will also need to invest in advanced analytics, machine learning technologies and process redesign, while also adapting their organisational structures,” it says.

As these technologies mature, companies that have already laid the foundations for supply chain automation will be ahead of the pack.

Next Steps

How is machine learning impacting supply chain optimization?

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