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The cognitive supply chain: Why your firm needs one

And how the persuasive power of digital nudging can help

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Mani Iyer

Assistant Vice President, Analytics & Research

May 10, 2018 - Increasing expectations around service and personalization are adding significant complexity and uncertainty to global supply chains. Certainly, the supply chains of tomorrow will need to be highly responsive, agile, and flexible if they are to live up to the C-suite's growth agenda. And that will call for seamless collaboration between supply chain partners, real-time visibility into risks and opportunities, and closed-loop adaptive planning.

We've already started to go down that path. In recent years, technological advancements such as the Internet of Things (IoT), the cloud, and big data technologies have impacted supply chains. With the influx of data and these technological advancements, supply chain management is at a new tipping point. It is now possible to capture, store, process, and share data in real time to make faster and more effective decisions. The next big development is a shift away from transactional supply chains to cognitive ones – these are the supply chains of the future.

What is a cognitive supply chain?

The cognitive supply chain differs from its transactional predecessor in a significant way. Unlike transactional supply chains, a cognitive supply chain will be a digitally led, yet process-centric – as opposed to being merely digitally enabled. This new model is already evolving, as digital technologies with embedded analytics converge to capture, store, process, and share data. Scalable, more flexible operating models as well as new skill sets are natural enablers of this evolution.

How to accelerate this transition?

The transition is exciting and aspirational, but it won't be simple. It entails change management at every level and impacts operating models, skill sets, and the digital tools now in place. By driving exception-based issue resolution, for example, companies can establish processes and systems that foster greater productivity. And in a world of information overload, eliminating noise from signals can promote insights and encourage meaningful actions that lead to improvements.

One way to manage change quickly is through digital nudging. The concept owes its origin to behavioral economists, who believe that with subtle encouragement—so-called "nudges"—they can direct people's decisions. Digital nudging uses technologies to do the same thing at scale. Here are some examples in a supply chain context:

  • Planners get real-time alerts on service risks, enabling prompt decision making
  • Planners get daily priority lists that highlight critical exceptions
  • Before planners start their day, LED screens indicate if nightly scheduled jobs have run and data is up to date
  • Real-time, role-based visualizations show critical measures such as inventory outside-tolerance limits, safety stock gaps, master-data quality, and audit compliance
  • Automated root-cause assignments of service misses and excess inventory encourage meaningful actions

Figure 1: Evolution from transactional to cognitive supply chain 

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Why should a cognitive supply chain matter to you? Customer delight.

  • It focuses on outcomes. It can reduce the order-to-ship cycle time from three days to less than a day, for example. By contrast, transactional supply chains might just concentrate on cost-cutting.
  • It's connected, allowing suppliers, customers, third-party manufacturers, and logistics providers to collaborate in real time to purchase, produce, and move exactly what the end consumer needs.
  • It's an intelligent supply chain, with embedded business logic for end-to-end optimization and decision making, as opposed to local optimization. As an example, deployment recommendations will not just consider demand-side priorities, but also costs (transportation and penalty cost) and capacity (warehouse and transportation).
  • It proactively responds to real-time demand signals from points of sale so the business can change short-term forecasts, marketing campaigns, or production schedules.

Key enablers that drive the evolution

As seen in figure 1, three factors will propel the transition to a cognitive supply chain:

  • Digital technologies, including the IoT, big data, the cloud, blockchain, and bots. These help collect, store, process, and share information securely across the value chain. Also, coming into play: artificial intelligence, machine learning, cognitive analytics, and techniques that learn patterns and context from structured and unstructured data to get the best possible outcomes
  • Skill sets are evolving from functional expertise to functional-plus-digital expertise.
  • Operating models that evolve from decentralized and shared services centers (SSC) to scalable hybrid global business services (GBS) with global, regional and local centers pushing cost, service and cash goals.

Where can you begin?

The nature of this journey will depend on organizational maturity across several facets. The best place to begin depends on:

  • Accuracy and reliability of data used in decision making
  • Level of process standardization, integration, and automation
  • How advanced is the organization in embedding digital across the enterprise?
  • Time needed for the data-to-insight conversion process – which typically includes tasks like extraction, processing, interactions, meetings, and exception management
  • Employee attrition levels and the operating model (e.g., decentralized operations or an SSC)

Here's what makes the move worth it

The benefits of moving from a transactional to cognitive supply chain include faster time-to-market, improved market share, and increased growth and profitability. As metric outcomes, you can expect to see:

  • 50% improvement in productivity
  • 70% reduction in excess or unproductive inventory
  • 8% year-on-year reduction in logistics costs
  • 40 percentage point improvement in forecast accuracy
  • 15 percentage point improvement in customer service

How Genpact can help

Genpact is a leader in supply chain management. Our ready-to-deploy GBS and digital transformation framework can help you design a personalized target operating model and show you the digital interventions you'll need to accelerate your journey. And if you would like to understand how your business can benefit from a cognitive supply chain, get in touch with us today.