How the cloud makes central planning a reality

Imagine the delivery of the hairdryer you ordered 18 hours ago was planned in a center 5,000 kilometres away – roughly the distance between Warsaw in Poland and Kashgar in China. Impossible? In fact, this is not a far-fetched fiction but soon to come reality.

Source: Globaia

Since the 1980s, the personal computer has helped businesses to plan and control many activities locally – from sending mass mailings to local customers to the managing of inventories and orders. The decentralized planning has helped to make products cheaper and more adapted to the local situation. For example the Spanish subsidiary of a global transportation company has replaced the 9am global service by a 10am local delivery option, as more people are expected to be in the office at that time. However, these local advantages pose major challenges to the international standards multinational customers expect from global brands. Therefore, global brands require central planning and control, which is back on the agenda – thanks to the internet and the cloud.

How can the cloud bring the planning back to the center? While the personal computer helped create enormous efficiencies in almost each and every unit of a business, the cloud will surpass its abilities and ease the work of those charged with ensuring global standards and organisational efficiencies. The cloud is the place where all relevant data, information and applications can be stored available for all – locally and at the center – who have the necessary access rights. With easy to access storage capacity provided by providers like Amazon and IBM, the cloud offers an almost unlimited range of tools and databases – not only to the large but also to the small and mid-sized enterprises. This brings enormous advantages to the world of the so-called global supply chain.

It is the supply chain bringing the goods, ranging from food and medicines to the above mentioned hairdryers, to the supermarkets and stores, as well as everything that is needed to factories and other businesses and organizations. Thanks to the road and rail systems, water ways and air corridors, bilateral and multilateral trade agreements, this chain of continuous flows spans across borders and continents, cuts across international manufacturing networks and multiple distribution hubs and centres.

Today materials and parts are treated and transformed – in various stages and different locations on the globe – into an unprecedented variety of products. These goods are delivered globally, whether to consumers in the metropolitan areas like New York and Mumbai or to factories in the South African city of Uitenhage and in the province of Bac Ninh in Vietnam. This highly proliferated, and at the same time dense, global labyrinth of flow of goods is also exposed to many potential risks and disruptions.

The more precisely this supply chain is understood, i.e. described, analysed and planned, the higher the chance of smooth delivery and proper responses to market dynamics and unexpected shocks. Although the cloud allows the collection of data from stations, customers and situations all over the world, whether in the most distant corner of sub-Saharan Africa, the tip of South America or the tiniest island in the Philippines, only a central team closely collaborating with the country organisations might be capable of capturing the trends, threats and opportunities to determine quickly the most appropriate response.

How does the central way of supply chain planning and management work in practice? Each time when, for example, delivery plans are needed, the order requirements for customers are uploaded to the cloud. There, a powerful computing unit, utilising multiple parallel processors – called the optimisation engine – generates delivery plans satisfying the many constraints imposed by weather and climate, geographic and traffic situation, as well as the delivery location, which could be on the 45^th floor in a high rise in Hong Kong or at a tiny farm on an island in Indonesia.

The optimisation engine evaluates alternative ways of transport and determines the best options for delivery. These optimized plans are then transferred to computers or tablets at decentralised warehouses where the orders are loaded to reach the buyers by road, boat or planes. In real-time and constantly the data about the moving of these goods can be collected and analysed to preserve the highest level of central control and chance of an on-time delivery. Furthermore, all data and analysis – including information about the status of production in the factories of possibly thousands of suppliers, as well as the actuals versus the sales plans of the many employed or serviced third-party sales teams – can represent valuable input for upcoming planning cycles.

The benefits of central planning are more than obvious: compliance with global standards, better forecasting, cost and carbon optimized routes, reduced hiring and training costs, and higher customer satisfaction and lower recovery costs through better quality control and more appropriate and timely responses to irregularities and disruptions.

Therefore, the next revolution in the supply chain will be the central orchestration team which collaborates closely across entire organisations to establish full visibility and ensure well informed decision-making. Applying predictive analytics and artificial intelligence will enable manufacturers, traders and logistics companies to receive clear predictions in respect to potential disruptions and even more so recommendations to store hairdryers at specific quantities and the perfect location – possibly long before we even thought about placing the order 18 hours ago.

Author: Wolfgang Lehmacher, Head of Supply Chain and Transport Industry, World Economic Forum

Image: Staff members wait for visitors to present cloud computing software applications at the booth of German company Deutsche Telekom at the CeBit computer fair in Hanover, March, 6, 2012. REUTERS/Fabrizio Bensch