Perspectives from professionals managing unprecedented turbulence on global scale
Focusing on key challenges and opportunities around supply chain operations in Europe in 2021, this paper builds on and summarizes the perspectives and experiences shared during a digital roundtable discussion that was organized by VF Media Limited and sponsored and moderated by OpenText on February 24th, 2021. The roundtable session brought together a number of senior supply chain & logistics professionals from the UK working for different sized companies across various industries to discuss the covered topics.
Introduction
The year 2020 introduced turbulence in supply chains – and every other part of the economy and people’s personal lives – unlike anything we’ve seen in modern history. The global pandemic that continues to impact supply chains in 2021 and will have long lasting effects far beyond it is a black swan event almost no one could foresee coming, but it’s not the only force that is shaping the way supply chains around the world are orchestrated and operated.
Changes in regulations and legislation are taking place around the world, with Brexit laying down the biggest blow to test the ability of British and European supply chains to adapt to changes in broad scale. Digital business transformation also continues across industries, and in many cases it has only accelerated. Navigating all this volatility is challenging. To help with analysis and planning on how to tackle the key issues impacting the supply chain, we’re sharing some perspectives in this paper around the top five forces that companies should be prepared for as they look beyond the immediate disruption and build for future business growth.
1 – The Global Pandemic
The elephant in the room in discussing business issues in 2021 is, of course, the global pandemic caused by the Covid-19 virus and how it has on one hand disrupted business in the short term, and on the other hand changed the strategy of organizations as they build for their future.
The immediate disruption continues to take many different shapes depending on the industry that the organization is operating in. As consumer behavior has dramatically changed due to the restrictions and safety measures put in place primarily by governments around the world, but also by private companies in some cases, this has impacted the supply chain in many ways. Online Retailers have seen a vast surge in demand, creating situations where they’ve been overwhelmed with unprecedented order volumes. Hardly anyone has been spared the anecdotes flying around about the mind-boggling sales figures – such as hitting the $1 billion-a-day revenue mark in 2020 – by Amazon or their impact on the company’s finances.1
Grocery chains have also fared well in general, as the choices of eating out have been drastically limited in many parts of the world. In the tow of Retail, many CPG companies have benefited from increased demand, and logistics providers have seen a major growth in parcel deliveries. And, in the pharmaceutical and healthcare industries many have been able to capitalize on the increased demand for medicines and care services, which of course in many cases has also caused significant challenges and adverse effects.
“We saw record numbers in May, June, November, December of online shopping…It was through the roof. There were emails from the CEO on all orders at some point sent out: ‘It is Black Friday, we are seeing Black Friday every day.’ And we saw it for a few months. We never saw that behavior before, and we’re now ready for that.”
–Demand Planning Manager at a global CPG company2
On the other end of the spectrum, Hospitality and Restaurant business has suffered greatly from the pandemic restrictions, as has the Travel industry. Entertainment and Media companies have seen major disruption as the vast majority of physical events has been cancelled and consumer spending has largely shifted to online channels. All of this has meant significant challenges in the supply chains serving these industries, and in some cases the changes seem permanent or at least long lasting, with companies unable to bear the economic hardships going bankrupt. Even organizations that are seemingly doing well are cautious about a potential bullwhip effect in demand as the situation with the pandemic starts to normalize around the world, potentially leading to markets being flooded with some goods. Demand planning under the current circumstances can be extremely challenging as it is, but the significant increases in supplier lead times and volatility in shipping rates further complicate the situation.
“From what I’m seeing from customers at the moment is a lot of warehouses with stock, and I think the UK market is definitely saturated with certain stock items… Are we seeing the UK market effectively being flooded because of the potential of the lockdowns where we’re going to see panic buying again?… Are we going to see a drop-off in sales later this year?… Are we going to see shipments being blanked because supply and demand have dropped off the cliff?… We’re definitely navigating into a very uncertain 2021 and I can’t see much normality being restored until at least 2022 in some areas, if that is what normality looks like.”
–Supply Chain Director at a CPG company2
While adjusting to the immediate disruption, whether it’s about figuring out ways to survive to the next quarter or about ramping up operations to meet exponential growth in demand, organizations are also faced with the question: How does this impact our strategy in the longer term? In some cases, the changes in consumer behavior or an unprecedented need for certain products, such as PPE or hand sanitizers, have created new business opportunities allowing companies to pivot into new areas. Some organizations have seen their plans around business digitalization and launch of new digital products expedited as their traditional business has hit rough waters.
