THE HOLISTIC SHIFT

AN INCREASINGLY STRESSED SUPPLY CHAIN IS CAUSING CPG MANUFACTURERS TO LOOK FOR WAYS TO BECOME MORE AGILE AND RESILIENT. ENABLING THE RIGHT DIGITAL CAPABILITIES CAN HELP MANUFACTURING PLANTS – AND THEIR WORKERS – TO RESPOND TO CHANGING MARKET CONDITIONS MORE RAPIDLY, SAYS SREE HAMEED, CONSUMER PRODUCTS INDUSTRY STRATEGIST, AVEVA

The focus for manufacturing operations in the consumer packaged goods (CPG) sector is changing. Where before plant efficiency was the top priority, this has now expanded to include agility – both of the plant and the wider supply chain.

In the past, the goal of digital investments was to improve cost efficiencies, with overall equipment effectiveness (OEE) considered the main key performance indicator (KPI). Even when supply chains became global, further increasing the risk of disruptions, manufacturers protected plants from variability with inventory so they could continue to focus on efficiency. However, the pandemic fundamentally challenged this way of working.

The speed at which it was able to disrupt global supply chains has been an unprecedented stress test, and one we are still in the midst of. Almost every day there’s a new story about shortages caused by supply chain disruptions.

Covid’s effect on the manufacturing world simply amplified existing vulnerabilities, and as much as we might want to go back to how things were, this appears unlikely to happen.

Enabling agility through digital “senseand-response”

Built with real-time operational data, digital twins can help understand what the plant is “capable-to-promise”, by providing real-time situational awareness via edgeto-enterprise visibility. Furthermore, the digital twin provides the foundation for AI and predictive analytics to provide powerful insights that empower workers to optimise processes and throughput.

To respond effectively to supply chain disruptions that are occurring on almost a daily basis, capabilities like advanced planning and scheduling can align the plant with supply chain planning to quickly adapt to fast-changing situations. Improving the plant-to-supply chain linkage gives the business more options to respond by looking holistically across the “sourcemake-deliver” processes.

Enabling agility through empowered workers

A connected business, with access to information anywhere and at any time, increases agility and enables manufacturers to respond to the challenge of today’s dynamic markets.

Coupled with knowledgeable and empowered workers – who are the ultimate drivers of continuous improvement and resilience – businesses can really push the boundaries of their agility. Indeed, a key factor for future manufacturing operations improvements is collaboration of people and systems. Digital transformation makes information more accessible to employees, connecting them to plant processes, data and systems as well as other workers across functional domains and functions, developing a living repository of staff knowledge and experience.

Embracing agility

Businesses cannot control incidents that occur across the wider supply chain, but having agility and resilience allows them to adapt quickly. By taking steps to improve the supply chain, companies are better positioned to make the right decisions when issues occur, as well as gather data around long-term trends and patterns to become more agile and resilient in the future.

Put simply, in light of the pandemic, global CPG companies faced a do-ordie supply chain paradigm shift. And those businesses that lag on redesigning processes for a new age of rapid supply shocks and uncertainty ultimately risk losing revenues on unforeseen cost burdens, such downtime, employee absenteeism, and empty shelves.

Death of the old supply chain model

For the purpose of this article, let’s take a deeper dive into how value chains of the future are evolving for the newnormal world.

Let’s start by looking at the typical value chain structure: On the demand side, marketing and sales sought to better understand their customers and worked with R&D to create (or acquire) the right products. On the supply side, the supply chain team orchestrated procurement, production and distribution to source, make, and deliver those products.

For decades, this arrangement was the order of the day. The predictable consumption patterns and stable networks allowed businesses to tightly adhere to an optimised plan of product quality, quantities, and timing – keeping the cost of production as low as possible. To manage supply chain variance, companies would implement a standard inventory buffer which responded to replenishment signals, maximised factory utilisation by ‘sweating the assets’, and implemented just-in-time vendor/product replenishment strategies.

But in the pandemic world, this decadesold model has cultivated brittle supply chains. Amid a new and morphing era of sharp shocks – such as port delays, supplier disruptions and changing consumer buying habits – companies have learned that efficiency (e.g., just-in-time inventory, full utilisation) can come at a cost if the system is unable to absorb these shocks. Today’s unpredictable business world demands greater agility and resilience.

Towards agility and resilience So how should we think about agility and resilience? A useful metaphor can be seen in world-class athletes. When it’s time to compete, top competitors unleash their maximum performance and operate at the outer, exceptional fringes of human capability. But this level of output cannot be sustained 24/7 without damaging the body. So, as well as agility –which is evidenced in the ability to perform – athletes, like businesses, must cultivate resilience.

