On March 23, the Suez Canal made headlines worldwide – Ever Given, a 1,300-foot Japanese-owned container ship en route from China to Europe, was stuck on the waterway for six days.
The number of days may seem small, but the impacts on the global economy are still being felt, after all, it is estimated that 90% of world trade is transported by sea.
The waterway was inaugurated in 1869 and since then it has been a vital international sea crossing – it is an important commercial route that shortens the distances between Asia, the Middle East and Europe.
Located in Egypt, the channel connects the Mediterranean Sea to the Red Sea, preventing ships from having to bypass all of Africa – thereby saving vessels thousands of kilometers of travel.
The nonstop race to unlock the canal, which, according to the Suez Canal Authority, has over 12% of world trade passing through the structure, lasted six days, with rescuers working on land and water draining sand and removing rocks from the ends of the ship that had blocked the passage.
In addition to Egypt, other countries were also involved in solving the problem, such as Holland and Germany, and even the United States offered help. There were fourteen tugs pulling and pushing Ever Given at high tide to move it.
It is worth highlighting the work of the cargo agent, who manages the ship and plays a fundamental role in communication between a vessel and the transport and storage companies, customs brokers, container terminals and port operators. Such professionals were instrumental in the entire process that Ever Given went through due to stranding.
The lost money
On March 29, just a few hours before the Suez Canal was released, 367 ships were waiting to pass through the route, according to Leth Agencies, a local service provider.
To be aware of the impact, about 12% of global trade, one million barrels of oil and 8% of liquefied natural gas pass through the channel every day, and before the pandemic, trade that passed through the Suez Canal contributed with 2% of Egypt’s GDP. There was even an increase in the price of oil due to the unusual situation.
As delays can be very expensive for shipowners, some have decided to redirect ships around the Cape of Good Hope, in the far south of Africa, adding about eight days to sea voyages – experts estimate that congestion has held back almost 10 billion dollars in daily transactions.
According to an analysis by German insurer Allianz, the blockade costs global trade between $ 6 billion and $ 10 billion a week and could reduce annual trade growth by 0.2 to 0.4 percentage points.
Countless businesses affected
However, the blockade of the Suez Canal does not only affect the global shipping industry: countless businesses, from domestic transport suppliers to retailers, supermarkets and manufacturers are also affected.
From food products to spare parts for engines, they stopped at sea. There was even a concern that if the blockade in the Suez Canal continued, some companies would have to pay to order more goods and send them by air freight, which costs at least three times as much.
This means that even with a return to normal operations in a week or more, the temporary block would leave supply chains having to overcome the accumulated portfolio – those responsible for supply chain purchases closely monitored the progress of the resolution, tracking which materials the suppliers owned and could be on one of the ships stopped in the Suez Canal.
Freight forwarders had to negotiate their annual contracts with retailers and manufacturers that depend on global supply chains, having to choose between maintaining today’s high prices for next year or betting that they will decline as the system rebalances.
What to do if your cargo was on this freighter?
The channel incident can also cause companies to rethink supply strategies, better knowing their vulnerabilities and possible unexpected events – such as a global pandemic or a ship stranded on an important channel.
Some professionals have even decided to increase their safety stock to deal with supply chain disruptions, for example. Below are some tips on what to do if the cargo stops in a sea traffic jam.
Have a risk management plan
In this scenario, more and more companies seek to achieve the maximum degree of resilience possible. In an environment where companies buy from suppliers, who in turn depend on raw materials from other companies, any change can expose the entire ecosystem. With such complexity, risk management is essential to make the area resilient and capable of conducting new business in an agile manner.
Consult Incoterm in your Purchase Order
Before any action, know who is responsible for your cargo, the buyer or the seller. This information is determined by the Incoterm used in the purchase order and will determine your next steps to resolve the issue in question.
Consult the freight forwarder
If so, contact the hired freight forwarder to see if your container has been affected and what are the new delivery forecasts. If possible, contact the person responsible for the means of transport, such as the carrier.
This information can be found in your cargo’s Bill of Landing. When contacting, identify your cargo by the number of the container, the name of the ship and the seal, found in the same document. In case of perishable cargo, double the care.
Identify the person responsible for the accident
The person responsible for the accident, if any, should be penalized. Points that must be analyzed, for example, are the jurisprudence of the place where the accident happened. These determinations depend on international treaties and if the cargo is in international waters, international justice can be applied.
If we are talking about a territory in a specific country, those responsible must be judged by the law of that country. Another possibility is that the case is judged by the country of nationality of the ship. In all cases, an international arbitrator can be counted on to expedite the agreement without having to follow the judicial procedures.
