Rajeev Mitroo interviews Argon Partner David Bissett on Supply Chain innovation.
Welcome and thank you for joining this session with our partner, Argon & Co. My name is Rajeev Mitroo. I'm the general manager for Aera's business in the APJ region. And I'm joined today by David Bissett, a partner with Argon & Co and somebody who has been working to educate the marketplace on the value of cognitive automation.
Argon & Co are a leading global management consultancy firm in the area of supply chain, operations strategy, and transformation. With a global presence across eight locations, they have worked with some of the globe's largest FMCG and CPG brands, and bring a wealth of knowledge and experience to this summit.
David has been with Argon & Co for three years and has 20 years experience in supply chain and retail operations, both in industry as well as consulting, having worked for one of the world's largest retail grocers.
During today's session, Dave will share his thoughts on what is driving the need to redefine agility within organization's supply chains, the consideration organizations need to think of when redefining agility, and where best to start. With that Dave, let me hand it over to you.
Thanks, Rajeev. Thanks for the welcome and this great opportunity to talk to everyone today on our topic, The Rise of the Agile Supply Chain. We see traditional companies struggling in recent years and dynamic customer needs and being competitive in a more disruptive and rapidly changing market, with those weaknesses never more evident than through this recent COVID period.
There's a lot of evidence to see this quite dramatically in the retail markets today, particularly in our market now. With pure play digital retailers dominating the space. We see the struggle being in part due to the inflexibility of these traditional operating models, which have historically been suited to pursuing lower operating costs. Characteristics of which are largely defined by constraints and operating silos. Silo-functional hierarchies requiring macro decisions at an enterprise level, but generally relying on micro decisions at functional levels. Linear processes leading to slow responses and a bias towards functional optimization. A lack of real time data and visibility across the end-to-end value chain driving latency in decision-making in blind flows, little for the managers to do, to understand and control those issues. And ultimately scale being constrained by human capacity and the boundaries of specific functional roles. Operational agility is the missing key ingredient to removing this flexibility. And certainly now on the rise is the objective of the best global supply chains.
If we take this view that enterprise operating agility is the key to being commercially successful in a more complex and dynamic world, what does this actually mean for the operating model? We think it means an operating model that is managed in real time, is more accurate and dynamic in its decision making, and one that is scalable beyond the constraints of today's functional silos and human organizations. This transformation is an evolution, starts with a digital foundation. We at Argon & Co see four pillars in a future digital supply chain. A number of which are increasingly accelerating in market today. The first and base foundation level is about having a connected data layer, enabling a digitization of the end-to-end value chain through real time, harmonized and connected data.
The second pillar is a robotic supply chain, physical automation of operations and administrative processes, drive efficiency and responsiveness. We see significant investment in today's market in DC automation, mobile robots, particularly in the online fulfillment and pure play space. And also the use of RPA in the central office.
The third pillar is a supply chain that is digitally secure, more secure and transparent transactions in the value chain and a focus on cyber security to protect their digital assets through technologies like Blockchain.
The fourth, and the topic of today, is really about the cognitive supply chain. An intelligence supply chain that can exploit real-time data, inform and control decision making at scale. Really the two biggest neighboring keys to the value of digitization is one, solving the data challenges of today. And two, the ability to apply insights to decision-making at scale, which is where cognitive automation will play a significant role in future supply chains.
The second step in the journey to enterprise agility is bridging the current gap between vertical and horizontal orchestration of the end-to-end supply chain. In today's supply chain, the end-to-end consideration is normally made at a macro, and fairly aggregated level, with processes like sales and operations planning. This tends to lead to a bias for functional decision-making at the operational level. Very difficult to break functional silos with the low current functional application architectures have been built.
Both with the advent of harmonized data, better sourcing, better organization, and unlimited processing power of a dataset, the development of machine learning and applied science, with ongoing development of data science capabilities to explore this data. Real time understanding of cause and effects, including business relationships, real understanding and learning from real business scenarios, and an always-on continuous to view scaling capacity and availability, make this new orchestration, lateral orchestration, essentially possible.
