InterAct Hub
The Storytelling Fellowship programme is a core element of the InterAct Network. It aims to harness the power of stories to learn from, and address, the human aspects of the diffusion of new technologies in industry. These human aspects include themes such as:
• Productivity
• Resilience
• Competitiveness
• Sustainability
• Levelling-up/inclusion
• Wellbeing
Our Storytelling Fellows have created a growing archive of digital, video stories that you can access below:
Pre-pandemic, businesses were already working through the challenges of a VUCA world – where volatility, uncertainty, complexity, and ambiguity in general conditions and situations were often seen. Faster technological changes, digitization, shortening product life cycles, rapid changes in consumer preferences, and political changes all contribute to this view.
The events of the last three years have created even more instability in Supply Chains, and resilience is now a key topic of debate. We can define resilience as the “capacity to recover quickly from difficulties,” but this implies a return to how things were rather than a new, constantly changing paradigm. It is the challenge of an increasingly uncertain future that forces the question of Supply Chains’ purpose and how they should be designed, governed, and operated to continue running productively in the face of whatever challenges are thrown at them.
Just as a ball will float in a storm on the sea, so must our Supply Chains! They need to be buoyant.
The purpose of a Supply Chain is to get products to people who need them, when they need them, and at an affordable price. This is the definition of a productive Supply Chain.
This should be done sustainably and responsibly. Supply Chains often operate in a non-responsible way, presenting numerous examples of unfairness in the distribution of value along the chain. The control of data and information is a key enabler of negotiating power plays between parties – it is incredibly challenging to get two entities to collaboratively plan just for mutual benefit.
Large enterprises often optimize their operations to the cost of their SME suppliers. From a Supply Chain finance perspective, the bigger players have better credit terms but pass the risk and costs to their supply base – increasing their own cost and risk and leaving the Supply Chain sub-optimized.
As part of a Business Model Design, product and marketing strategies should inform and drive Supply Chain strategy and ensure strategic alignment.
In a fast-moving consumer goods context, the Supply Chain design requirements for an everyday low-price (EDLP) pricing strategy with relatively stable demand differs from one with deep-dive Hi-Lo promotions and unpredictable demand. The challenge of the Supply Chain design is that within the life cycle of assets, a business may switch between EDLP and Hi-Lo many times. If the design is optimized for EDLP or has high predictability, there will be issues!
The design principles need to work through the infrastructure and operating model to deliver the necessary level of structural flexibility and dynamic flexibility.
Structural flexibility concerns the infrastructure and set-up of the physical Supply Chain and the assets. This includes:
Dynamic flexibility focuses on the operating model – how the physical assets will be managed. The model covers the following:
Orchestration and synchronization of the Supply Chain are critical enablers for ensuring it is as productive as possible. This is achievable by maximizing flow through the Supply Chain and rightsizing the buffers for stock and spare capacity.
The signal from the head of the chain closest to the point of final demand should drive actions across the whole chain. Essentially, interactions between business entities within the Supply Chain should be principally taken from a planning perspective rather than a procurement perspective.
There is a need to understand the constituent elements of the buying demand behavior, such as surge and base volumes, to inform the decisions taken in the chain. For example, increased demand for mobile phone gifts may be seasonally driven by Christmas versus purchases for birthday presents or end-of-contract replacements, which are more likely to be spread throughout the year.
A segmentation approach to the demand signal is required to determine the right supply action – an example being the setting of production wheels within a factory or a runners/repeaters/strangers approach to planning.
Decisions on the required level of dynamic and structural flexibility are critical for businesses. There is a direct cost for resilience as businesses choose to move to lower-cost, more efficient Supply Chains from ones more sensitive to shocks. The positive financial impacts are facilitated by delivering a more responsive approach. An adaptable Supply Chain model, in short, brings new capabilities into the network.
We can consider this cost in a similar way to an insurance premium. Business cases for resilience will be needed – but how is that developed, measured, and articulated against traditional business cases optimized to ROI cash? A traditional business case based on a single number and set of assumptions is inadequate for the unknown storms which may lie ahead. They must incorporate tolerance for different assumptions to give range and richness to thinking.