Buy in advance
Plan to always do your shopping in advance. Programming yourself so that your cargo does not delay even with possible unforeseen events, can avoid several problems that react in a chain. Buying to replenish stock is a good option so that your production does not stop.
And most importantly, have cargo insurance
In case of accidents, if no cargo insurance has been taken out, there is a possibility of loss of the goods without the right to reimbursement. In case of perishable cargo or damage, the only possibility of not losing your investment is by calling the insurance. Some Incoterms define the mandatory insurance, but the recommendation is to hire it independently of Incoterm.
Being prepared is essential and in this sense, the use of sensors, big data and attention to technologies such as machine learning are fundamental points for professionals. In this way, it is possible to organize the information that comes from different sources, closely monitor each stretch of the chain, predict and avoid possible problems, and have a clear sense of priorities within the organizational environment.
Identifying the best time of the year to obtain parts at the best prices from a specific supplier, generating preference over suppliers who have better delivery times and better payment terms are some possible actions, which end up contributing to the company’s financial health as one all.
Supply chains are increasingly complex and, as a result, many companies are forced to follow an increasing number of rules and regulations – understanding cargo ship routes and traffic can be a differentiator to generate the greatest possible security for the purchase process.
The recent Ever Given stranding on the Suez Canal, exposes the weaknesses of this global system – with transportation so dependent on narrow waterways, the potential for these incidents is always present.
Companies must be more aware of these weaknesses as the world becomes more connected, looking for solutions that keep the supply chain balanced even in adverse situations.
Most problems can be avoided with predictive problem analysis, a good risk management plan and a resilient and agile supply chain.
On our blog you will find several blogs to help you modernize your supply chain to be prepared for the big changes and eventual problems in global trade:
- 7 strategies for a more resilient Supply Chain
- The impact of shared economy on supply chain
- 6 tips to develop agile supply chain in your company
- The impact of the digital world on the supply chain
- What lean supply chain management is – and why it matters
You can also count on Soluparts to help you deal with these unforeseen events – we are located in the most strategic markets in the world to facilitate your purchases and offer quotes from the most relevant manufacturers, with agility and security. Send us your quote request!
In any sector of a company, when it comes to expenses, the lowest price is an additional attraction, both to gain competitive advantages and outline the best strategies and to ensure greater profit and business growth. Hence, the importance of saving and promoting cost savings when needed.
As the name of the indicator suggests, the Purchase Price Variance (PPV) refers to the difference between two variables: the actual price of the product purchased and its standard price, always related to the number of units purchased. This is one of the main indicators used to measure the variation in the price of goods and services purchased, being a tool capable of telling how effective the purchasing team is.As a tool to understand how changes in the price of indirect materials can affect the future cost of products sold and also the gross margin, PPV assists in making price decisions by providing accurate forward-looking statements about future overall profitability.
When talking about PPV, the assumption is that the quality of the product is the same and that both the quantity of items purchased, the place of purchase, and the speed of delivery do not impact the price.
We go deeper to differentiate the variables: the actual price of the product purchased is how much the company actually spends on that item, whereas the standard price refers to what purchasing experts believe the company will pay to purchase the item during the planning or budgeting process.
The standard price is usually based on the last purchase price of the previous year, the first purchase price of the current year, or a price developed based on the best available scenario when the standard was created.
How it is calculated
As we have already seen, the Purchase Price Variance is the difference between the actual price paid to purchase an item and its standard price. To calculate it, just multiply these two variables by the actual number of units purchased.
- The formula looks like this: (Actual price – Standard price) x Actual quantity = PPV.
When the result is a positive variation, it means that the real costs have increased and the opposite, that is, a negative variation, means that the real costs have decreased.
See an example of purchase price variation
In its annual budget, a purchasing team decides that the standard price for a piece should be set at $5, based on a purchase volume of 10,000 pieces for the following year.
However, when the next year arrives, this team buys only 8,000 pieces and ends up paying $5.50 for each unit. A price variation of $0.50 per piece and a variation of $4,000 were created for all purchased parts.
However, it is important to assess the risks: a company can obtain a favorable PPV when buying products in larger quantities, however, if it is not assertively calculated, such a purchase can bring the risk of excessive inventory.
On the other hand, if a company’s purchasing department insists on buying in small quantities, it can result in an unfavorable price change. Therefore, it is necessary to plan carefully, preferably using data analysis, to effectively control price changes and make sure that the stock is at a good level.
Creating a budget
As a key performance indicator, Purchase Price Variance is critical for purchasing teams, as substantial value can be saved by using it as an indicator.