Not only can you create a digital and dynamic model of supply chain in today's environment, you can start to optimize laterally, which is fundamental to agility and operational responsiveness in conjunction with commercial value awareness, which I think in this context is extremely important, and another feature and value set of cognitive automation.
The final stage in the rise of an agile supply chain, and the key to value realization of agility at scale, is the autonomous application of systemic intelligent decision-making over the enterprise. Previous slides that outline the evolution to this point, moving from today's silos, reactively responding to the past and limited, by changing future, the real time digitalization with enriched data and an ability to see the end to end value chain, do an intelligent lateral orchestration capability with intelligent learning and a prescriptive capability to forward orchestrate. And to ultimately an autonomous scaling of operational decision-making and self-driving actioning. To be clear this will not be an operational model without people. It's simply a transition of the role of the human user to higher level function, cognitive automation will work within the thresholds defined, during the mass load of decision making. Whereas, exceptions that break thresholds and authorities are critical to the business remain under the purview of the human user.
Ultimately autonomous agility will be the key to scaling business value.
To draw an example leveraging my grocery experience, I'd like to talk through how an agile retail supply chain powered by cognitive automation would respond dynamically to highly important promotional challenges. In this environment, all functional areas play a vital and connected role in planning and executing that promotional event. We've chosen to focus on two of these areas in this example, essential forecasting and replenishment planner and the local distribution center planner. What is universal in grocery trade activity is that it's complex. That scale is at a very high frequency of activity, a very tough environment to respond dynamically at scale. Normally promotional activities run on a weekly or daily cycle. So it was difficult for any role in the value chain to see and understand the impacts of plans and actions in other areas of the value chain in real time given the level of detail and the scale involved. In these very short time windows, value chain collaboration is limited and the permutations at store SKU level are vast.
Ultimately even the best performing activities do not meet their full potential, or seeing the retailer unrealized profit, or alternatively costing the retailer unplanned and unnecessary costs.
So imagine a dynamic and agile response from a value chain in this scenario when powered by cognitive automation capabilities, where all parts of the supply chain have awareness and visibility of the end-to-end. Where all parts understand the functional opportunities in the context of the [inaudible 00:09:36]. Where all parts are supported to act at scale. At the imaginary planning in, imagine a scaling and primary performance sensing and full cost adjustment at SKU level across all locations with a retail network, something that doesn't happen today. Imagine a reduction of promotional store out of stocks at scale and loss sales outcomes, something that would provide significant value for the retailer. Also imagine having the understanding of the capacity and constraints of other parts of the supply chain at the time that you're making decisions, share performance and collaborate with the extended supply chain, including suppliers to accelerate a response, and ultimately to have the scale through automation capabilities, not only recognize and recommend, but react on decisions within the thresholds that are being provided.
Downstream at the DC at the same time in conjunction with the other elements of the supply chain, imagine a responsive supply chain at that level that can provide visibility of live promotional performance across the full network, across the full product portfolio, with an understanding and visibility of the impact of next day, next week volumes. Something extremely important to the operation of that particular facility.
Imagine the opportunity to reduce operational surprises through visibility and predictability of live store and supply chain requirements when promotional performance deviates from plan. Imagine that role within the supply chain and having an understanding of the impacts on the DC store, in terms of ordering to respond to required actions in advance. Being able to effectively managing the resource pool and capacities of the DC in real time.
Again, this in the context of value being created end-to-end can be scaled through automation capabilities, not only understand the opportunities, to avoid the risks that may be occurring through promotional variants, to make recommendations that will drive performance improvement through the warehouse, and ultimately fill customers shopping in the retail network.
In this supply chain actions are validated end-to-end. They're connected and they're seamless. In real time for each user to act upon. Applied across the vast number of promotional permutations of the grocery retail network, and exponential growth and opportunity assessment and response can be achieved, far beyond what the individual users find themselves, all of which delivers the real opportunity of fully maximizing promotional routine, minimizing the cost of execution, and de-risking the cost of under performance for the retailer.
Operationally executed through a cognitive control tower, the enterprise has the ability to respond to promotions at scale each day through the trading period. Optimizing revenue and margin opportunities at store SKU level falls tightly into consideration, margin value, cost to execute, and the availability of product to execute performance improvement actions.