It is resilience – the ability to withstand shocks and the unknown – that protects the asset and allows it to perform over the long-term. And like a muscle, resilience is crafted through careful performance strategies and training. Together, the qualities of agility and resilience represent the backbone of any high-performing athlete – or business entity.

The training programme

Today there are eight company ‘levers’ that enable both agility and resilience, providing the ability to thrive in an increasingly dynamic business operating environment. Foundational: Information, relationships and cash. Operations: Time, inventory, and capacity. Customers and suppliers: Segmentation and price.

In a recent AVEVA survey, we asked several CPG companies two questions: What happened in your business in the pandemic? How could you have prepared if you knew ahead of time? The answers are revealing and uncover the essence of what it means to be an agile and resilient business.

The majority of respondents said they aimed to match demand and supply in a more predictive, prognostic and profitable way through digitisation. CPG leaders also said they would be more mindful of operating under vastly different and changing conditions using different strategic levers.

Corrective action plans

So what actions did companies take during this tumultuous time to ensure the survival of their businesses? First of all, organisations realised the criticality of timely information and a fluid and responsive supply chain. More companies turned to full digital transformation to enable a supply chain without fatal delays or disconnects.

CPG leaders also realised the importance of enabling a flexible workforce, through skills rotation, temp training and automation assistance.

Another critical – and possibly fatal – pain point to be addressed was the ‘bullwhip effect’ –where one delay reverberates and lengthens as it travels along the value chain. To counter these delays, leaders tore down walls across the network to better collaborate with their contract manufacturing partners. And began to stratify their factories by role – such as launch products or flexible lines – and conducted overall network and inventory assessments.

To counter the pain point of segmentation, companies are also working harder to symbiotically align markets and categories with demand. Instead of leveraging sales and marketing to drive unlimited demand, CPG leaders looked to match supply and capacity. Businesses also looked to carefully raise prices amid government intervention.

And crucially, companies chose to spend and invest in digital initiatives for future resilience. CPG leaders no longer view saving cash as the key objective – avoiding future cash haemorrhages through resilience planning and investment is now paramount.

The holistic shift

Following the pandemic, companies are being pushed to redesign their supply chain design principles in a holistic manner – allowing for factories, suppliers, vendors and distribution centres to work together in an integrated, flexible fashion. There is a marked move away from linear, silo-based thinking to network-based processes.

Businesses endeavoured to carry out more frequent and systematic reviews of overall operations. They also committed to co-manufacturing and tighter integration and strategic alliances with partners. Above all, CPG leaders are now realising that information and relationships is the lifeblood of their supply chains. The investment mindset is also shifting from cost reduction to cost avoidance.

In many cases, a singular supply chain is no longer enough. Businesses are increasingly opting to embrace multiple supply chain responses based on factors such as customer and product segmentation.

A VISION FOR THE FUTURE

HOW DIGITAL INNOVATION IS POWERING BUSINESS GROWTH AT AL KHAYYAT INVESTMENTS.

Digital transformation may mean different things to different people, depending on their requirement and the industry they belong to. However, one thing that everyone can agree on is that it is never just about the technology. In fact, according to Gartner, for successful digital transformation, organisations must look at beyond technology and focus on assessing and managing the intricate mix of strategy, leadership, business need and – well, technology.

Sajid Lokhandwala, Group Chief

Information Officer, Al Khayyat

Investments (AKI), a family-owned company operating in diverse industry verticals, reiterates this point as he shares

AKI’s digital transformation journey.

What we know today as AKI was founded in 1982 as Alphamed General

Trading. The company has grown tremendously over the years and now employs over 5,000 members of staff with a turnover of more than $ one billion.

With a diverse portfolio of business units that includes distribution, healthcare, retail, contracting and automotive; using a shared infrastructure for warehousing, distribution and logistics, human resources, administration, finance, and IT;

Lokhandwala and his team had their work cut out for them to develop a group-wide transformation programme.

Lokhandwala says, “Our digital transformation journey began with the Board realising that they want to transform the business at a group level, leveraging technology. So, we put together a business architecture framework”.

“Unless you have a holistic view of the business and define the priorities and aspirations, how to engage with customers and so on, it is not possible to design the technology framework. Our technology architecture was completely aligned with the current and future needs of the business.”

Lokhandwala and his team developed a detailed plan that spanned over four years. In the first year, the team worked on getting the basics and designing the framework. The second year was all about simplifying and automating the processes with warehouse management software. In the third year, the group brought in transportation management solution, automated proof of delivery and demand sensing technologies.

“Now we are in the fourth year and the whole framework is complete and working perfectly. It wasn’t a technology project that we were deploying, all the decisions we took were based on what made business sense and added value to our operations.”

