Supply Chain 4.0 How emerging technologies are reconfiguring global supply chains
Dr. Samuel Roscoe, Senior Lecturer in Operations Management and research leader for the Supply Chain 4.0 Hub at the University of Sussex Business School, provides the latest industry applications of supply chain 4.0.
Emerging technologies are reconfiguring global supply chains. Witness the disruptive effects of additive manufacturing, a technology that has allowed companies to bring production from overseas to print customized products in local markets for local consumers. Artificial Intelligence (AI) and the predictive power of big data analytics enables companies to anticipate what customers will purchase, before they know themselves. Blockchain is enhancing transparency and traceability across multiple tiers of the supply chain, prompting companies to rethink their sourcing strategies when nefarious raw material extraction processes are identified. This article challenges readers to look beyond the confines of ‘Industry 4.0’ to consider the transformative effects of emerging technologies on global supply chains - or Supply Chain 4.0. We explore the emergence of supply chain 4.0 through three case studies.
Rolls-Royce additive manufacturing
Image Credit: Rolls-Royce
Rolls-Royce, the second largest aerospace engine manufacturer in the world, is a trend-setter in metal additive manufacturing. The company conducted a make-buy analysis for additive manufacturing and quickly realized development efforts would require the involvement of external suppliers. In 2015, the company printed a 1.5 meter diameter titanium structure using a metal additive manufacturing system from Arcam. Three years later, Rolls-Royce used Arcam’s electron beam melting technology to print parts for the Advance3 engine. Rolls-Royce is now moving beyond single laser to multi-laser platforms using quad-laser machines from SLM solutions, a German metal additive manufacturing machine supplier. The quad-laser machines are designed for high volume manufacturing and offer automated, closed-loop material supply, recovery and sieving to minimize operator handling of metal powders.
Rolls-Royce’s Factory of the Future
The additive manufacturing development process at Rolls-Royce has challenged many typical assumptions of supplier involvement in new technology development. As opposed to the standard process where buyers give suppliers a pre-defined design specification, with additive manufacturing suppliers have taken the lead in component design because of their in-depth knowledge of the technology. Supplier-led training initiatives challenged Rolls-Royce designers to reconceptualise the design of parts based on functionality instead of the limitations imposed by conventional casting and forging methods. Supplier-led design has allowed Roll-Royce to conceive on novel forms, leading to lighter weight components and lighter engines, thereby reducing fuel burn, carbon dioxide and nitrogen oxide emissions. Additive manufacturing machine suppliers are also disrupting conventional subtractive manufacturing processes where materials are machined are away to arrive at a final part. By building products additively, redundant steps in the manufacturing process can be removed, significantly reducing production lead times. Rolls-Royce expects additive manufacturing to generate 85% less waste versus standard casting and forging methods, with closed-loop processes capturing any waste so it can be quickly re-used. Additive manufacturing is also allowing Rolls-Royce to manufacture closer to its largest customers, Boeing and Airbus, shortening lead times and reducing pipeline inventory. Local manufacturing reduces the company’s exposure to supply chain risks, such as trade wars, political upheavals and natural disasters that can impede the flow of sub-components. Rolls-Royce’s investment in additive manufacturing is having a transformative effect on its supply chain, bringing manufacturing closer to its customers and dramatically reducing supply chain costs.
Rolls-Royce’s new Composite Technology Facility
Artificial Intelligence
Otto, a German on-line retailer, is using Artificial Intelligence, machine learning and predictive analytics to re-think retail supply chains. The company turned to Blue Yonder, a technology supplier, to develop its AI capability. The two companies focused their attention on the returns process, after realizing that customers were less likely to return a product if they received it within two days. If the customer had to wait beyond this point, they often found the same product cheaper somewhere else and returned or cancelled the order. Moreover, Otto found that customers were dissatisfied with receiving multiple shipments when one order was placed. To overcome these issues, Otto used a deep-learning algorithm to improve its forecasting accuracy and better consolidate final-mile deliveries. The algorithm analyses over three billion past customer transactions, search histories and baskets of orders to identify ordering patterns in the data. This information is compared to weather forecasts and upcoming events such as sporting competitions and concerts to predict what customers will buy a week before they order. Blue Yonder’s technology allows Otto to constantly update prices based on competitor activities and market trends. The price optimisation solution tests and measures the relationship between changes in price and demand. Predictive analytics has allowed Otto to anticipate with 90% accuracy what it will sell in the next 30 days. The algorithm also allows the company to anticipate which items will be purchased together and it moves stock to the global distribution hub closest to the customer’s anticipated ordering location, reducing multiple shipments and final mile delivery times. Otto uses this future information to purchase over 200,000 items per month from suppliers without any human intervention, further reducing ordering costs. Otto’s new AI system has reduced product returns by over 2 million items per year and excess inventory holding by over 20%.
IBM Blockchain
Blockchain is another emerging technology that is transforming global supply chains. A 2017 article by Kim and Davis in the Harvard Business Review found that 80% of companies were unable to determine the origin of raw materials used in their final products. The trend of outsourcing to suppliers and subsequent sub-contracting has meant that many companies do not have visibility of their end-to-end supply chain. This creates the possibility that many companies are unknowingly using conflict minerals in finished goods. Conflict minerals include tantalum, cobalt, tin, tungsten and gold, which are typically found in electronic goods including laptops, mobile phones and electric vehicles. Cobalt is in high demand because of its use in lithium-ion batteries, with one battery requiring almost 20lbs of the mineral. The surge in demand for electric cars is expected to increase the extraction of cobalt by eight fold by 2026, according Morgan Stanley.
A pilot scheme, underpinned by IBM ‘s blockchain platform and powered by the Linux Foundation’s Hyperledger Fabric, is attempting to enhance transparency of end-to-end supply chains to reduce the use of conflict minerals. The pilot programme uses a simulated supply chain between the Ford Motor Company, Huayou Cobalt, LG Chem and RCS Global. In the simulation, cobalt is sourced from Huayou’s mine in the Democratic Republic of Congo (DRC), it then travels to a local smelter, and on to LG Chem’s cathode and battery plant in South Korea and finally to Ford’s final assembly plant in the USA. An immutable data trail is created on the blockchain, which includes evidence of the cobalt production and distribution trail from source to end manufacturer. The companies plan to extend the pilot to local artisanal and small scale mining companies and include other types of conflict minerals. The aim is to give local mining companies access to the blockchain so they can sell their materials on the global market, certified as conflict free goods. Following the successful trial, the parties will extend the technology to other industries, including electronics, aerospace and defence, who rely heavily on minerals such as cobalt. With enhanced end-to-end supply chain transparency, companies are prompted to rethink their sourcing strategies, ensuring they achieve legislative compliance while not knowingly causing harm.
These cases provide an illustrative example of how emerging technologies are disrupting and reconfiguring global supply chains. Advances in additive manufacturing, artificial intelligence and blockchain are forcing businesses to look beyond the confines of Industry 4.0, to the new era of Supply Chain 4.0.
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