Terms of execution. It can start from a user dashboard or descriptive and reactive response, so it can be customized to each user in the supply chain and moved to a diagnostic response where users review recommendations made by the cognitive automation platform. Have an understanding of the causes, the drive, and the outcomes, and the recommendations. And ultimately to predictive and prescriptive in each end of the supply chain or each part of the supply chain where users can review recommendations and make decisions and can draw out the performance improvement.
Ultimately, once defined, a level of autonomy can be provided based on thresholds and levels of authority to that mass processing of opportunities across the vast permutations within the retail network can be made at each node in the supply chain. Significantly improving the opportunity to improve performance in these high value promotional periods for retailers.
To finish the feature is an agile supply chain, powered by cognitive automation, leveraging dynamic digital supply chains, real-time responsiveness, unlimited scale, evergreen knowledge in terms of institutionalizing the corporate knowledge of the user group, continuously operating to drive performance improvement.
Agile supply chains powered by cognitive automation can see this holistic performance optimization of the value chain, and can support autonomous operations with human support.
Cognitive automation will elevate the accuracy, automation, and scale of decision-making. Enabling future supply chains to be more agile, more responsive and more successful in meeting the dynamic market requirements in a rapidly changing world. There's no doubt that this is the time of cognitive automation and supporting the rise of the agile supply chain.
Thanks, Dave. I think that was extremely timely and relevant. Not to mention insightful.
You know I wouldn't get away without asking you some questions. So the first one being, you've covered the need and the merit for cognitive automation, arguably even more frequently today than previously. Can you highlight some of the key considerations organizations should take into account as they look to redefine agility within their supply chain?
So happy to, Rajeev. I think that's an important question. And I think that's an obvious answer. From our perspective is that the first consideration really should be to have an awareness of the urgency to start.
Agility needs of the future supply chain, I think is self-evident in today's market. And cognitive automation will certainly play an important part in achieving this new capability.
Secondly, and consistent, I think with most digital innovation steps, it's important to identify a process initially where you can prove value. Starting small, but an area where you can test and measure and ultimately prove the value. And at the same time take scale in your mind.
Building cross-functional consensus, given one of the outcomes here with the use of cognitive automation, is that visibility and orchestration end-to-end will be critical.
And I think thirdly, and very importantly, this is still a human exercise. Cognitive automation will transition, not replace humans, in the supply chain. So change in management exercise needs to be considered upfront. And at the same time, identifying and providing access to the key process owners in the organization will be important.
I think, just to close that out, companies on the line in this process, companies like Aera well-placed to support them. And Aera's partner network as well are viable in all markets to all companies when they start thinking and considering the importance of cognitive automation for their organizations.
Yeah, I think extremely spot on. I think the old adage of people process and technology aligns itself really well to what we're discussing here. And I think your message, couple of points, start now, don't feel that the things you have are immature, I think low time, like present to start looking at how do you move your company from being a non-digital native to that of a digital native, and then leveraging in Aera and our partner ecosystem, partners such as Argon & Co, a wealth of knowledge in helping adapt at the processes that need to be adapted and applying the change management around the technology platforms, such as such as Aera.
So now thanks for that Dave. Now, the next question we've discussed that organizations need to understand and consider cognitive automation, irrespective of how immature they may feel their systems are. But what do you see as the trigger points for organizations to think of as they start to look at adopting cognitive automation?
I think all the necessary triggers are already implied. I think around most boards, right now, companies are thinking about how significant their markets are being disrupted and how important it is for their businesses to be more responsive in market, which is driving an immediate need, I think, to address some of the limitations that exist in these traditional operating models.
The ongoing inability of businesses to align now on their key objectives, the revenue and growth, cash, customer responsiveness. If there are challenges in that space, then a change is required. I think cognitive automation is a logical step or logical part of that solution in servicing the agility needs of the new supply chain operation in the context of many businesses and to be able to align those key business objectives.
So if you can't reconcile those objectives, you really need to be thinking about cognitive automation as part of your future roadmap and a key enabler to driving agility within your organization.