“One of the best impacts [of the pandemic], and we won’t see quite yet, is just how creative and advanced my lot can be. And in some respects, the pandemic has forced that to the front, which I don’t think we possibly could’ve been as creative or as change-oriented 18 months ago.”
–EU Logistics Manager at a manufacturing company2
In many cases, one of the key impacts that the pandemic disruption has had is leading organizations to question their pre-pandemic sourcing strategy and particularly the lack of geographic diversity thereof. In the longer term this may lead organizations to reduce their reliance on particularly Asian suppliers alone by developing a more geographically diverse supplier base where possible to better manage risks around regional disruption in manufacturing activity and logistics flows. While cost optimization remains important, resilience, adaptability and agility of the supply chain are becoming key priorities for organizations.
2 – Impacts of Brexit
For the British, but also many European companies Brexit in 2021 is giving the pandemic a run for its money in competing for which one causes more disruption. The ambiguity of what kind of trade deal there would be between the UK and EU after Brexit, if any, was at least somewhat resolved at the last minute just before the deadline, avoiding the dreaded no-deal scenario. While the new rules took effect on January 1st 2021, companies were given a six month transition period until July 1st 2021 to figure out their processes regarding the significant increase in paperwork they will now have to do as a result of the new import and export rules.
“Ordinarily when you do a big change like this, I think you would do a few dry runs and a bit of a test and check everything is working. And we didn’t have the opportunity to do that, so despite best efforts, I think we’ve all found some chinks in the chain.”
–Associate Director, Customer Logistics at a global CPG company2
In the early days of life after Brexit, British companies are seeing mixed impacts from having to adjust to the new reality. In some cases, being freed from the strict EU regulations is making things easier for companies, from more relaxed regulations around documentation and tracking in the pharmaceutical industry to simplifying trade with companies located outside the EU. However, business with companies within the EU has been disrupted in many ways. In addition to the mountains of paperwork needed to trade goods across the UK-EU border – the full reality of which is only dawning after the transition period – there have been delays at the border, and even when the British companies have done what they can to prepare for the new rules under the Brexit agreement, they may still experience issues on their trading partners’ side.
“Most of the big companies [in the UK] have set ourselves up for the export process, and set ourselves up to operate fairly well and very well. What we’ve found is it’s the other side now, the import side with the customer: How well have they prepared themselves? And what we’ve found is, no matter what we’ve done last year in reaching out and engagement, we would say at least 75% of our customers still were not ready in the first, second and third week [of Brexit taking effect] to be able to receive goods, and handle goods in an efficient manner, and that’s been the biggest challenge for our business.”
–EU Logistics Manager at a manufacturing company2
Adjusting to the new rules has also been more successful in some EU countries than in some others. For example, whereas exporting goods to France may have worked out well, exporting the same goods to Spain may have caused issues and even resulted in goods being denied entry due to varying interpretation of the same rules between the two countries.
“That [sending goods to Spain] has been a massive problem. They want to classify furniture as furniture, which is wooden goods, but upholstered furniture is something else and they insist on having test certificates for individual pieces. And we don’t test every single piece, we test the biggest piece in the range… presume a chair is a one-seater sofa, effectively, and here’s a test certificate for a three-seater sofa, they’ve rejected the load, so we’ve had to bring the load all the way back from Barcelona at significant cost… It seems very random and sporadic, in sense that we’ve sent three loads out there, we got two through and one got rejected despite all the planning, so we’re looking for alternative routes.”
–Supply Chain Manager at a retail company2
The long-term effects of Brexit will continue to take shape over the months and years to come and the current deal poses several challenges, such as need to evolve customs cooperation on both sides and managing the border in Northern Ireland. So far, supply chains in general have been reasonably successful in adapting to the new rules, and some companies have even been able to find silver linings in some areas of their business. However, Brexit will continue to be a major challenge to navigate for any organization doing business across the UK-EU border for the foreseeable future.
3 – Regulatory changes in invoicing
To combat the sizeable VAT gap – the difference between expected and actual value-added tax (VAT) revenues – across the EU member states, governments in Europe are looking at electronic invoicing and electronic reporting as key solutions that help authorities to have better insight into tax revenues and more control over tax omission and fraud.
