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The Unnecessary Report 2021 once again shows and enormous and unutilized potential for Nordic companies – every fifth stock item is unnecessary. More than a fifth of the inventory is unnecessary for Nordic companies, according to a new report released by Optilon. The average company has an untapped potential of EUR 48 million – which could instead be invested in more growth-promoting purposes. The total figure for the Nordic region’s 400 largest companies amounts to EUR 19 billion.

Effective inventory management and optimization can have a major impact on a company’s profitability. Optilon’s newest publication The Unnecessary report 2021 – which has studied 400 different companies across the Nordics show, that 22 percent of the items in stock are unnecessary for the average Nordic company. This means that they have more goods in stock than they need.

Removing an unnecessary item from the warehouse means not only less tied-up capital, but also less warehouse space, reduced distribution and administration costs and obsolescence. By addressing this and implementing effective inventory management and optimization the average company among the Nordic region’s 400 largest companies will be able to gain around EUR 48 million. Supply Chain has perhaps never been more important. The covid-19 pandemic and the prevailing macroeconomic situation have demonstrated the importance of robust and sustainable supply chains. Having fewer but the right articles in stock gives you more optimization power as a company. You free up capital at the same time as you reduce costs and increase your revenue.

Effective inventory management is an underestimated success factor. It is one of the single biggest measures you can take as a company to maximize your competitiveness. It simply ensures that the resources are used in the right way and where they generate the most value.

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In this article, we will look at why you, as a business leader, board member or Supply Chain professional should build a Circular Supply Chain. There are many challenges in building a circular Supply Chain. We will start by looking at why it is important to embark on this journey. We will look at it from a risk and innovation perspective but we will also look at, why it is so difficult for so many companies to get started. Throughout the article you can expect to get tips and tricks to embark on the Circular Supply Chain journey yourself.

Continued dependence on scarce resources is a serious business risk
The growth model favored by economies, and indeed most companies for the last 250 years, is based on the availability of plentiful and inexpensive natural resources. It is living on borrowed time and, so are companies that rely on it. Since the industrial revolution, waste has constantly grown. This is because our economies have used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of.

A circular economy is taking into consideration, that valuable materials are leaking from our economies. In a world, where demand and competition for finite and sometimes scarce resources will continue to increase, and pressure on resources is causing greater environmental degradation and fragility, we can benefit economically and environmentally from making better use of those resources.

For businesses, and their top executives responsible for setting the direction of their firms, this leads to one inescapable conclusion: Continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. Due to:

Revenue reduction: Supply uncertainties and changing consumer preferences could prevent companies from generating revenues and maintaining market share. For instance, companies that depend heavily on scarce resources might have to shut down production at times and be unable to deliver demanded volumes.
Cost increase: Companies whose growth is tightly tied to scarce resources, will find themselves at a competitive disadvantage. This is due to rising and volatile prices, that reduce their ability to forecast and compete with less resource intensive competitors.
Intangible assets: A company’s environmental footprint and resource dependence could erode brand value, as consumers shun companies with unsustainable business practices. And, as planetary bottlenecks and resource scarcity become more critical, policymakers likely will favor companies that can prove they have positive societal impact and can operate without depleting the country’s natural resources.

The Circular Supply Chain is expected tow grow
Looking back to January 2020, when the pandemic started, concerns began to emerge in relation to importing components or goods from certain geographies. Since then, stress on global supply chains has increased month by month, culminating in some supply chains actually collapsing. The more complex the Supply Chain, the more prone it becomes to vulnerability. This has caused a domino effect with respect to production and how goods are produced and the agility to change production.

Furthermore, the unpredictability of the opening and closing of borders and government policy changing on a weekly (if not daily) basis, has forced numerous enterprises to rethink their Supply Chains with respect to how international they wish such Supply Chains to be. How much control, or lack of, do manufacturers, for example, wish to have over critical components or materials?

