Uncertainty creates need for continuous design using digital twins

Most companies’ supply chains are focused on cost efficiency. But the world they were originally designed for has since changed dramatically, meaning that today’s supply chain professionals are constantly fire-fighting. During a recent Webinar Wednesday, Coupa Software and logistics provider Ahlers sang the praises of digital twins which allow supply chains to be continually adapted and improved: “Companies need continuous design.”

By Marcel te Lindert 

In the spring of 2020, a producer of coolants was suddenly issued with sizable penalties by a car manufacturer in Antwerp who had suffered production issues due to the late arrival of the required product. The problem was due to trucks carrying coolant becoming stuck at border crossings in Europe, leading to huge delays. “We created a relatively simple digital twin for this company which enabled the supply chain team to simulate the impact of delays on costs and the service level at the car plant,” said Miguel van Asch, Head of Data & Analytics at logistics provider Ahlers.

Ahlers has a team of ten specialists who use digital twins to analyse and optimize supply chains. The producer of coolants enlisted the team’s help to investigate this particular flow of goods to Antwerp. Van Asch: “The digital twin revealed where the supplier should create extra buffer stock at the plant in order to maintain the service level. Besides that, the supplier built an extra facility at the plant for unloading trucks to avoid any time being wasted if a truck did indeed arrive late. Thanks to these interventions, the coolant producer managed to avoid further penalties.”

Difficult to adapt

This example is by no means unique. All companies with supply chains designed with cost efficiency in mind are finding it difficult to adapt to these uncertain times. “For the past 25 years, it has been all about doing more with less. We’ve increased utilization of production lines and reduced inventory levels in warehouses. As a result, we now have highly efficient supply chains. They work fine as long as the world is predictable, but that’s no longer the case,” stated Matt Tichon, Vice President of Industry Strategy at Coupa Software.

Around a year ago Coupa acquired Llamasoft, a provider of a supply chain network design tool. In the past, companies redesigned their supply chains using this tool maybe once every five years, but that’s far too infrequent nowadays. “Supply chain professionals are unrivalled at fire-fighting, but those fires occur because their supply chain was originally designed for a world that has long since changed,” said Tichon. He sang the praises of continuous design: “Companies need a living model, or in other words a ‘digital twin’, that enables them to constantly monitor whether their supply chain is still relevant.”

A new logic

Continuous design is not just about major issues like choosing the optimal locations for factories or increasing the number of warehouses. “On the contrary,” claimed Tichon. “Often, it’s just about creating a new logic dictating how goods flow through the supply chain, or about building extra buffer stocks in certain locations. For example, a food service specialist used our tool to reassess which restaurants should be supplied from which distribution centres. This freed up 19% extra distribution capacity and enabled the company to grow further.”

Now that disruptions are occurring in ever-faster succession, it has become even more interesting to use a digital twin. How much does it cost to have a second supplier for a particular material or part, for example, and is that cost justified by the extra resilience that the supply chain gains? Tichon: “Even a simple channel shift can cause a major disruption, such as when so many people suddenly switched to online shopping due to the pandemic. We continue to be approached by companies who want us to conduct a one-off assessment of their supply chain. When we probe deeper into their reasons, they soon realize that they actually want to develop the in-house competencies to be able to do it themselves. Why? Because the world is changing so rapidly.”

Raising the profile of Supply Chain

Van Asch provided another argument for using a digital twin: the chance to raise the Supply Chain department’s profile among other disciplines such as Sales or Finance. “When designing a supply chain, you make a lot of decisions that have an impact on other departments, so you need to involve them. If Sales say that they want to offer 24-hour delivery, you can use the digital twin to show them the consequences of that decision. The bottlenecks become immediately visible. That makes it tangible.” Tichon echoed that: “The CFO, CCO and Head of R&D are all stakeholders. If you manage to win them over, the operation will become even easier and more efficient, and you will generate even more value for customers.”

Another reason is the increased computing power and rapidly growing capabilities in terms of artificial intelligence and machine learning. “As a result, supply chains can be optimized in real time. Moreover, we can make the digital twin much more comprehensive, such as by adding external data about weather and traffic. You can start out with a simple digital twin based on internal data, and keep taking it a step further by adding external data sources,” Van Asch explained.

Floating storage locations

Van Asch and Tichon both provided more examples of the use of digital twins, such as by a Belgian brick manufacturer who was struggling with traffic congestion in the Antwerp and Brussels area, meaning that drivers were finding it increasingly difficult to deliver to urban construction sites on time. “We explored alternative solutions, such as transport by water instead of road, supplemented by city hubs for warehousing and transshipment. This facilitated a 10% decrease in the cost-to-serve and a 25% reduction in carbon emissions.”

Tichon mentioned a supplier of medical aids, who due to the pandemic saw increased demand for respiratory care products and decreased demand for surgical products, resulting in rising inventory levels in European warehouses. “The company traditionally shipped all its products from the USA to Europe by air freight, but changed to ocean freight based on insights from the digital twin. That has saved the company a lot of money and also reduced inventory levels in the warehouses. The container ships now act as floating storage locations.”

App with just a few parameters

Coupa’s digital twin has become increasingly user-friendly, and users don’t need a PhD in data science to run a simulation. “What’s more, we can create apps with just a few parameters that users can adjust, and then the digital twin calculates the effect in the background. It’s really not necessary for users to manage the entire digital twin,” concluded Tichon.