The VAT gap across EU member states was estimated to be 140 billion euros in 20183 which gives ample motivation for other European countries to follow in the footsteps of Italy in mandating e-invoicing and e-reporting using the so-called clearance model, where the relevant invoice information is cleared through a government approved mechanism before or at the same time as an invoice is delivered. Many Latin American and Asian countries have also already adopted the clearance model -based mandates for e-invoicing with excellent results. For example, in Brazil the government saw a $58 billion (USD) increase in tax revenue by addressing gaps in invoicing and reporting, and Chile and Mexico were able to reduce their VAT gap by up to 50%.4
While this e-invoicing is a hot topic across Europe and during 2021 changes are taking place in many countries including the UK, Portugal, Germany, and others, perhaps the most notable development is the French government’s decision to mandate e-invoicing and e-reporting for not only business-to-government (B2G) but also for cross-border and domestic business-to-business (B2B) and domestic business-to-consumer (B2C) transactions. The mandate will take force gradually between 2023 and 2025, starting with large organizations and extending to cover SMBs later on. By 2025, any company doing business in France will be impacted, and preparations in organizations are starting to take place.
“That [the French e-invoicing mandate] is something we’ve been planning for for a few years, but again with the uncertainty, there are things we have to accept we will get wrong, and try and manage that accordingly.”
–Director, Global Procurement Capabilities at a CPG company2
Overall, e-invoicing can yield tremendous benefits not only for tax authorities but also for the organizations implementing it. Compared to traditional paper-based invoicing processes, automated e-invoicing can result in cost savings of up to 80%, and with Billentis estimating that the share of organizations forced either by legislation or by their key trading partners to exchange invoices just in electronic format will grow from 40% in 2019 to 80% in 2025, we are experiencing broad and significant cost-efficiency improvements in the way invoices are processed across the economy.3
In light of these numbers, companies should consider the emerging e-invoicing mandates across the world not as additional red tape that complicates business, but instead as an opportunity to digitize and transform their AP and AR processes. However, seizing this opportunity requires a centralized and strategic approach, otherwise the result will be a mix of uncoordinated point solutions across the world that add further complexity and cost to the already diverse IT solution portfolio in organizations.
“E-invoicing sounds very simple as a tool, I think everyone’s used to going online, seeing you bank statements in a pdf format or sending an email… But when it comes to implementing cross-country, cross-function [e-invoicing] on a global level, it has been very challenging.”
–Director, Global Procurement Capabilities at a CPG company2
Invoices are a critical business document exchanged between trading partners and important for the supply chain as well. However, since the invoicing processes are generally owned by the finance department, whereas the supply chain focuses primarily on other business documents and data, there is a danger of missing the mark on taking full advantage of e-invoicing in the supply chain context. Synergies could include things like automated invoice approval based on matching invoices with orders or other documents, which may not be considered if focus is placed solely on optimizing exchange of individual document types. Supply chain leaders should therefore look to collaborate with their peers in the finance department to ensure potential synergies are considered when adopting or developing solutions for e-invoicing.
4 – Future proofing supply chain data exchange
In many cases the pandemic has pushed organizations from planning their digital transformation programs to executing them. In the supply chain, managing the immediate disruption has naturally been the key priority, but 2020 was in many cases a painful demonstration of how delaying digitization of business processes with trading partners can have serious consequences on business continuity and agility.
Process optimization within supply chains gave birth to EDI even before computer systems were broadly used by organizations, and it has continued to drive continuous improvement and technological advances in facilitating information exchange between suppliers and buyers ever since. EDI and other digital data exchange mechanisms are broadly used in supply chains for exchanging key business documents, such as orders, order confirmation, invoices, and shipping notices, particularly when high document volumes per partner are concerned.
However, few companies have fully digitized their supply chain document exchange, and prior to last year achieving 80% digitization rate was an admirable achievement. Nevertheless, as the disruption caused by the pandemic has made clear for many organizations, there needs to be a push to digitize the remaining “long tail” of supply chain communication to unify visibility into supply chain processes and protect the business from disruptions caused by those means of communication that have dependencies on the physical world. For example, in many countries an order or an invoice sent as a traditional letter in the Spring of 2020 likely got delayed or even stuck at the local post office due to disruptions caused by Covid-19 restrictions, and even if it got through to the offices of the intended recipient, there may have been no one there to read and process it due to people working remotely.
