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Unlocking Operational Excellence Through “Sense and Respond”

Unlocking Operational Excellence Through “Sense and Respond”
May 23, 2017

In the era of globalization and dynamically changing business scenario, manufacturing organizations are struggling with supply chain disruptions, with as many as 70% of the organizations reporting at least one supply chain disruption that impacted their business – according to the supply chain resilience report by Business Continuity Institute.

Disruption is defined as an unplanned event that adversely affects a firm’s operational excellence. For example, disruptions include events such as an unscheduled plant shutdown, parts shortage, and logistics interruption.

According to the same report by Business Continuity Institute, disruptions can lead to significant loss of productivity, increased cost of working, and loss of revenue. The same report mentions that 66% of the organizations do not have full visibility across supply chains and 40% do not even analyze the source of disruption. Ensuring end-to-end visibility of supply chains and utilizing the insights gained from the visibility of supply chain management remains a critical challenge for organizations.

The solution to managing disruptions lies in sensing and responding. Though it has been employed by the leading manufacturing organizations for a long time, in the age of digitalization, the focus should be to sense and respond quickly and intelligently to disruptions.

The focus should be to sense and respond quickly and intelligently to the disruptions

Responsive supply chains promise the ability to gather data coming from all operational areas – including plants, supply chain partners, and customers – and analyze them to understand correlations and effects within the business. However, the swiftness and form in which this data is delivered to managers will be the crucial differentiating factor.

The swiftness and form in which this data is delivered to managers will be the crucial differentiating factor

For instance, Nokia was procuring chips from Philips (from its plant in New Mexico) for a new generation of cell phones. A line of thunderstorms rolled through the city and caused a fire in the plant, destroying chips for millions of cell phones in a few minutes. Nokia’s systems sensed that the shipment of some Philips chips had been delayed. On investigation, Nokia got to know the issue quickly, which then triggered a timely responsive action starting with an analysis of the situation – the time it will take to restore production, the impact of disruption (disrupted supplies would prevent the production of some four million handsets, and could impact 5% of their annual production). Nokia quickly ascertained the availability of alternative sources for the parts. With visibility into the capacity of all Philips factories, Nokia was able to utilize the spare capacity for its chips production. As a result, Nokia was able to avoid disrupting any shipments to its customers.  On the other hand, other cell phone manufacturers who were sourcing from Philips did not sense the risk early enough and, therefore, experienced enormous negative impact

The operational data which can be captured and aggregated, includes information on supply chain events from partners, raw data from sensors, real time demand signals, customer interactions, feedback on products, inventory levels at stocking locations, quality performance, supplier performance, asset utilization, and other transactional data. Such a wide spectrum of data offers a 360-degree view of operations. Integrating the analytics layer on top of this data aggregation layer converts the unstructured data into actionable insights that can be utilized to manage disruptions thoughtfully and ensure operational excellence.

These efforts should be accompanied by agility and flexibility in supply chains, such as flexibility in the shop-floor, asset locations, partners, responsive supply chain management practices, and performance metrics, among others, while improving collaboration among supply chain partners for better sharing of the data.

The Sense and Respond framework for responsive supply chain management leverages the enhanced operational visibility and added intelligence to deal with exceptions quickly, prevent firefighting and escalated cost of operations. This leads to the achievement of higher operational excellence. According to a report by McKinsey, there have been noteworthy improvements with the Sense and Respond framework. For instance, productivity increases by 3 - 5%, total machine downtime reduces by 30 - 50%, maintenance costs come down by 10 - 40% and costs for quality reduce by 10 - 20%.  The Sense and Respond framework, therefore, plays an important role in enabling the digital core of an organization.