I think another trigger is, now in the same self supply chain, is how supply chain is viewed and measured. I think the existing or traditional paradigm of continuously looking to take cost out of the supply chain is something that is driven in flexibility and brutal missing to these operations. So then companies need to recognize there's a need to think differently. How you measure a supply chain. If you want a supply chain to be more agile then you need some to essentially encourage and measure the supply chain in that context. I think maybe thinking about supply chain more as a cost, as a percentage of revenue or a cost as a percentage of profit is a more appropriate measure, then just looking purely at a budgeted cost of the supply chain, because that will only drive inflexibility.
I think another area that we've seen in the markets that's sort of drawing a lot of investment currently, is in the robotics space. And we mentioned that as one of our pillars of the digital supply chain. So I think particularly in our market, if not globally, lot of investment is going into warehouse automation, privatization of online fulfillment, automated processing through technologies like RPA. And I think that is really a stepping stone and probably a confidence builder to start to think about automating decision-making, which is where, I think, cognitive automation comes to the forth and will be the next step, I think, in key investment agendas of these types of companies. And so one thing is for sure, if you aren't thinking, as a company, about cognitive automation and the benefits it can provide to your operation, then for sure, your competitors are.
Yeah, I think some great points there. I think particularly what stands out to me is the measurement of supply chain, looking at it from the perspective of not just efficiency, but resilience. And I think a lot of organizations have realized, as you put it, just how brittle their supply chains are and have become because they've been optimized to be so efficient that they struggle with any level of disruption. So I think there is a balance that can be provided there, and cognitive automation definitely provides that balance. So thanks Dave.
The last question, any thought to the transition of the supply chain function from moving from a cost of doing business to that of a revenue generation function?
Yeah, sure, and I think we touched on that a sort of gray in the previous question, I think how supply chains are being measured directly responds to that. And I think there will be a need to change that, to recognize the fact that agility and responsiveness and resilience is possibly more important than the lowest cost supply chain operation that may have been the way the supply chains were considered in the past. So moving away from a hard budget on supply chain costs into something that reflects improvement in responsiveness and direct contribution to incremental revenue or profit, is the best way forward. I think, more broadly, it's actually a great time to be in supply chain. I think supply chain is receiving renewed attention and possibly a better awareness of the value of supply chain to organizations, not just a cost of doing business, it is fundamentally either a point of difference, or a key in competitive advantage, or something that is fundamental to driving your customer value proposition and the outcomes that you actually achieve as a business?
I think as part of that, and again, cognitive automation, hopefully you've seen through some of the slides, will help drive the full end-to-end view of supply chain. Decisions that are being made at points in the supply chain take into context and in real time what the implications could be on meeting those overall business objectives. So this movement towards lateral optimization over functional optimization, I think will be quite a big paradigm shift in the next number of years. And quite different to the way things have been considered in the past.
I also think the organizational change element becomes really important. Once you get past this fear that automation means fewer human roles, less human activity within the operation, which I think is not real. I think we recognize that there is a transition that will occur to the human workforce. We'll do different functions within the operation, probably higher level functions. And that probably does start to ask questions around what's the organizational model that's best placed in a more cognitive automated environment. What type of skills may be needed in the future, for some of these roles and how do you build a management capability and more layers within your supply chain to take advantage of the fact that less decision making can be done underneath through cognitive automation while some of those higher level, high value items within the business really become the day-to-day focus of the supply chain organization.
So I think it's really exciting to answer, I'm working in supply chain and supply chain has got to become a lead function in many companies, all of this.
Yeah, some great points there. And I think that evolutionary [inaudible 00:25:46] you spoke of, particularly in terms of leveraging the expertise of the business user, rather than relying on the repetitive data incurring analytical tasks that most of the business users are involved in is a key critical realization to how you can leverage cognitive automation to facilitate whether it be cost savings or revenue generations within your supply chain. So, no, some incredible points there. David, I'd like to thank you again for sharing your insights and thoughts. I hope the audience has found it beneficial. I've certainly enjoyed the conversation and presentation and hope that you and others enjoy the rest of the summit. And for those that want to make contact with you, your contact details are up. But once again, I thank you very much.
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