Digital Transformation in Supply Chain Management: How Levi Strauss, PepsiCo, and GSF Boost Operations
In the 18th century Francis Egerton, 3rd Duke of Bridgewater, an English coal supplier, wanted to improve the way coal was delivered from his mines in Worsley to Manchester, where it fueled steam engines for textile factories. Before the 1700s, most of the goods and raw materials were transported by roads. This type of transportation took a long time and was expensive.
To speed up this process and make it more cost-efficient, Lord Egerton decided to sponsor the building of a canal, and in 1761 the first boat traced the Bridgewater Canal. It took two years and the effort of England’s best engineer James Brindley to make this breakthrough in both engineering and supply chain management. As water transportation was much faster, coal transport was quicker and cost less. The Bridgewater Canal was one of the first technological achievements of the Industrial Revolution that influenced the way we organize supply chain management today.
By the mid-19th century, technology advanced, the railway appeared, and changed the way people traveled and transported materials and goods. Today we’re still experiencing these changes, as we’re living in the Fourth Industrial Revolution era, also known as Industry 4.0. The modern supply chain has changed under these conditions, becoming Supply Chain 4.0.
What is Supply Chain 4.0? Current trends
Supply Chain 4.0 is an umbrella term for all technological innovations that drive current supply chain management towards more effective work and customer-centric strategy. A well-managed supply chain is a significant competitive advantage for a business, so organizations strive to adopt new technologies.
Supply Chain 4.0 strives to achieve these goals through automation by applying sensors, robotics, big data, Internet-of-Things technologies, and connecting all elements of the chain. This makes supply chain management faster, as well as more flexible, efficient, and accurate. Here are some of its key trends.
Internet of Things or IoT technologies is the term used for devices and software attached to different items to receive and send data. In logistics, IoT allows for identifying and tracking items in warehouses and stores, capturing speed of delivery, as well as controlling and measuring temperature and humidity in facilities. This includes RFID (radio-frequency identification) and GPS technologies that track inventory, cargo, or vehicles and store this information in cloud services for monitoring or further analysis.
As industry segments keep adopting more efficient solutions, spendings on cloud experience stabilize growth and will amount to $1.3 trillion by 2022. In supply chain management, cloud solutions for supply chain management, platforms, solutions for data analysis, and cloud-based networks are used. Companies are shifting to cloud solutions to make storing, analysis, inventory tracking, and monitoring more effective across all stages of supply chain management.
Blockchain has been a buzzword for the last several years and is often associated with cryptocurrency. However, it successfully finds its use, making the transferring of paper and digital documents, like ledgers, contracts, quality certificates, and electronic bills of lading, more secure. Along the entire chain, freight goes through multiple third parties, generating numerous documents. Every transaction is recorded in a separate block, creating a chain of events, which makes processes transparent.
Big Data & analytics
Across all stages, from inventory planning and manufacturing to sales, the supply chain generates and collects a wealth of valuable data. The collected data is usually used for better decision making. Some fields of big data application are demand forecasting, demand planning, and operation optimization.
Logistics and retail sectors are replacing human labor with robotic devices for more efficient functioning in stores or along the way. These robots, known as inventory robots, are put to use in warehouses. There they can retrieve inventory from shelves, pack it, or move it. For delivery, there are drones and driverless vehicles. And in-store service robots assist customers, answer their questions, and perhaps replace the in-store consultant.
Moving towards Supply Chain 4.0, most of the companies combine several technologies to achieve maximum effect. Let’s take a look at some real-life applications.
IKEA: Data analysis & ML for better inventory management
Digital transformation can not only optimize processes or increase revenue, it also can contribute to solving global problems. IKEA partnered with Optoro, a technology startup offering a data analytics and machine learning platform. Oporto’s technology focuses on reverse logistics, optimizing the inventory by reallocating returned and excessive items and suggesting smarter delivery routes.
Also, this platform allows manufacturers to get an analysis of the volume of resold and recycled items. This strategy helps decrease waste by 70 percent and reduce emissions by half. This initiative will launch in IKEA US, covering 10 distribution centers and 50 retail stores as a part of the company’s mission to become a circular business by 2030.
Amazon: Robots to speed up warehouse work
The world’s largest online retailer Amazon uses robots at their fulfilment centers to lift and move the cargo. In 2019, they introduced one more innovation: robotic packing systems. With its 166 warehouses as of 2019 its plans to grow to 177 locations in 2020, the company’s top management expects to replace human workers in the near future. A single system can pack up to 700 parcels per hour, replacing 24 human workers. But time is not the only thing that this innovation helps to save: Warehouses with robotic systems can operate in the dark, reducing power spendings. According to Reuters, this innovation will pay off in the next two years.