In a linear economy where the fragility of Supply Chains has been exposed by the COVID-19 pandemic, manufacturers and suppliers are being forced to rethink their entire business models and consequently switch to circular models. The more unpredictable and indeed costly materials have become, due to global Supply Chain disruption, the greater the focus has been upon innovative solutions to keep materials in use, to prolong their lifespan, to upcycle etc.

The pandemic has also illustrated that, when necessary, production processes can be much more agile that once thought. The necessity for economic survival resulting from global Supply Chain unpredictability has further fuelled an unforeseen circular economy transition that is expected to grow in 2021. Let’s have a look at what a Circular Supply chain is all about.

Adopting a circular Supply Chain requires a new mindset
In a circular economy, growth is decoupled from the use of scarce resources through disruptive technology and business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing and dematerialization. Companies should no longer focus mainly on driving more volume and squeezing out costs through greater efficiency in Supply Chains, factories and organizations.

What should then be done?

Businesses should concentrate on rethinking products and services from the bottom up, to future proof their operations to prepare for inevitable resource constraints. They must build systems where products are recirculated and supports a circular production and material flow. The Supply Chain has to support the business in creating a more circular customer journey and circular products. Companies should stop producing specialized parts. Also they should stop trimming the production from a performance vs. cost tradeoff.

Why? Seen from a design perspective it is important to create ”part commonality” and easy disassembling. So get as few parts as possible, but also use local sourcing. It is important to create a space, where the costs of reusing are low and the rawmaterials used are available both faster and cheaper.

What if companies do not change? The challenge for many companies is, that they have chosen a business strategy where they optimize the performance by creating specialized parts that has an added functionality. They have created economies of scale by creating big, centralized production units which share costs and who delivers to a larger geographical area. The challenge for many companies is, that it can become quite expensive to create this ”new logic”.

The ”new logic” means, that these companies should stop using large production facilities. They must also stop using specialized parts so it becomes easier to recycle. New technologies such as 3D printing will definitely support the change. Also already exisiting, and well proven technologies, such as Supply Chain Design can help break down the complexity. It can also support in making the right decisions.

Collaboration across the ecosystem is key
Collaboration across the ecosystem is also key to enable a circular transformation. The Supply Chain has to facilitate that supply partnerships emerge from a pure cost orientation, towards a strong focus on joint collaboration and innovations. Who else? Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of a Circular Supply Chain is, that complexity will increase.

We must also remember, that businesses have to operate in a globalized world where the volatility of markets, the speed of technological progress and the pace of change, in the economic and business environments, will continue to rise rapidly. As a result product life cycles are getting shorter and market demands become more and more unpredictable.

Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking. The risk to miss an important trend and the threat of being commoditized, has become the substantial risk of every company. This provides a great opportunity for Supply Chain to take on the lead on circular innovation.

In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority. Also in many companies, procurement is used to “innovation” being an internal capability and are hence not used to working together with external partners on delivering innovation.

Key questions to ask: How can Procurement or Supply Chain advance the collaboration with suppliers on circular thinking in an effective way? How can Procurement ensure that the suppliers are willing and able to share their knowledge? For Procurement and the Supply Chain to be successful in these innovation oriented supply partnerships, it requires new models for relationship building and collaboration. It also requires that the involved parties integrate across the whole organization.

Checkout Optilon’s oferings when it comes to Supply Chain sustainability.

The corona pandemic affects all aspects of society. The labour market is one of the areas that has been hit the hardest. Following the corona crisis nations are looking for new job opportunities. Counterfeiting is part of the problem – and the solution. It’s the cause of tens of thousands of jobs being lost every year in the Nordic countries. Simultaneously, e-commerce, which is the most important channel for counterfeit goods, has taken the piracy industry to new heights during the corona pandemic. A powerful strike against the industry could recreate tens of thousands of jobs in the Nordic countries alone.

A Global Mega Industry

The counterfeiting industry is a global mega industry that only continues to grow, and it actually grows more rapidly than the rest of the economy. The estimated market value varies from 500 billion USD (OECD) to an incredible 1.8 trillion USD (Research and Markets). The first figure is around three percent of all global trade. In Europe, the market share is nearly seven percent (OECD) of all trade on the continent.

