By Dr. Spyridon Lekkakos and Dr. Beatriz Royo
Logistics and supply chain operations are rich sources of useful data. Wherever and whenever goods and materials are worked on, inspected, transported, stored or received, information is recorded. Unfortunately, relatively little of this information sees any profitable use: in complex supply chains with multiple parties – suppliers, manufacturers, forwarders, carriers, wholesalers, retailers – the organisations that generate and hold data are often not those that most need it. There are technical and cultural barriers to the exchange of information between operators and entities. ZLC is a major partner in the SELIS programme of work, which aims to devise and demonstrate ways of exploiting supply chain information while overcoming these barriers.
SELIS, (or ‘towards a Shared European Logistics Intelligent Information Space’) is funded from the EU Horizon 2020 budget, and is a large programme of work which is exploring the more intelligent use of data across a whole range of supply chain and logistics activities from inventory and transport management to financing and the environment.SELIS starts from the assumption that there are major performance gains to be won by creating better visibility of relevant information for the right stakeholders. Conceptually, that is not rocket science, just common sense. What is new is that the technology now exists to gather, process, transfer and act upon ‘big data’, in real time, with high reliability. More speculatively, it is felt that given the right conditions there is now a willingness in industry and commerce, which has not previously existed, to contemplate the sharing and pooling of supply chain information.
So the objective for SELIS is not just to develop new technical solutions to the gathering and dissemination of data, but to create and demonstrate through ‘living labs’ new business models that will allow and encourage this. These would involve SELIS acting as a ‘trusted party’ managing ‘Community Nodes’, ensuring that the operational data needed for process improvement can be shared among stakeholders without disclosing information that is properly commercially confidential.
ZLC is working with SELIS on three particular applications. One of these is around standardising and simplifying ‘carbon accounting’ while reducing data uncertainty as a basis for driving environmental improvement through the logistics chain (read more). ZLC’s other areas of interest are around improvements in Inventory Management between suppliers and retailers, and in Supply Chain Financing.
In Europe, and perhaps especially in the South, there is no real culture of communication between retailers and suppliers. Future orders, plans for promotions and so on arrive at the supplier with little notice or discussion. One result of this is that the supply chain often carries excess inventory, to buffer against unanticipated retailer demands, and this creates cost and waste.
Clearly if there were better and earlier visibility of the retailer’s future plans, and better communication between retailer and supplier, then better management of inventory replenishment processes would bring benefits in costs and working capital requirements. At the same time more accurate ordering would reduce the likelihood of inventory write-offs creating sustainability benefits. Greater shared visibility of inventory as it passes through the supply chain can also improve the sustainability of transport by creating opportunities for shipping consolidation and the better use of multimodal opportunities.
There is a comparable story in Supply Chain Financing. As goods wend their way to market, suppliers and intermediaries often have to wait for extended periods to receive payment, and so resort to factoring, invoice discounting or other forms of Supply Chain Finance, where a bank or finance house advances money to the value of an invoice, less fee or commission.
Unfortunately, the finance house is often working very much in the dark. They may have little idea of the end customer’s willingness to pay on time. They may know little about how well the supplier has performed the contract (and so whether the customer is likely to dispute the invoice). And while goods are in transit, it may be that nobody, including the bank, knows exactly where they are or what condition they are in. Uncertainty represents risk and so supply chain finance charges can be ruinously high.
In fact, it isn’t true that ‘nobody knows’ – somebody knows exactly where that container-load of goods is, just not the people who need to know. The information is distributed across shipping notes, Customs declarations and a dozen other locations.If the financing providers could be provided with reliable information about events in the physical supply chain (for example, when goods are despatched, whether consignments are On Time In Full, the progress of a voyage), they would be better able to evaluate the operational risk associated with particular actors and events. That should enable them to provide greater levels of financial liquidity at lower cost.
SELIS has developed a business solution based on this idea and this is currently being tested by finance providers in the North of Europe supporting SME companies from the South.
There are also opportunities emerging to support Supply Chain Financing through ‘blockchain’. Technically this is rather different, being a ‘distributed’ technology rather than the centralised, cloud-based approach that SELIS is based on but the goals are similar and it may be possible to combine the merits of both approaches.Supply chains and logistics processes already generate large amounts of potentially valuable information. SELIS projects, with ZLC support, are demonstrating how this data can be made more visible and be used more intelligently across the supply chain.For more information about the SELIS programme visit SELIS project website and for ZLC involvement contact email to Spyridon Lekkakos.