Materials tend to represent most of the costs of manufacturing companies, which is exactly why PPV is important, as it is a tool to assess and control expenses.
When the standard price is precisely defined, it is possible to develop historical data so that, at the end of the year, the full impact of the variations can be used as a KPI by the purchasing team – so the objective must be to accurately predict which will be material costs for the current year and the following year, to ensure accurate margins.
For the construction of the budget, the PPV target must be zero, since an unfavorable variation tends to grow more and more if it is not adjusted. Showing what is yet to come, the Purchase Price Variance is a leading indicator, making it an important gross margin KPI.
Forecasting the Purchase Price Variation
Using PPV metrics to look at the future is an effective tool for managing overall profitability and gross margin.
- The formula for calculating PPV Forecasting is: (Estimated Price – Standard Price) x Estimated Quantity.
With the Forecasting Purchase Price Variance, companies gain greater visibility into the prices of materials that are expected to impact gross margins, allowing for a proactive approach. From this information, finance teams can adjust their forecasts and forward-looking statements with more confidence.
Reducing the Purchase Price Variance
Keeping data on contract prices up to date when products are purchased is essential to reduce PPV. Therefore, its effectiveness can be improved by sharing the company’s historical data, with the costs and margins of the suppliers being passed on to the buyer. In this way, negotiations take place around a common price reference point.
Talking about price changes with suppliers can be essential, not only to neutralize pressures, but also to highlight the value the team has reached through purchasing decisions – such an attitude can help maintain prices and stabilize costs.
Another important point is that when using prices from independent markets in negotiations, the buyer is in a better position to influence the supplier to reduce prices.
The Benefits of Purchase Price Variance
- It is an accurate measure of the Actual Price and the Actual Quantity of the units purchased, a fundamental value for the purchasing team to project savings
- Can quantify the efficiency of a company’s purchasing team
- It is a valuable tool for making annual financial planning
- Explains how material price changes affect gross margin compared to budget
- Helps to understand the development of overall business profitability
- Assists in adjusting forecasts and forward-looking statements
- Creates an environment that continuously pushes the supplier’s price down
- Keeps prices lower and stabilizes business costs
- Increases efficiency and helps negotiate a fair market price
One of the objectives of any company is to be able to acquire indirect materials at a price lower than budgeted – and as we have seen so far, there is always a price variation in the budget, since it is thought of months before the purchase happens.
Under these conditions, a favorable variation means that real costs may be less than budgeted, while an unfavorable variation means that real costs are greater than budgeted.
Thus, PPV becomes an important metric when it comes to effective decision-making for business profitability. To learn more about other metrics that impact industry behavior, continue reading our blog.
When we talk about the departments of a company, all information is power. After all, data collected on business history is essential to optimize processes. However, we no longer need to stick only to the past: using Analytics, also called Business Analytics, it is also possible to do predictive analysis.
Using quantitative methods, the Analytics software captures data from the past and calculates projections that are used to support decision-making.
This is how it works: it reports what happened in the past and creates statistical estimates from this information, generating predictive analyzes – pointing out what may happen in the future.
With Analytics, you can design forecasts to determine the best possible way to act and also what to expect in the coming months. This analyzes help to improve the processes, and, consequently, improve the operational and strategic management of the department.
The opportunities created by the infinity of data already existing in organizations is only beginning to be perceived by leaders. But in order to transform this data into qualified information, some technologies must be well studied before being implemented.
Changes in the market
Analytics extracts more value from the purchase data, contributing to a better management of suppliers and applying more agile strategies, providing a better visualization of the processes, through the automation of reports and focus on actionable perceptions.
The system provides a beneficial change to teams, managers and executives, as it helps save time, reduces costs, increases productivity and optimizes the cycles of companies, which in turn are able to achieve better levels and positions in the market. In an increasingly competitive world, getting ahead is one of the advantages.
Achieving the goals and objectives of the sector and the company, becomes more practical and effective when there is data to make the analysis of what is working or not.
However, according to Accenture, organizations that really benefit from technology are the exception, not the rule. Most, despite having already deployed Analytics, are still unable to derive all its benefits from it.
Still according to the consultancy, many companies are just beginning the analytical journey, defined in four phases:
- Descriptive analytics
- Prescriptive analytics.
At each stage of the journey, the analysis becomes more sophisticated and difficult to perform, requiring an increasingly qualified team, but often scarce in the market. However, the quality of information generated and the value delivered is proportional to the increase in complexity.
Advantages in the supply chain
According to what we have brought here, staying informed to deal with different scenarios – positive and negative – as well as analyzing opportunities and forecasting variables in the supply chain is what Analytics allows.