Business processes need to develop. One example would be the S&OP process. A traditional S&OP process focuses on dynamic flexibility – aligning Sales and Supply Chain plans to meet demand – often over a relatively short time frame. So, what is the trigger for a structural network design change? How would a review of structural flexibility sit alongside the S&OP process?
Supplier resilience strategies also need development. If one of the needs for structural flexibility is multi-sourcing – how will volume be allocated? Will businesses pay for suppliers to be ready to supply (just in case they are needed), even in a high-inflation economy? Supplier relationship management will need to develop longer-term, more collaborative processes rather than playing a zero-sum transactional game where the price is the key focus.
So, what are the actionable insights?
One of the lessons from the last five years within Supply Chain management is that simply being resilient to recreate the previous conditions and Supply Chain set-up is no longer sufficient for future success. Teams constantly battle from one shock to another – and this is not sustainable. A reactive way of working creates burnout and costs businesses money.
Businesses must actively decide the right level of dynamic and structural flexibility they need. This creates the required capabilities, so they can bounce back from Supply chain Disruptions, use the next crisis to produce opportunities, and create competitive advantages.
Supply Chains need buoyancy, not just resilience.
The insights in this blog are taken from our Innovating Profitable Manufacturing Supply Chains with Resilience webinar organised by
Board International.
Watch it on-demand now to take a deeper dive!
Digitalisation offers significant opportunities for manufacturers. By leveraging digital technologies and data, manufacturers can generate substantial efficiency gains in their own processes, create new forms of value for their customers, and develop innovative business models. These digitalisation opportunities are critical to address the productivity and sustainability demands the manufacturing industry is facing.
Although the range of opportunities digitalisation offers to the manufacturing industry is widely recognized, it is of concern that only 35% of surveyed firms have adopted digitalisation solutions at scale[1]. One of the root causes of the lack of adoption in the UK is the lack of investment[2]. According to the Manufacturing Digital Productivity Report from iBASEt[3], 94% of UK manufacturers believe their industry has already fallen behind the US because of a lack of investment into digitalisation, and more than half of UK manufacturers are losing sales as a result. It is even more worrying that 93% of respondents expect that this lack of investment into digitalisation will lead to many UK manufacturers going out of business in the next decade.
To help manufacturers invest effectively in digitalisation, it is important to understand the range of challenges manufacturers commonly face. Only then can the appropriate solutions be identified and put in place. Aston University used a systematic review method to study the challenges for manufacturers and identify critical questions. The results are summarised in Table 1 and discussed below.
| Digitalisation goals | The lack of agreement on the goals of digitalisation encumbers the investment process. |
| The lack of ambitions in the goals of digitalisation limits the leaders’ ability to justify significant investments. | |
| Investment process | Digitalisation integrates a wide scope of investment domains which makes it difficult to apply established processes to assess and prioritise investments. |
| The metrics used to evaluate business cases for investment do not relate to the opportunities that are particular to digitalisation. | |
| Digital technology attributes | The high cost of digitalisation and the high uncertainty of return make it difficult to justify investments. |
| The rapid innovation (and obsolescence) of digital technology acts as a discouragement to making substantial investments. | |
| People and their expertise | The lack of expertise on acquiring external funding for digitalisation creates an investment barrier. |
| The lack of senior leaders with digitalisation expertise hampers investments into digitalisation. | |
| Organisational culture | The difficulty of accepting investment uncertainties inhibits investments into digitalisation. |
| The lack of openness and trust creates barriers to making effective investments into digitalisation. | |
| Business network | The lack of digital readiness of the wider network limits investments into digitalisation. |
| The lack of experienced or relevant finance partners reduces the opportunities for making investments into digitalisation. |
In manufacturing, digitalisation affects a wide range of stakeholders and they all feed into the development of the goals. The lack of a specific and widely agreed goal is a critical barrier to making investments into digitalisation.