“What I find is, there are areas of our business that are very advanced…and then there’s other areas almost have got forgotten. And then I find I have almost a challenge to say: ‘This is ridiculous that we’ve still got bits of paper. How can this possibly be the case, when we’ve strategically determined that we want to be a digitally enabled company’…and then I find there’s a lot of bureaucracy to try and actually get someone to do something about it. So that’s just my experience, massively frustrating in some areas and seems bonkers that in my company we can have such extremes of brilliant and awful.”
–Associate Director, Customer Logistics at a global CPG company2
The next step after digitizing information exchange is moving from manual to largely automated data processing. Sending an order via email is better than a traditional letter, but it is still prone to human error in both creating the order and in manually keying it into an order management system. This process also involves significant amounts of manual work, which easily drains productivity as order volumes grow and people spend large portions of their time doing repetitive tasks that could be easily automated. The same holds true in other areas of the supply chain, such as manually collecting data for demand planning forecasts and wrangling it into the right format on an Excel sheet. Looking for opportunities to reduce the amount of manual work through automation is therefore important, and solutions are based on automated processing of structured data, ideally exchanged directly between systems with human intervention limited to managing process exceptions and errors.
“We all get EDI orders in from customers, but…part of the business has telesales and somebody’s manually keying orders into a system, probably from an email. Some of it’s actually behavioral, and we’re trying to empower people themselves to ask why they’re doing that…Why wouldn’t we be 100% digitalized, it’s ridiculous, why do I want somebody manually keying something in…it’s madness, but it goes on in big businesses a lot.”
–Head of Supply, Logistics & Service at Food & Beverages company2
Supply chain leaders looking to future-proof data exchange with trading partners – or internally within the organization – and increase the level of automation should be wary of the “good-enough” syndrome. People working in the supply chain are typically highly skilled at optimizing whatever is brought in front of them, but transformation also requires a degree of innovation which feeds on questioning “the way we do things around here” in a constructive way.
“I’ve been in several organizations where there’s a plan to look at supplier digitalization, the organization has gone and put in the, at the time, best-of-breed tools, but yet we default back to Excel… and I think that’s where that mindset shift, honestly I do struggle with because as an individual consumer outside of work, everyone is very digitally savvy…but when we transition back into the work environment, there’s always that element of doubt that can we really trust the tool we’re building.”
–Director, Global Procurement Capabilities at a CPG company2
Another challenge in driving and optimizing supply chain digitization is facilitating collaboration across different teams. Within the supply chain there are several areas of expertise that are highly focused on their specific domains, but that don’t always communicate effectively to leverage the synergies that can be gained though collaboration. This is largely a cultural and organizational challenge as modern technology, when applied in innovative ways, presents great opportunities for organizations to further optimize and automate their processes.
5 – Improving supply chain visibility
Visibility into the various processes within the supply chain continues to be a hot topic among organizations, and the events that unfolded in 2020 only highlighted the need to improve capabilities in this area. One key theme related to this, that is either experiencing a renaissance or emerging anew, depending on which definitions you subscribe to, is that of a supply chain control tower.
The hype around the idea of supply chain control towers was already drawing attention both among supply chain professionals and technology analysts before the pandemic, and it remains a topic of great interest. However, there continues to be a lot of ambiguity around what exactly is meant by the term, and there is no easy answer for this.
“It is very difficult when you go round [defining a supply chain control tower] and, in my industry, what I think a control tower is, to make sure it’s not just a replication of enforcements.”
–Customer Fulfilment Manager at a Pharmaceutical company2
According to Gartner, there is no standard definition for the concept, but the key elements it encompasses include being a combination of people, processes, data and organization that is facilitated by technology; serving specific use cases through horizontal technology layer on top of supply chain management applications; and evolving from delivering end-to-end process insights to also enabling end-to-end process orchestration and decision making.6
Whether delivered through a comprehensive control tower or more specific visibility tools, different kinds of views into what is happening in the supply chain in real-time are increasingly important for various users. Demand planning relies on accurate and timely market data, shipment tracking helps production planning and optimization, and shared visibility into business document exchange helps suppliers and buyers collaborate more efficiently without unnecessary communication or confusion. Building capabilities to deliver these views requires comprehensive solutions – as implied by Gartner’s view on control towers – where technology alone is not sufficient, but it needs to be combined with business and technical expertise and well-aligned with the business process to which it contributes. The organization also needs to have a culture that support data-driven ways of working, because without this the potential that would otherwise be there is wasted.