Counterfeit products range from cosmetics to industry components. Each year, the turnover for counterfeit Swedish products exceeds 28 billion SEK. That’s a loss of 17 billion for Swedish companies (PRV). On the Swedish market, sports shoes are the most common counterfeit product. In total, the Swedish shoe and clothing industry loses 6 billion SEK due to pirating (SvD). But pirating extends to all areas and industries. Today, one of five spare parts for cars and more than every second bottle of perfume sold in Sweden is counterfeit.

Recently, pirated corona tests and vaccines have reached the global market, a fact that might have devastating consequences (FDA – 2020). The Swedish vaccine coordinator, Richard Bergström, has expressed great concern that Sweden too will be subjected to fake corona products. It’s a matter of life and death, in other words.

Counterfeit Products are a Problem in the Nordics

The Nordic countries are particularly affected by the counterfeiting industry. Each year, tens of thousands of jobs are lost as a result of counterfeit products. In Sweden alone, at least 7 100 jobs are lost each year as a result of the counterfeiting industry (PRV). Jobs that, today, are needed more than ever before, as the economy is in dire need of a boost.

The competitiveness of Swedish businesses is reduced, and the loss of tax income can be counted in billions. For the Swedish government, the loss of tax income reached 7.5 billion SEK in 2016. Counterfeiting is a real and urgent problem for Sweden’s and the Nordic’s ability to compete globally, one that must be addressed and opposed, with force and efficiency, today.

The Conscious Consumer

Parallel to the advance of counterfeiting, an opposing trend grows increasingly strong. Consumer behaviour and preferences are shifting for good. It doesn’t matter if we’re talking about millennials or generation Z, there’s a clear trend that more consumers are driven by purpose and value, rather than financial aspects. The conscious consumer is already here, and their market share is growing rapidly. To attract this group a company must be able to prove that their goods are produced, transported and recycled sustainably, both socially and environmentally. The only way to approach this is to be able to prove that the value chain is unbroken – from raw material to the final product. If we can do that, we also make life difficult for those who produce counterfeits.

Multiple Measures are Needed

The broad extent of the counterfeiting industry makes it difficult to stop. All too many have something to gain from it, but in the long run even more people are losing because of it. There is no miracle solution to the problem. Instead, a series of actions are required, and the supply chain plays a crucial role in them.

1. Start with Yourself

The first and simplest action is to start with yourself. Don’t buy counterfeit products! According to the report ”Assuring that ’Made in Sweden’ is always made in Sweden” (”Säkerställande av att ’Made in Sweden’ alltid är det”), about half of the counterfeit products bought were bought by consumers who believed the product to be genuine. The other half were bought consciously. Be sure to be careful when you’re shopping from new marketplaces, and always question the authenticity of the product.

2. Create a Digital Twin

Create conditions to ensure an unbroken chain from raw material to delivered product in the long run. The key is to create a digital twin of the physical product, which can then be tracked in a secure manner. Blockchain technology can be used here, combined with a unique identifier (tag) such as an RFID, NFC or QR code.

A tag can be a part of the product or its packaging, and be scanned in the final step. By combining this with a blockchain solution the brand owner is able to gradually integrate their production both upstream and downstream, consequently increasing integrity and transparency of the supply chain. This creates new possibilities including better handling of guarantees, repair history, a more secure second-hand market, and extended product information.

And that’s not all. These data points also make it possible to identify defects in the supply chain, and more accurate information about incoming deliveries. If machine learning is applied even more insights can be reached. This gives businesses a vastly improved ability to approach the conscious consumer and their demands. Companies can kill two birds with one stone – make it more difficult for the those who pirate products, and secure demand of their products for the future.

3. Extend Collaborations and Raise Demands

To extend collaborations with suppliers and subcontractors, check their work, and educate them on the subject are all important actions to take. Raise the requirements you make toward them, and follow up on suppliers and transporters. A chain is never stronger than its weakest link, and this is exceptionally true in this case.