Still in relation to the optimized time, an article by Accenture states that there is a reduction of more than 40 hours of data manipulation and analysis of purchases.
We can also say that productivity, minimizing errors, eliminating waste and connecting various sectors of the business can be achieved when using this system.
Because the procurement department is extremely complex, it is especially rich in data, and valuable conclusions can be drawn from it. When applied to the sector, the analysis can be called Analytics Procurement.
More than numbers, when using the analytical solutions offered by Analytics Procurement, it is also possible to incorporate Business Intelligence alerts, receiving notifications whenever there is an anomaly – that is, hours of manual calculations and monitoring processes are exchanged for software that also offers expense control, billing and metrics comparison.
Among the advantages are the identification of the best places to buy materials, allowing the definition of purchase abroad or in the domestic market, in addition to defining the best times for purchase, or when looking for an external purchasing partner is more advantageous.
It is also possible to view specific negotiation strategies for each supplier, in addition to providing complete supervision of the functions performed by people (purchasing, maintenance, suppliers) throughout the process.
But it doesn’t stop there: although the procurement sector’s goal is to always obtain the best possible price and quality for the product or service, the continuous comparison of prices in real time or history, provided by Analytics Procurement, brings economic results for the entire acquisition function.
According to a Mckinsey survey, purchasing departments tend to achieve cost savings of 3% to 8% when adopting the analysis.
Thus, by leveraging historical information, infusing external information and implementing predictive algorithms, Analytics Procurement allows better planning to be drawn up for the purchasing department.
The impact of Analytics Procurement
The software, which performs predictive analysis based on the use of artificial intelligence, is able to quickly analyze a company’s purchasing data, with a deep consistency in data sets, which in turn are presented in real time.
The automatic management of a larger number of supplier portfolios provides more purchase options, an essential benefit especially in times of pandemic, where volatility is high.
Analysis is a means of maintaining positive numbers, overcoming crises and gaining market advantage – several sectors depend on data and analysis of purchases to guarantee supply and stock during a period of shortage and high cost of materials, for example. Below are some practical examples of its impact:
Analytics Procurement sends alerts when contracts need to be renegotiated, provides relevant information and data to improve negotiation processes and also contributes to improving compliance rates.
Such data helps to identify opportunities, solve problems in relationships with suppliers, even before they occur, and optimize delivery processes.
Product cost reduction
It is possible to improve the company’s results by saving money, since the software finds the fairest prices and makes a complete analysis: original product price, shipping fees, customs, taxes, tariffs, insurance, currency conversion fees, packaging, handling and payment.
More accurate problem-solving
Assumptions are eliminated – to find out what are the causes, for example, of failed reports, wrong orders or problems with suppliers, a complete data analysis is performed to identify where the error occurred so that it can be corrected as quickly as possible.
The algorithms predict the future behavior of the data and, consequently, impact the business as a whole, after all, predicting what will still happen gives the opportunity to optimize the processes and in case of negative forecasts, to find solutions to deal with the situation. We can list some of these predictions:
Forecast factory demand
Demand forecasts are made using historical data to identify seasonal fluctuations. Therefore, it can be used to identify changes in requirements and to predict changes in supply and demand for purchase.
Identify trends before they become trends
With an advanced analysis strategy, buyers can identify patterns that will later become trends more accurately and understand how it applies to their supply chain, leading to faster and more strategic decision-making.
Before adopting any technological trend in your organization, be sure to read our article on the herd effect!
Analytics Procurement presents a broad view of the entire organization that combines internal data and external market information, enabling the construction of a solid database that leverages diagnostic and predictive analysis, which in turn contributes to more assertive decision-making.
Thus, the increase in purchasing performance and the strategic impact of business analysis is fundamental to stand out in the market and data collection and analysis are the first step towards achieving a higher level in such a competitive market.
Despite the fact that analytics is increasingly accessible, most organizations are still unable to extract all its advantages, which makes them seek increasingly sophisticated analytical resources to boost their business impact.
It is worth remembering that computer programs do nothing on their own, behind it is necessary a qualified team, with an analytical vision and deep knowledge of the software options and statistical analysis available in the market, to make it possible for the infinity of data to be transformed into qualified information that in fact give the organization market advantages.
Soluparts is your ally when it comes to making decisions for the growth of your company. In our blog, you will find several materials that help in choosing the best technologies for the optimization of your purchasing department.
The term “big data” may seem like something you’ve heard before – and there’s a reason for that. Since 2013, the theme has shown a high trajectory in terms of search volume and numerous companies claim to use it in the most diverse areas.