“I definitely have seen that – the culture in supply chain vs. sales. In sales, everyone sees your numbers. You sneeze and everybody knows what you’ve done, where you’ve given money away to. In supply chain it feels as though there are different departments that have things, but don’t quite tell someone else something. And then when you’ve asked questions, or you’ve wanted visibility of the data…people are being quite defensive about it and haven’t seen that what we’re actually trying to do with this is get visibility so that we can all drive continual improvement together.”
–Associate Director, Customer Logistics at a global CPG company2
Even when built and used correctly, digital supply chain solutions will not prevent disruption from happening, nor will they solve the immediate problems in the physical supply chain, such as port closures, bad weather or, indeed, pandemic restrictions. However, they do help in anticipating and identifying disruptions and facilitating quick response to them, and this is the value of supply chain visibility. When supply chain data is processed digitally, it can be used for analytics and staying on top of process performance in real-time. It can also be automatically validated based on pre-determined or dynamic business rules, which improves data quality and helps avoid process errors and the unnecessary work involved in fixing them.
Conclusion
The turbulence of 2020 continues well into 2021 as global supply chains continue to adjust to the disruption caused by Covid-19. Brexit has finally become a reality, and it will continue to impact not only British but also many European companies into the foreseeable future. New regulations beyond those introduced by Brexit are driven by governments looking to mandate e-invoicing and e-reporting as means to tackle the sizeable gaps in their tax revenue, both in Europe and elsewhere in the world. Finally, digital business transformation continues with accelerated pace, and supply chain leaders bear a large share of the responsibility in making initiatives successful for their organizations.
One of the key impacts that all these developments have contributed towards is that the supply chain as an organizational function, and the S&OP and S&OE processes in particular have gained more attention from management in many organizations. Supply chain leaders should consider this increased visibility in the time of crisis as validation for the critical importance of their efforts in the overall success of the company and leverage it in driving strategic investment in the organization’s supply chain capabilities both in terms of organizational alignment and technology modernization.
Going forward, the traditional focus on cost optimization needs to be accompanied by additional focus on building resilience and agility into the supply chain. This will not be achieved without bringing together modern technology, people with the right skills, and processes to manage efficient execution. All these elements are central parts of the DNA of supply chain management – it’s now time to add innovation into the mix and facilitate a data-driven culture to tap into the vast potential that the digital transformation of supply chains presents for organizations.
Authors:
Ville Parkkinen | Sr. Product Marketing Manager at OpenText
Ville Parkkinen is a Senior Manager of Product Marketing for Business Network at OpenText. Leveraging his 7+ years of experience in marketing complex business-to-business offerings involving a mix of professional and consulting services and cloud-based software products, Ville enjoys taking complex technical concepts and translating them into tangible value in the customer’s business context. Solution areas that Ville focuses on include enterprise application integration, B2B integration, electronic invoicing, and data tokenization. Ville holds an M.Sc. in Economics and Business Administration from the University of Oulu, Finland.
Jeff Eckel | Sr. Product Marketing Manager at OpenText
Jeff Eckel is a Sr. Product Marketing Manager for OpenText Business Network focused on the ethical supply chain, automation, retail, vendor compliance and B2B integration. During his 14+ year tenure at OpenText, he has held positions in Product Management, Solution Consulting, and Professional Services and is Pragmatic Marketing certified. Jeff has over 20 years of experience in delivering technical business solutions and holds an MBA in Entrepreneurship from Acton in Austin, Texas.
Sources:
- Billion-dollar baby: Amazon daily sales surpass new milestone (2021) Bloomberg / Vlastelica R
- Roundtable discussion on Feb-24-2021: 5 Forces Driving Modern Supply Chains (2021) VF Media / OpenText
- Addressing the VAT gap in the EU (2020) European Parliament Think Tank / Karaboytcheva M¨
- The e-invoicing journey 2019-2025 (2019) Billentis / Koch B
- E-Invoicing / E-Billing: International Market Overview & Forecast (2021) Billentis / Koch B
Quick Answer: These Are the Characteristics of a Supply Chain Control Tower (2020) Gartner / Titze C