4. Team up with Your Customers

Your customers can make for a valuable ally to reduce the sales of pirated products and all the costs and negative consequences they entail. Offering web-based tools to prove the authenticity is one option. Build a clear organization and process to help customers report suspected breaches in a simple way, and make sure that you follow up on the reports. Team up with your customers and their customers, in a joint effort to combat counterfeit products.

5. Support SACG and other Similar Organizations

In the autumn of 2020, SACG (Swedish Anti-Counterfeit Group) worked vigorously with the new EU regulations within the Digital Services Act (DSA) – regulations that are central to all online sales in Europe. In a letter to the government, SACG appealed to “the need for stricter requirements to ensure that digital platforms are more active in preventing the sales of illegal products” (SACG).

To support various organizations like SACG as a business contributes to putting anti-counterfeiting on the agenda. Also ensure that your company reports any suspicion of crime to the police.

More Important than Ever to Address Counterfeiting

Counterfeit products reach far beyond fake sports shoes and perfume bottles. Today, it even affects something as crucial as corona vaccines. The counterfeiting industry is costing Swedish businesses billions of kronor every year. It results in significant loss of tax income. And it is the reason for the loss of tens of thousands of jobs in the Nordic countries on an annual basis. A powerful anti-counterfeiting reaction is needed, from multiple directions, now. By looking up, enhancing the debate and being observant to the dangers and losses, we might be able to see the possibilities the fight can bring with it. Counterfeiting is one of the greatest economic crimes of our time. To tackle the problem for real would mean great rewards, especially in times like these.

It is time to say goodbye to manually corrected Supply Chain data
A vast majority of Supply Chain data correction is still today handled either manually in Excel or via static and manually-defined rule-based processes in SQL or other types of data applications. These ways of correcting data is typically very time-consuming, error-prone and do not handle changes in the data very well since it is by default static. Since clean and accurate data is the cornerstone of effective Supply Chain planning and optimization, we want to empower our clients with a data correction solution that quickly and automatically handles this process, reducing overall risk and cost in the process.

Robotic Data Correction utilizes Machine Learning
Robotic Data Correction (or RDC in short) uses Machine Learning models that automatically detect data inconsistencies without any human-defined rules and learns over time from user acceptance of corrections recommendations and new data values. it has not seen before, ultimately being able to quickly to correct any relational data values.

One of our valued customers utilized RDC to improve the quality of their addresses and achieved a 3% annual domestic cost improvement on their transportation costs, as they were able to consolidate their shipments. At the same time it reduced the data correction project time-to-completion with 95%. The accuracy of the model showed up to 90% data correction accuracy.

What data can RDC correct?
RDC can correct any type of Supply Chain data that has relations to other held data, including but not limited to:

Customer and supplier addresses
Item data such as lead time and cost
Network data such as routing codes
Material data such as status codes
Service data such as service class
Demand data such as incorrect peaks
Transport data such as delivery mode

Where is RDC data used?
RDC corrected data can be directly integrated with several line-of-business systems and business processes including:

ERP source systems such as SAP, Infor M3, Microsoft Dynamics and IFS
Planning processes such as demand forecasting and production planning
Operational TMS and MES systems

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Speed in decisionmaking is key for you in terms of reaching your sustainable targets. Though, in many companies employees still work in excel sheet’s when it comes to modelling new Supply Chain designs or even measuring the GHG (Green House Gas) emissions throughout the Supply Chain. The challenge is, that making the right decisions is a complex task. For many companies the complexity is growing. If you want to ensure that you make the right decisions at the right time and in the right quality it is essential, that you have the right tools available. In this blogpost we will look at why Supply Chain design technology is key for your Supply Chain sustainability progress. We will also look at why it is a good investment.

Supply Chain Sustainability at a glance
We live in a world where the “new normal” is increased instability, brought about by a multitude of causes. Political uncertainty combined with a leadership vacuum among governments everywhere, technology disrupters, emerging new business models and the shift away from globalization back to economic nationalism. And last, but not least, consumers are demanding that you actively work to build a sustainable business. These factors are contributing to the fragmentation of established Supply Chain networks.

