It’s the kind of news that every supply chain manager dreads hearing: A hurricane is forming in the Gulf of Mexico or Atlantic Ocean, soon to make landfall.
A myriad of thoughts spring to mind. What’s the potential effect on your organization, your customers, your logistics network? Do you reach for policy manuals and binders of continuity plans? Or do you look to a digital twin of your supply chain, as the means of optimizing your response?
A digital twin is a virtual representation of the supply chain. Its purpose is to allow for a quicker and more consistent analysis of factors affecting demand forecasts, inventory management, and fulfillment with constrained supply. Those who rely on disconnected spreadsheets and “gut feel” miss out on the power of artificial intelligence and its ability to mine data for patterns and trends. They lack the ability to run scenarios and simulations to prepare for contingencies. Optimization algorithms are coded to achieve key objectives: maximize profit, minimize cost, fulfill the demand of key markets, to name a few. “Gut feel” alone cannot achieve the same caliber of results.
Integrated supply chain applications such as a digital twin create models for predicting customer behavior, using historical transactions as a base. The exercise takes into account the seasonal nature of modeling ebbs and flows of demand. The results can then be adjusted in line with past weather events. As a result, managers don’t have to scramble to assemble data.
When a large storm is looming, much work is needed to ascertain the available logistical options for connecting supply points, inventory and customers. A digital twin removes the need to worry about which routes and lanes need to be fulfilled by carriers with each event. It can instantly update the logistics plan in line with the current scenario. Routes that can’t be run due to bad weather can be temporarily closed, with the optimization algorithm re-routing around them.
A company’s ability to model scenarios during a storm or other weather-driven event depends on knowing the appropriate proper levels of inventory. Armed with such information, it can make decisions on replenishment to keep pace with changes in customer demand. With proper inventory knowledge and modeling, effective planning can be done ahead of time to help mitigate the ill effects of catastrophic weather events.
The tendency during a critical weather event is to myopically focus on the affected area at the expense of all others. The problem reflects the interconnectedness of supply chains. A company might divert inventory from one area to another by rationalizing that it needs to address an immediate problem. But a short-term dislocation can lead to a major disruption that take months to recover from.
When responding to a single event, it’s vital not to lose the perspective of the health of the entire supply chain. A digital twin, coupled with the right optimization strategy, can help ensure that all trade-offs are evaluated ahead of time. Only then can a company manage operations during a storm and ride it out successfully, instead of being victimized by glitches in the supply chain.
Patrick Long is a director in Opportune LLP’s Process & Technology practice.
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