Building resilience into supply chains can lower costs and increase efficiency, and enhance competitiveness. But what specific measures build resilience and deliver these gains? The Zaragoza Logistics Center (ZLC), Zaragoza, Spain, is helping a major manufacturer of household appliances to find out as part of an ambitious, four-year research project sponsored by the European Union (EU) that began in summer 2014.
The CORE (Consistently Optimised REsilient ecosystem) project is developing new concepts and tools in the areas of supply chain risk and resilience. Dr. Luca Urciuoli, Associate Research Professor at the MIT-Zaragoza International Logistics Program, is in charge of ZLC’s participation in the project together with his colleagues based in Zaragoza and in the US, Jeanett Bolther, Leonardo Gomes, Prof. Mustafa Cagri Gurbuz, Spyridon Lekkakos, Stephen Miles, and Philip Spayd.
CORE draws on previous EU initiatives to promote innovation in the supply chain space. It is backed by approximately 50 million euros of EU funding, and has 77 partner organizations from academia, government, and industry. The program comprises 22 work packages, split more or less equally between projects that develop technology and projects called Living Labs that evaluate and apply innovations in real-world operational settings.
ZLC’s involvement revolves around the Living Labs, and primarily a project focused on BSH Electrodomésticos España, S.A., part of BSH Hausgeräte GmbH. BSH is the third-largest household appliance manufacturer in the world and the number one player in Europe.
BSH manufactures appliances in their own factories in China. Some of the product is containerized and transported by road to the port of Yantian, where it is shipped by ocean vessel to the Port of Barcelona in Spain. From there, the cargo is moved by rail to the BSH warehouse in Zaragoza, Spain. Customs inspections, if deemed necessary, can take place at the Zaragoza facility. BSH is interested in evaluating the impacts of IT systems that automate the submission of customs documentation. In addition, the company wants to ensure on time deliveries through the improved forecasting of ETAs, risk management, better visibility, and enhanced information exchange with its stakeholders.
“Together with our partners in the Living Lab, we are developing IT tools that can retrieve specific information from BSH’s IT legacy system and reuse it to facilitate the submission of customs transit declarations. This procedure has the potential to reduce overall compliance costs,” says Urciuoli.
Automation could eliminate manual processing of documents such as customs declarations and reduce the likelihood of errors that lead to unnecessary customs inspections, he explains. Another possible benefit is improved ETA forecasts, by enabling BSH to detect unexpected events in real time and take corrective action when cargo is still in transit. For example, in BSH’s Living Lab project the ocean leg can take about 21 days, and a lot can happen in that time to throw delivery schedules off track.
Providing a comprehensive and global view of risks supports decision-making in a number of areas including the allocation of production capacity, contract negotiations, optimizing supplier portfolios, and the outsourcing of transportation capacity.
The project’s initial approach is to gather as much information as possible from available data in the supply chain as well as from risk databases with global and/or national coverage. The researchers also aim to develop a better understanding of how the risk indexes and supply chain data correlate with supply chain disruptions. Adverse weather forecasts, the onset of economic crises, and geopolitical upheavals are examples of developments that could herald supply chain disruptions.
“Understanding the nature of these relationships will improve our capability to understand and model what is triggering strikes in ports or manufacturing facilities, cyber attacks, fraud, heightened customs inspections, etcetera,” says Urciuoli.
Knowledge such as this could be incorporated into automatic alerts that warn the company of potential delays. A similar approach will be used to predict other types of delays, the ultimate aim being to create an automated alert system based on known risks as well as risks that emerge while cargo is in transit.
A set of KPIs will keep the research grounded, and these measures will be monitored within the Living Lab. The KPIs include how many times containers miss vessel sailings in China, how much time the company spends processing customs documentation, and the percentage of on-time deliveries achieved on the route.
Previous research shows that enhanced visibility and risk management capabilities can support companies in reducing their safety stocks and inventory pipelines while maintaining service levels. Improvements like these yield concrete monetary savings. Some indirect benefits can be captured as well, including enhanced brand image, and higher levels of customer satisfaction and loyalty. In addition, the Living Lab provides a test environment that allows the researchers to monitor and measure these impacts by observing how new technologies perform in real-world operations.
There is much potential for applying the fruits of the research in other trade lanes and businesses, believes Urciuoli. “Many shipping companies and shippers have similar issues to the ones we are investigating, and the exchange of information is similar too,” he says. “Some terms and definitions of data elements may vary slightly, but in CORE we are developing ontologies and semantics-based technologies that we believe play a key role in achieving seamless connectivity with less development effort.”
The expected benefits to BSH are both tactical and strategic: reduced cost and more efficient processes, and a sharper competitive edge that enables the company to maintain and capture market shares.
For more information on CORE and ZLC’s contribution contact Dr. Luca Urciuoli, firstname.lastname@example.org.