Source: Google Trends
The term appeared in 2005 for the first time, shortly after Roger Mougalas created another very popular term in that period, “web 2.0”. As for big data, it is an ability to analyze exorbitant volumes of data, which could never be crossed using traditional data analysis methods.
In 2014, an article in Harvard Magazine argued that this new information processing was capable of changing the world. And how could that be possible?
According to the published material, the key to big data is not in the amount of data available – but in the immense quality of the insights generated from the processing of information using algorithms.
Gary King, a Harvard professor, already cited an effective example of this new way of processing data: that year, Google analyzed groups of search terms by region in the United States to prevent flu outbreaks. Although notable, the professor argued that this was a small fraction of what could be done, if companies were willing to invest in it and analyze their data.
Currently, the search giant in Silicon Valley has announced that it is helping US states to get the COVID-19 vaccine to more people more quickly. This is done through the Intelligent Vaccine Impact Solution (IVI) and has already provoked important results, according to the multinational.
Still, this is not a trend that companies have adopted quickly. In 2013, a study by the North American consultancy Bain & Company showed that only 4% of companies had the right mix of people, tools, data and intentions to gain valuable insights from the data.
Within the supply chain, there are also challenges to be overcome: hiring professionals capable of collecting data, as well as technology to capture and combine them. Still, important benefits can be reaped, such as the ability to project demands more easily, reduce failures, improve management and results.
In general, whoever first joined this trend, in different sectors, did well. According to the consultancy, when analyzing more than 400 companies, it was possible to differentiate them through the following advantages:
- These companies are twice as likely to be at the top of financial performance rankings within their sectors
- Five times more likely to make decisions more quickly than your competitors
- Three times more likely to execute decisions as planned
The impact of big data in the purchasing department
Going deeply into the specific challenges for the purchasing sector, the North American consultancy McKinsey cites two main obstacles to the adoption of these tools in the sector: industry leaders have little or no affinity with analysis techniques used by data scientists; and the fact that companies lack a structured process to explore, evaluate and capture opportunities within the sector.
Regarding the potential for benefits to be obtained, the consultancy highlights two:
- Expand the data set for analysis in addition to the traditional data maintained in the Enterprise Resource Planning (ERP) and supply chain management (SCM) systems.
- Apply highly effective statistical methods to new data sources, combining them with existing ones.
Practically, the consultancy KPMG showed how the supply chains are using this type of technology on a daily basis:
In other words: the supply chain of the future will have algorithms and data analysis as an essential point.
How to deploy? With “maturity models”
How to bring this discussion into practice? Through Maturity Models. There are different approaches as to how this could be done, but a study conducted by researchers on the topic highlights three:
The first is Charles Poirier’s model: in 1999, he recommended that four steps be followed:
- Supply and logistics: characterized by functional excellence and programs such as reducing suppliers, reducing inventory and reducing costs;
- Internal excellence: use of activity-based costing and process management
- Network construction: development of differentiated processes throughout the company and cooperative planning
- Industry leader: extensive use of technology tools, supply and demand links and a global view
Then, Carnegie Mellon University defines the following steps: plan, supply, make, deliver and return.
Finally, the model adopted by the researchers, which consists of four phases:
1. Functional focus:
Few supply chain processes and data flows are well documented and understood. Organizational roles, responsibilities and partnerships with suppliers are not well-defined.
Basic information, which is not available across the organization, is collected electronically from many databases with limited access.
2. Internal integration:
Process-specific information is collected and shared within the factory using integrated systems and internal databases.
At this point, partnerships with suppliers are already well-defined and classified. Resources are managed at functional and cross-functional levels.
3. External integration:
The practices are now extended to the interface points with customers and suppliers, identifying the most strategic ones, as well as the main information that the company needs to support its business processes.
In addition, effective process collaboration with key customers is implemented and information is collected and shared electronically with parts of the value chain.
4. Collaboration across the enterprise:
Information technology plays an important role at this stage. Customers and suppliers work to define a mutually beneficial strategy and principles and define performance targets in real time.
Information technology now automates the integration of business processes in these companies, supporting a supply chain based entirely on strategy.
Big data applicability in the purchasing department
In addition to the topics discussed here, it is possible to follow the implementation of big data in the purchasing department through other materials produced by Soluparts. In addition to the core business of the areas and companies, with the adoption of big data, other departments can benefit from the massive and intelligent use of data.
One of them is compliance. Performing audits and standardizing processes can become much faster tasks with the use of data capable of bringing together different sources in one place, for example.
The standardization of processes is also a point that can be helped through big data, since the technology is able to gather structured and unstructured data in a single place.