Digitalisation offers manufacturers opportunities to significantly change how they operate, what kind of relationship they have with their customers, what products or services they offer and who they offer these to. However, many manufacturers restrict their goals to incremental changes and, therefore, struggle to justify making the necessary investments.
Digitalisation cuts across established investment categories as it involves aspects of R&D, employee training, and education, as well as the acquisition and implementation of technology solutions. The multi-dimensional nature of digitalisation challenges the traditional investment processes of manufacturers.
Manufacturers traditionally rely on internal rates of return or net present values to justify their investment decisions, and these are not well suited to the possibility of dynamically adjusting an investment after it has been initiated. With digitalisation opening future and potentially unknown opportunities, metrics are required that reflect the flexibility to adjust an investment, change a technology or even abandon it.
The research identified the high costs of required technologies as a major reason that manufacturers do not carry out investments into digitalisation. The cost of technology is particularly high to early adopters, before economies of scale are achieved. Furthermore, while digital solutions are highly scalable, the returns on investments are limited if scale is not achieved.
The pace at which digital technologies develop is unprecedented. Any technology manufacturers choose could become outdated rapidly and require updating, which increases costs. Manufacturers may, therefore, decide to wait for the next digital technology generation to become available or for further standards to emerge before making investments.
To make significant investments requires manufacturers to raise external finance; but manufacturers often lack the expertise to raise external finance for investments into digitalisation, which significantly differs from raising finance for investments into capital equipment: it requires different funders, business case details and preparations.
Also, decisions on investments in production machinery are often made at the plant level, and are aligned with responsibilities for performance and quality. As digitalisation affects the direction of manufacturers, with implications for their customers and wider networks, identifying the right locus of decision-making is critical for making effective investments. It requires a senior leader with the authority and expertise to make such wide-reaching decisions.
Creating value with digital technologies requires product and process experimentation following test-learn-tweak cycles. Organisations need to develop a ‘tolerance for uncertainty’ to make effective investment decisions within this context. For manufacturers with limited R&D activities, dealing with these uncertainties is particularly difficult.
Although digitalisation will require changes in organisational roles and processes, the creativity and imagination of staff members across the organisation need to be drawn on to capture the opportunities presented. It is critical to ensure that digitalisation is not perceived as a cost-cutting exercise aiming to create redundancies to ensure the widespread support and effectiveness of investments.
It is not only the manufacturer’s own investment into digitalisation but also that of their customer and wider network that is critical to making an effective business case. Ultimately, value is co-created by the customer and the wider network, and if these parties do not make investments into digitalisation themselves then the manufacturer’s chances of deriving a return from their investments are reduced.
Making investments into digitalisation also puts a focus on the external finance partner as a member of the network. Finance partners are often overlooked in industrial value networks, but in a digitalisation context their role is critical. This is because these partners are not just financing a machine but also a business process or business development, which requires a much closer relationship.
Making effective investments into digitalisation is a critical challenge for manufacturers. These investments not only determine the success of current digitalisation initiatives but also affect the viability of future digitalisation journeys. It is today’s investments into digitalisation that enable the future competitiveness of the manufacturing industry. Manufacturers need to rethink their established investment processes and organisational practices as many of them stand in the way of making effective investment decisions into digitalisation.
[1] https://stories.ability.abb.com/better-decisions
[2] https://www.makeuk.org/-/media/files/insights/reports/infor-make-uk-innovation-monitor-report-final.pdf
Sustainability in manufacturing is a hot topic. And rightly so – many manufacturers produce large amounts of waste, much of which the supply chain creates. Rather worryingly, our supply chains make up 60% of carbon emissions in the UK.
The UK government’s initiative to reach net zero by 2050, as well as the legal obligations under the UN’s 2030 Agenda for Sustainable Development and the OECD Guidelines for Multinational Enterprises, is now well known. However, there is much, much more that can be done to reduce emissions – and digital technologies have a crucial role to play.
Click below to read more about the five best ways to promote sustainable practices within your supply chain.