One of AKI’s key focuses was to enhance capabilities and efficiencies in distribution and achieve the ‘perfect order’.

Lokhandwala explains that the ‘perfect order’, coined internally by AKI, is when a customer’s order that includes multiple line of items with each line having additional items or information are translated into the warehouse and fulfilment of the order takes place exactly as per the customer’s requirement.

“For this to happen, the supply chain process must be seamless and robust. Therefore, the first thing we did in our digital transformation journey was to bring in efficiencies in the supply chain.”

This meant that AKI had to deploy technologies that enabled accurate demand forecasting and demand sensing.

“It is very important to predict customer requirements for the future,” he adds. “We also need to track supplier performance and evaluate their ability to fulfil the order because it is not necessary that every supplier can fulfill an order 100 percent.”

AKI has ensured the technologies in place, for example its ERP or core warehouse management system or delivery and transport management system, RPA, IoT, etc., empower the process and systems within the warehouse across verticals to execute the incoming orders precisely.

The CIO explains, “We have made sure that we have the best-in-class solution for each vertical. We are also joining all the systems using a middleware layer so that data is flowing across the multiple and varied systems seamlessly.”

Besides enhancing the supplier side of operations, AKI has also implemented extreme automation for the customer side of the equation to boost resiliency and productivity.

“From the consumer division alone, we were looking at about 12,000 – 15,000 incoming orders from large regional customers. To streamline this process, we needed end-to-end API based system-to-system integration, which would allow us to directly pick up and action orders from the system. This way there would be no manual intervention required from the point of order generation to execution. To enable this, we put together a vision of ‘straight-through-processing’.”

The ‘straight-through-processing’ method helped the company to automate all its processes from a 360 degrees perspective. The way it works is that the inventory from suppliers is now calculated based on demand planning and demand sensing technologies, the systems in the warehouse make sure of stock availability and stock accuracy and incoming orders from customers can now be fulfilled on demand.

Now when a customer generates an order, it is automatically picked up by the company’s system and goes to the ERP for the necessary credit checks and balances. Once everything checks out, it goes straight to the warehouse, without any human intervention required.

“This way the warehouse gets the visibility of tomorrow’s orders, and we further link it up with our transport management system. The transport management system prioritises the orders, the packing is then done accordingly, and the itinerary is created for the driver. The planning happens from a transportation perspective and that is translated to the shop floor.”

Drivers are also enabled with handheld devices and their routes are already planned as per order priority, and the proof of delivery is now automated through the system.

“This way the drivers do not have to make any decisions, it is all automated and unless he closes a particular delivery, he will not receive instructions for future deliveries.

“Our aim was to simplify the system to such an extent that it is intuitive for our support staff like packers and drivers, so there is minimal learning required. And yet have strong controls in place so that there is no room for anyone to make any mistakes. We have achieved the fine balance between the two, optimising our operations significantly.”

According to Lokhandwala, implementing the ‘straight-throughprocessing’ method has enabled the organisation to be KPI-driven.

“It has provided efficiencies, predictable business outcomes and data driven KPIs supporting key business decision-making.

“The whole game is about efficiency and that comes when you are tracking KPIs. This helps to keep us evolving and improving. The biggest number for a distribution business is inventory accuracy and we are proud to say that we have achieved 99.4 percent accuracy in this regard. We have about 2.5 million items being packed in the warehouse per month, so that is the volume of orders we deal with. Our order fulfillment accuracy is 99 percent for 24-hour delivery SLA.”

Lokhandwala reiterates that the whole transformation journey was possible because strategic initiatives at AKI are formulated in full alignment with the MD and the CEOs of different business units. The CIO and Chief Supply Chain Officer work in close collaboration to deliver the vision.

“We have married the top-down approach with the bottom-up. This is the secret sauce of our success. The vision and strategies are formulated at the top and the actual implementation is done to make the lives of line workers simpler. We think about a day in the life of a packer or driver and see how we can solve the challenges they face. When you design a transformation plan, thinking about the challenges and opportunities from the grassroot levels, it always works.”

Over the coming quarters, we will see AKI revamping its omnichannel stack for BinSina, AKI’s flagship pharmacy chain, and developing an omnichannel stack across AKI retail, which also includes brands such as Holland & Barrett and fashion stores for many mid and high-end labels.

“We are now working on leveraging the omnichannel capabilities we have for BinSina to our other retail brands. We have all the components required, such as our own delivery management solution, centralised order management and so on, for developing an omnichannel stack across our entire retail business”.

“We have come a long way but this is just a milestone. There are a lot of opportunities for Business enhancements in the digitisation and automation journey”, Lokhandwala concludes.