With a more resilient data adoption policy, organizations also become more resilient. Again, big data is a natural consequence for companies that make the most of the potential of data and invest in Research and Development (R&D), helping them to become increasingly profitable and innovative.
Before investing in big data in your department be sure to read our article with tips to reap good results with the implementation of innovative trends: How to escape the herd effect.
Artificial Intelligence, Machine Learning and Deep Learning enable changes in standards in every field of action we can imagine – and are even helping the industry when it comes to supply chain: from procurement, payment, planning and production to the arrival at the final destination – optimizing the processes in a brand-new way.
A subset of artificial intelligence, which allows an algorithm, system or software to be able to learn on its own from tests on a data set, without having been programmed to do so – that is how the concept of machine learning can be defined.
From observations and data obtained through use, machine learning trains a computer model, combining predicted and real results. In this way, the more information is exposed, the better its functioning and assertiveness when it comes to carrying out its tasks autonomously.
Deep Learning, on the other hand, is a more advanced version of machine learning that emerged in 2010, in which computers are taught to learn for themselves how to perform tasks like humans, including image identification, speech recognition and predictions.
This technology makes it possible for the computer to recognize patterns in various layers of processing, instead of just organizing and executing data. This set of algorithms model high-level abstractions composed of linear and non-linear information.
The relevance of these technologies grows more and more due to their diverse advantages. In the age of information technology, where complexity only increases, agile and efficient logistics processes play a central role.
It is no coincidence that a study by McKinsey in 2019 shows that deep learning is expected to bring annual gains of $3.5 trillion to $5.8 trillion for companies worldwide.
The importance of Machine Learning in the supply chain
In the case of supply chain, we are dealing with large amounts of complex data. With Machine Learning, you can analyze this information and use the findings to improve your management: as products move, the system is able to compare this data to the company’s history in order to identify possible delays and make suggestions for speeding up the chain, for example.
Seasonal trends are some of the data that can be used to forecast specific demands and manage manufacturing and supply. We need to keep in mind that supplying good, quality products is essential in this sector, and with machine learning we can enhance the chain functioning by monitoring its process to avoid defects and errors in delivery.
Another positive point of this technology is the possibility of analyzing all the documentation necessary to deal with suppliers, leading to better agreements and more effective management.
Practical advantages of using Machine Learning in the supply chain
Clearly, at least five operational benefits are present in the day-to-day supply chain, according to Louis Columbus in an article published in Forbes:
More accurate inventory control
With algorithms and from applications that run them, with Machine Learning, the analysis of large and diverse data sets is done quickly, which optimizes the accuracy of demand and reduces forecast errors.
Thus, there is no need to maintain a very large inventory volume, as the product flow is constantly updated and monitored in real time. Another interesting point is that the inventory level analysis also identifies when products are losing popularity or becoming obsolete.
In addition to reducing storage costs, by encouraging improvement in the quality of control and reducing waste, there is consequently a decrease in expenses. Machine Learning also improves logistical performance, with a better choice of routes, modal and cargo agent, for example, minimizing risks of delays and costs.
Also considering the maintenance schedule and performance history of the equipment, automatic learning avoids improper operations of machines with low performance and acts as a reminder of scheduled maintenance, always seeking to minimize operating costs.
With trained models capable of continuous learning, it is possible to gain insights from the analysis of large and diverse data sets to improve the performance of supply chain management, improving the accuracy of demand forecasting from an end-to-end perspective – especially excellent in a rapidly changing post-covid-19 world.
Machine Learning excels in visual pattern recognition, generating many potential applications for physical inspection and asset maintenance across the supply chain network. Result: quality and automated inspections for robust management without the occurrence of human error.
Through IoT sensors combined with machine learning, companies are extending the service life of their main assets, including machines, engines, transportation and storage equipment, finding new patterns in the collected usage data.
Facilitated administrative practices
Supplier relationship management is simplified from the history and data provided with each purchase. To facilitate the quotation work, for example, it is possible to generate a standardized electronic spreadsheet for all the company’s suppliers.
By automating inspections and audit processes based on real-time analysis, the algorithms are able to increase the quality of product delivery and reduce the risk of fraud, as they detect anomalies or deviations from normal standards quickly.
Another example is that such a tool also prevents the abuse of privileged credentials, one of the main breaches within a supply chain.
How to get there
Software that integrates systems between suppliers and manufacturers is essential for the collection and processing of data to be done automatically, facilitating the decision-making process.
For this optimization to materialize, all organizations that are part of the supply chain must modernize at the same time, being able to provide quality data and consistently.
Do not forget that after being integrated into the system, machine learning must be constantly monitored by qualified professionals so that the company is sure that the data obtained are in accordance with the needs and expectations of the business and that they generate qualified information that indeed contribute to decision-making.
