During the COVID-19 pandemic, myriad business processes were scaled down across the world, Kant says, “and rapidly scaling up logistical processes again is no walk in the park. At the same time, there are severe staff shortages in many places, due in part to retirees outnumbering new labor market entrants. Sustainability objectives also have to be reckoned with, and logistics departments are under pressure to halve CO2 emissions by 2030, compared to 1990 levels. As a result, producers are forced to look beyond their own footprint and factor in the wider supply chain, too. Moreover, the rise of e-commerce and increasing competition have seen demand become more unpredictable than ever, prompting producers to stock up. Fortunately, there are also great opportunities to be had. The average truck load factor in the US and Europe is 57% and 47% respectively, so there’s a lot of low-hanging fruit to be picked.”

Does the board have enough supply chain knowledge?

“In the past, the supply chain was the CFO’s remit. The supply chain is all about contracts, responsibilities and liabilities, but CFOs know about finance, and not necessarily the supply chain. Nowadays, more and more boards are enlisting a Chief Supply Chain Officer (CSCO) to bring in more knowledge.”

Should companies take a comprehensive approach to tackling these novel developments, or address each aspect separately?

“I’m afraid that there’s no ‘one size fits all’ solution, but there is a common thread. Both the supply and demand sides of the market are becoming more scarce, volatile and unpredictable, which is why insight into the chain has started paying off. Transparency is becoming increasingly important and companies need to investigate ways of boosting the efficiency of their supply chain and explore alternatives. Agility is also key – after all, what if another freighter gets stuck in the Suez Canal?”

How would you respond? Can you prepare for something like that?

“Organizations would do well to bolster their resilience by implementing backup scenarios. Where are the weak links and what are the possible alternatives? Should you bring in an alternative supplier? What risks should you consider? Can you persuade your preferred supplier to go green with a view to achieving sustainability goals?”

For the past 30 years or so, the supply chain has mainly been concerned with globalization and cost efficiency, but things have changed considerably.

“And the field has become much more interesting for it. There are new dimensions to consider: do I want to produce goods in this or that country? Do I want to be dependent on them? If CSR is a priority for our customers, is a low-wage country still the right fit for our organization?”

Responding to vulnerabilities

Have companies changed how they think about vulnerability?

“ASML realized that its suppliers were struggling to keep up with the company’s growth, and responded by making organizational changes to ensure that supply chain considerations were represented at the board level. Apple has moved beyond China alone and is now also doing business in India. Supply chain transitions often progress very gradually. For example, Nike started out as a shoe manufacturer that supplies retailers, but their process is changing. Nowadays, you can design your own shoe and have it delivered straight to your doorstep. It’s a gradual turnaround and more and more producers are adopting it every year.”

In view of all these developments, Kant argues that collaboration has become indispensable. “You can’t make the transition to electric trucks on your own: you need the developments taking place in the rest of the field. SMEs, whose role in the global economy is perhaps underestimated, need to rely on each other and share knowledge. You can’t do that without trust, and mutual trust between SMEs is much stronger than their trust in big corporates. Large corporates are less attractive partners because of their sheer size and dominance. Showing some vulnerability could work to their advantage, because collaboration expedites innovation, as well as fostering sustainability.”

Learning lessons

What can manufacturing learn from other sectors?

“Key values in the manufacturing industry are customer value, quality and high service levels, but they should take a leaf out of the book of the logistics sector. Not only can manufacturers make significant strides in optimizing logistics efficiency, but they can also use it as a lever to improve service, such as by offering 24-hour delivery or by clustering and merging deliveries. Increasingly, end customers are deliberately making trade-offs between speed, eco-friendliness and price. Logistics is not just a matter of maximizing efficiency: it’s also about serving customers and achieving sustainability objectives. Manufacturers can also emulate the healthcare industry and learn how to optimize staff scheduling. Healthcare facilities have already adopted tools that enable employees to schedule their own shifts, communicate with their colleagues and swap shifts. By copying this development, manufacturing companies can become more attractive employers. The retail industry, on the other hand, can teach manufacturers how to go about supplying end customers directly, while the energy industry is a great example of how vendor management inventory can be used to make the chain shorter and more efficient.”

What role can data analytics and math play?

“We can help companies leverage their data by building scenarios. We can use models, AI and machine learning to analyze the supply chain, and we also have special software to help companies with the strategic and operational aspects of logistics planning, combining transport, load and stock optimization. Merging these isolated silos in a unified optimization model leads to substantial efficiency gains, as evidenced by large corporates such as P&G, Coca-Cola, Henkel and Saint-Gobain.”

More flexible, more efficient logistics

Interviews with business owners reveal that they are experiencing increasing pressure to be more flexible and to lower inventory levels and working capital. At the same time, they also feel the need to be greener, and we have developed solutions in response to those needs to bolster flexibility and efficiency, Kant explains.

Flexibility improves the flow of goods

“The first step is to identify exactly how logistics assets are used. Specifically, you want to figure out the specific weight and volume of pallets and containers and how much floor space they take up. You can then harness optimization techniques to analyze and improve asset utilization. According to Kant, one way is to take a closer look at orders. “Not every order produces an optimal load factor. The solution is to compile an ideal order – or combination of orders – to maximize transport efficiency and meet other requirements. As a result, efficiency criteria are automatically satisfied when creating orders or batches, whilst also ensuring that customer stock levels stay at the required level. You can even take matters one step further by factoring maximum load efficiency criteria into production planning or inventory orders. You can also calculate the benefit for your customers of having the flexibility to reconfigure pallet and truck loads, or setting up a Vendor Management Inventory (VMI) with vendors.”

Redefining Material Resource Planning

Supply chain optimization is essential for manufacturing companies. “To calculate optimal load factors, you have to look at batch sizes”, Kant explains. “The question you should ask yourself is: how do I create a perfect load as part of my MRP process? To answer that question, you need to adopt a holistic approach to the logistics chain, minimizing overall production and logistics costs. Moreover, in sectors characterized by high inventory costs and working capital, you can analyze the gains to be had by using certain transport routes more frequently, which might pave the way for greater flexibility and lower stock levels at no extra cost. If you’re in the automotive industry, this can be a particularly interesting prospect.”

Leading companies in various sectors have already implemented optimization solutions. “Companies like P&G, Mondelez, KraftHeinz and many others have seen their supply chains improve significantly as a result. FrieslandCampina managed to achieve a utilization improvement of 3% and a process improvement of 10% simply by applying load optimization techniques to sales and transport movements between sites. They’re now exploring their options with regard to marine transport and VMI, and the improvements they’ve already made are representative of the vast scope for optimization in the Food & Beverage industry as a whole.”

Efficient and sustainable

Optimization improves cost efficiency whilst also giving a valuable boost to sustainability, says Kant. “The wonderful thing is that they can go hand in hand. Switching to an electric fleet requires a sizable outlay and may not start paying off right away. Maximizing logistics efficiency, on the other hand, will automatically translate into lower CO2 emissions. Similarly, optimizing workforce scheduling can help you put together more efficient schedules while resulting in higher employee satisfaction at the same time. I expect the demand for applications like this to increase significantly in the future.”