Sustainability has become a critical perspective in managing organizations.The corona virus pandemic has fundamentally shifted the trends in Sustainability and the way companies are doing business and it is a clear signal, that Supply Chains are entering a transformative decade.Even though COVID-19 had a huge impact on Supply Chains and Sustainability practices, only 52% of the companies have a Supply Chain Sustainability goal. There is greater investment in Sustainability and higher sales for products with Sustainability related labels, indicating a shift in customer behavior. Therefore, the pandemic has contributed to the acceleration of Supply Chain Sustainability agendas.

End to end alignment
If we look closer at the Supply Chain, we could say that the end-to-end Supply Chain is a system with three key “subsystems” at play. A customer market, a supplier market, and the organization (ourselves) in the middle. To design more appropriate responses, we need to understand the drivers within each subsystem and how they inter react. With that we mean:

– The behavioral drivers and segments in the customer marketplace
– The behavioral drivers and segments in the supplier marketplace
– Our own in-house network, which is effectively a decoupling zone between Supply and demand

Summarizing we could say that the Supply Chain design should convey the different types of activities needed on the demand side and the capabilities we need to draw upon from the supply side. It proactively enables us to make intentional decisions when designing the network , including how and where to buffer or decouple along the chain/network.

Faster and better decision making
Decision making in operational environments is changing. The quantity and quality of data available to support decision making are growing exponentially. Focus is on exceptions, with more routine tasks automated. But in a more volatile environment, risk is higher and assumptions harder to make. What has not changed, however, is that despite of all the decision support available, the critical strategic decisions will still come down to individuals and leadership teams.

Complexity demands technology for Supply Chain design
That is where Supply Chain technology comes in handy. ERP systems are partially enforcing organizational siloes with limited scenario and analytics capabilities. Also, business intelligence initiatives and data lakes are limiting the insights into the future as it is typically projecting historical or current set ups, lacking alternative solutions never used before. Insight gaps and decision evaluation are based using an excel solution.

As also described earlier, the challenge is, that the pace of internal and external events that impact our supply chains is ever increasing. So is the interdependency of those events and the functions within the supply chain networks. With a complexity well beyond the grasp of excel, there is an immense need to augment and improve to make more sustainable and intentional decisions. That is why technology is needed.

What is Supply Chain design?
Through scenario analysis, with mathematical models built in none-code environments on top of powerful solvers, Supply Chain Designs offers organizations a flexible approach to:

Articulate the complexity and events in the Supply Chain and understand and act upon the principles under which it operates across all its functions (end to end)
Articulate the relevant actions and decisions the organization need to take every day to support the realization of its strategy and vision
Evaluate the consequences and risk associated with those actions and decisions across the entire supply chain
Make decision recommendations given different organizational objectives among the overwhelming amount of solutions that each scenario typically holds

In other words, given strategic objectives on sustainability, operational cost, market growth, or service requirement etc., Supply Chain Design let you resolve infrastructure and policy question such as

optimal number, size, and locations of facilities (suppliers, plants, warehouses )
the best flow and decupling point set up for products in your network
optimal mode of transport (air, ocean, truck, drones etc.) on your lanes
best routing for shipment pickup and delivery
.. and many more

How can it benefit your business and your Supply Chain?
As a result, you will be able improve your balance between costs (logistics, inventory, labour, utilities, taxes), risks (fire, flood, natural disaster, strike, legal, political) and carbon emissions. As well as your service levels (customer satisfaction) and the flexibility of your business. Supply Chain Design initiatives typically produce significant cost savings and service improvements, especially when integrated into the decision making processes.

You will be able to:

Put your supply chain in context with visualizations that highlight trends
Quantify your supply chain health to see performance
Monitor and track supply chain performance with a living baseline for a view of the ecosystem and its policies
Model, track, monitor and share visualizations with stakeholders for more buy-in and bigger thinking

When it comes to speed in decision-making you can use Supply Chain design technology to go from weeks and months to days, hours and for some even minutes in building a model.The below figure illustrates it.