With the high volume of data to which we are submitted within a company, processing and analyzing them with conventional management tools has become inefficient. Thus, new methods are essential to maintain the full functioning of the industry.
Machine Learning makes it possible to optimize the supply chain using AI algorithms that quickly locate the most influential factors for the success of a supply chain, while constantly learning during this process.
Improving supply chain efficiency plays a crucial role in any company, increasing profit and making it easier to deal with challenges. On the Soluparts blog, you can find various contents on how to optimize the supply chain using technology.
With Soluparts, you also have a partner specialized in negotiation for the purchase of indirect materials. With a multicultural team and extensive experience in negotiating with suppliers, we are located in the most strategic markets in the world to facilitate your purchases. Contact us to find out more.
Artificial intelligence has been helping build a more digital world for longer than you think: in the 1950s, a generation of scientists and mathematicians already had a clear idea of what this concept would be. The highlight is Alan Turing, who prepared a study called “Computing Machinery and Intelligence” in which he discussed how machines could be smarter and how it would be possible to test their progress.
Seventy years later, the subject’s popularity is on the rise due to the COVID-19 pandemic, with different companies competing to adapt to new digital models and generate efficiency. Within these efforts, there is the supply chain sector. With spikes in demand generated by the social isolation and the difficulties of transportation around the world, data can be quite a support in everyday life.
This includes, of course, artificial intelligence itself: a broader concept of creating machines capable of thinking like humans. No wonder, a survey conducted by IBM shows that 46% of purchasing executives say that artificial intelligence and cloud applications will be the biggest areas of investment in digital operations in the next three years.
In a recent McKinsey study of investments in artificial intelligence, some companies interviewed, in various sectors, claim that at least 20% of their EBIT (earnings before interest and taxes) already comes from applications related to AI. At least half of the companies say they started using this type of application during the year 2020.
Within the supply chain, the study shows that the functions in which these new applications are most used involve optimization of the logistics network and improvements in inventory and inventory management. We have discussed topics like this before on the Soluparts blog, addressing the use of immersive technologies as other trends in supply chain.
Supply chain applications
This whole process is part of an intelligent supply chain, capable of bringing at least three benefits: greater efficiency, transparency and better dimensioning of demand over time.
In this context, artificial intelligence assumes a prominent role, in which leading companies in the sector have already invested -at least since 2018- in the automation of repetitive tasks ranging from issuing purchase orders, invoices, contract management to the administration of global processes. According to a Harvard study published three years ago, predictive analysis was already seen as a trend within the industry, capable of improving demand forecasting and improving costs.
In addition to these factors, sensors on machines are added to identify when maintenance will be required and even the use of blockchain to adjust flexible supply networks – but this is the subject of another article. For now, a key concept related to the application of artificial intelligence within the supply chain sector is that of digital control tower.
Applied to leading companies since before the pandemic, according to Harvard University, it consists of providing end-to-end information about global supply chains. This “tower” is nothing more than a control center that works every day of the week and, based on information viewed in 3D and graphics, it is possible to control delivery and stock problems in advance.
Creating this is not an easy task. A recent Oxford study provides detailed information on the subject and, to summarize, provides information that a basic artificial intelligence infrastructure depends on different data sources.
In addition to the traditional ones, such as ERP and customer management systems, this type of intelligence also needs data from physical products: sensors on products, labels, locations and machines. In this set, the internet of things (IoT) plays an essential role, since it allows a physical object to be linked to digital platform using a unique identification.
Benefits of artificial intelligence
The fact is that technologies like these are not a passing trend. A 2019 study by McKinsey that examined more than 400 artificial intelligence use cases in 19 sectors shows that use in supply management and marketing / sales accounts for the majority (two-thirds) of all AI opportunities globally.
Within marketing, for example, artificial intelligence can create $1.4 trillion to $2.6 trillion in value annually, and within the supply chain sector, those amounts can reach $1.2 trillion to US $2 trillion in product supply and manufacturing.
Challenges in applying artificial intelligence in supply chain
Investing in these technologies is not an easy process. The study mentioned above shows that the lack of confidence in artificial intelligence algorithms – which reproduce biased behavior according to the human biases implicit in the data – is one of them, as well as the lack of “success cases” in the sector: while automation has clear benefits and shows a segment with a clear return on investment, some points such as risk assessment, are more challenging as they do not yet have well-defined metrics to measure them in the short term.
In addition, the scarcity of qualified labor to support companies is a major challenge. As these are new applications, it is necessary to wait some time so a significant number of people is trained to deal with the technology.