In November 2019, Amazon announced a Robotics Innovation Hub, a state-of-the-art center in Westborough, Massachusetts, which will open in 2021. The goal of this center is to manufacture the robots that will cater to the company’s needs.
PepsiCo: Data analysis for smarter supply chain management
PepsiCo is an international food and beverage corporation. In 2015 they created Pep Worx, their platform for data analysis. The goal of this platform is to help retailers make better data-based decisions on assortment and marketing, targeted at a primary consumer audience.
This platform analyzed data on 110 million US households to choose 24 million representatives for one of their products, Quaker Overnight Oats. Based on this analysis, the company managed to allocate more inventory to offline stores, which are closer to the locations where their target audience lives, and improve the promotion of their products online. Jeff Swearingen, Senior Vice President of Marketing at PepsiCo, reported that this innovation helped the company to gain “ 80 percent sales growth in the first 12 weeks after launch.”
Also, in 2019, PepsiCo launched an AI-driven robot Snackbot that delivers snacks around the University of the Pacific campus after a student places an order in a mobile application.
Levi Strauss: IoT and cloud services to manage inventory
Levi Strauss, famous clothing manufacturer with a name synonymous with denim jeans, cooperated with Intel to create a solution that helps hold inventory at the stores in check. This system is a combination of cloud analytics and RFID technology. The point of this system is to control the number of items at the store, predict which of them will be in short supply, and restock them. The company introduced this system in 2015 in their San Francisco store.
The solution consists of three parts:
- sensors with RFID capabilities;
- a gateway that collects and filters data from sensors, splits it into smaller parts, and sends it to platform-as-a-service to analyze it; and
- Trusted Analytics Platform (TAP) for big data analytics with algorithms that determine locations by analyzing the data collected during the day.
The tags are placed on the items, tracked by the gateway system, and based on the results, provided by TAP, the store management understands what items or sizes are running out.
Wolverine Worldwide: SaaS platform for procurement optimization
American footwear and apparel manufacturer Wolverine Worldwide, Inc., comprised of 12 unique brands including Harley-Davidson, Patagonia, Sebago, and CAT, markets millions of pairs of shoes every year. To optimize the procurement and streamline speed-to-market strategy, they have started an indirect procurement program.
After a comprehensive analysis of the supply chain market, they piloted this program in the air freight category. This solution is a custom SaaS-based procurement technology platform, which helped the company reduce spendings on air transportation by 14 percent in three months. In subsequent years, they are planning to roll out this initiative into a full-scale project.
Golden State Foods: Blockchain & IoT for quality tracking
The third largest beef supplier in the US, which provides produce to McDonald’s, Golden State Foods (GSF) piloted a system by IBM to track meat quality “from farm to fork.” As their main product — frozen beef patties — leaves their 165,000 sq. feet plant in Alabama, the enterprise can control the quality of meat to the very moment a patty is served to a customer.
Here’s how it works. The RFID tags are placed on the boxes with ready products, and the IoT sensors at the plant are tracking box locations and temperature at distribution points. The system reads this information, records it, and communicates it through the blockchain to the restaurants. Golden State Foods plans to improve this system so that the customers can learn about the conditions under which the products were stored. As a result of this innovation, the company managed to reduce food waste.
BY Rydéns: Cloud solution to streamline procurement
Swedish brand BY Rydéns is a manufacturer and retailer that sells decorative lamps. In 2015 they decided to reduce manual labor by implementing cloud solution EasyStock for inventory optimization and control, with a demand forecasting feature.
Before implementation, the company used to create a shortage list of items to replenish, counting them and their number manually every week. With this solution, they managed to speed up this process, reducing manual labor by 67 percent and run inventory analysis less frequently (every three-four weeks).
The impact of digital transformation on supply chain management: What to expect?
In the coming years, Supply Chain 4.0 will blossom and develop, pushing innovation, competition, and customer service forward. Organizations will switch to automated warehouses and improve inventory management. The increasing volume of investment in innovation will certainly drive revenue growth.
Want to find out how technologies change industries? Read other articles from the series.
- Digital Transformation in Retail: How Starbucks, IKEA, Walmart, and Sephora Revolutionize Industry
- Digital Transformation Stories: How UPS, Amazon, JD.com, Delta and Maersk Change Transportation and Logistics Industry
- Digital Transformation Stories: How JetBlue and Marriott Advance Travel Experience
- Digital Transformation Stories: How Mastercard and Capital One Have Joined the Fintech Wave
- Digital Transformation Stories: How Pfizer and Halifax Health Foster Innovations in Healthcare
Originally published at AltexSoft tech blog “Digital Transformation in Supply Chain Management: How Levi Strauss, PepsiCo, and GSF Boost Operations”