Faced with this scenario, Harvard researchers raise the question: in a future with end-to-end automated processes, the need for human work will be minimized.
So what will become of humans in the supply chain? The need for “reskilling”, or to be trained again, will be a fundamental point to guarantee jobs.
Analysts capable of drawing insights from the data, using digital tools and being familiar with algorithms will be part of the new routine that the sector must face. Still, there is no clear vision as to how these jobs will be rearranged – it is up to the companies in the sector to design what they want for the future and, from there, to design the new roles that the sector should have.
The fact is that the collaboration between both of them must be essential (and the machines will not completely replace the human role within the operation). In short, at least three new lines of work must be created:
- The “trainers”, able to build AI projects from scratch and make sure they work;
- The “explainers”, who will take the insights from the data gathered by the machines;
- The “supporters”, able to assess the availability of the systems and ensure that they are not down.
Focus on the future
The future is already part of the strategy: a survey conducted by the Accenture Strategy already shows that 90% of supply chain executives believe that their workforce will adapt to digital technologies and 92% say that they will be able to work with intelligent machinery more naturally.
But we must warn you: before adopting the new technologies and innovative processes, evaluate and understand to what extent the investment will pay off in the long run if applied in your specific scenario. Learn more about this feasibility analysis in our article.
To learn more about other technologies that will shape the industry’s behavior in the coming years, read Soluparts articles on smart applications within the supply chain.
There are several ways in which a company can increase its profits – increasing sales, mergers and acquisitions, discovering new niche markets, the list goes on.
One of the options, which is widely explored in times of crisis like the one we experienced in the last year, consists of increasing profits by reducing unnecessary expenses and optimizing available resources in order to increase competitive advantages and maintain a healthy balance sheet.
In this context, the management of the supply area holds the leading role since it is responsible for factors such as the selection of suppliers, qualification of services, determination of payment terms, forecast of expenses, among others.
Consequently, choosing competent purchasing partners, capable of helping area managers to gain time to dedicate themselves to activities such as process improvements, monitoring of operations and new strategies, can make all the difference when optimizing the department.
In this article, we talk in depth about the ways in which companies like Soluparts can positively impact the results of your business.
Agility in the purchase process
As we have already discussed in our blog, a partnership with a qualified company with experience in international purchases offers advantages such as agility in the search for parts. The quotations of the best offers are sent by the partner in a short period of time.
Choosing to outsource this kind of work saves buyers from carrying out time-consuming market research to determine where they will buy their products.
In the specific case of Soluparts, a list of products of interest and the complete search of prices and terms with suppliers from all over the world is sent to the client in a single document so that the best offers on the market reach our customers. All the buyer needs to do is send a purchase order when the characteristics of the offer suit them.
Security when doing business
At Soluparts we operate with a worldwide network of manufacturers on 5 continents and logistics bases in the United States, Germany, Portugal, Brazil and Hong Kong allows centralizing all international operations and consolidating the entire commercial and logistical process in a single distribution channel with a highly attractive delivery time.
The material can be made available in one of the Soluparts warehouses or at the customer’s factory. In addition, the manufacturer’s warranty is offered so that the customer doesn’t face any trouble if a replacement of the part is necessary.
Greater supplier reach
It is always important to maintain a long-lasting and reliable relationship with suppliers. This ensures greater collaboration with the main market players, making a difference when it comes to getting offers and discounts – mainly in the sense of facilitating the process of exporting and importing inputs in different countries.
Soluparts has direct contact with manufacturers of more than 15 thousand brands and the ability to bring buyers and sellers together in different locations, providing advantages in the purchasing process and the best commercial conditions for the customer.
In addition, the purchase of parts in any volume is offered, avoiding excessive purchase of products, as well as keeping the spending of the purchasing sector within the budget.
At Soluparts you can choose one of two services:
- Spot Purchase – carried out sporadically, according to the company’s needs;
- Contract purchases – list of materials previously quoted and with an extended quotation validity period.
More experience to make the best decisions
Stanford Business School conducted a study in which it showed that, by strategically using fixed price contracts and open market trading, supply chain participants can create greater efficiency, thereby helping managers to make better decisions.
It is always good to point out that an effective purchasing strategy adds a lot of value to an organization by directly interfering in its financial balance. The best way to achieve this goal is to develop long-lasting relationships with qualified international partners who defend the interests of your organization.
It is also essential to be aware of new technologies, innovations and market practices keeping the sector’s activities always optimized and updated according to the latest trends.
Now that you know that Soluparts is able to offer agile and secure quotes from the most relevant manufacturers in the world – helping you to optimize your department – take the opportunity to test our services! Send us your quote request today!