The growing concern about sustainability and the global need to reduce greenhouse gases is more present than ever in the C-suite. Gartner reports that the number of CEOs to list environmental sustainability as a top priority rose by 303% (see XPO 2021)! Despite this trend, most decisions related to the design and optimization of value chains are still almost exclusively based on minimizing supply chain costs while maintaining or improving service levels. In this article, we will introduce the CAMELOT digital twin solution, introduce use cases, and discuss how to leverage a digital twin of your supply and distribution network to enhance the basis of your decision-making by including sustainability metrics into your decision framework.
The Digital Twin – Why and What
A digital twin is a virtual representation of a supply chain, a digital replica that is based on operational data and uses simulations and an optimization engine to support decision-making. It enables you to enhance your tactical and strategic decision-making capabilities holistically and in collaboration with other users and functions. If the digital twin is connected with operational data sources, such as transport & warehouse management systems, decision making can become much faster. This way, it will become an asset delivering benefits to your bottom line
The top three reasons of our clients to implement a digital twin of their networks are:
- Coping with the increasing complexity of supply chains and limited end-to-end visibility
- Overcoming organizational issues such as silo planning
- Avoiding capacity bottlenecks and mitigating supply chain disruptions
The technical capabilities such as computing power and connected systems are available to address those reasons. However, this technical potential is seldom made use of. Your digital twin should support you exploiting this and be your companion on your supply chain transformation journey.
The digital twin projects CAMELOT has so far supported typically result in
- 5% to 8% lower total supply chain costs,
- 2% to 10% increase in OTIF shipments,
- 10% to 30% reduction of carbon emissions.
CAMELOT typically uses AIMMS products to implement digital twin solutions. AIMMS brings more than 30 years of optimization obsession and a high competency in modeling and prescriptive analytics to the table. As a technical implementation partner for AIMMS’ digital twin solution, CAMELOT combines supply chain knowledge, a well-structured project approach and the right tools to guarantee sustainable supply chain success.
How to get started
To implement a digital twin for your organization, we follow a five-step approach based on a “start small and scale fast” principle that has proven as a best practice.
The easiest way to get started is a network complexity assessment. Here, we will also decide upon the technology solution required for your needs. The next step is focused on process & organization design. Here, we will define required roles & responsibilities as well as the supply chain processes to set you up for success. We will then design a first version of the technical solution according to the scope for the pilot case. In the fourth step, the newly defined supply chain processes and the underlying technology will be monitored and fine-tuned. The result is a business case built for a company-wide roll-out. At the end, the solution will be scaled and adapted to fit the needs of the company to harvest the full benefits of using a digital twin of your supply chain.
Use Cases Digital Twin
Since the digital twin supports fast and holistic decision-making, there are many application areas and potential use cases such as risk mitigation. In this article, we would like to focus on some of the most frequent use cases our clients start with:
Long-Term Capacity Planning
Often, we see that our clients have not yet established a long-term capacity planning in logistics. Consequently, they suffer painful bottleneck situations. After implementing a digital twin, current challenges can be resolved, and the network resilience can be improved. This way, our customers can avoid logistics bottlenecks before they arise.
Warehouse and Distribution Tender Process
A warehouse and distribution tender process used to be a pen-and-paper approach limited to country-specific business units. With establishing a digital twin of the distribution network, our customers can efficiently evaluate multiple options, including cross-border impacts, and uncover hidden savings potentials. This might start prior to a tender with setting up business cases and cost target ranges with senior management and include validating quotations in the digital replica.
S&OP Process Support
Currently, most of our clients’ supply plans originate from an S&OP process that assumes unlimited logistics capacity and focuses on production asset capacities. With a digital twin of your logistics setup, you can verify the feasibility of supply plans and include logistics and supply chain costs in your final business plan.
Paradigm Shift towards Sustainability in Decision-Making
These use cases share a common feature: to complement or even replace the traditional way of solely considering costs and service levels when preparing management decisions. Even though 90% of the S&P 500 companies report on their sustainability performance (see The G&A’s 2020 Russell 1000 Flash Report), most lack the data or capabilities to integrate these considerations into the decision-making processes related to supply chain and logistics, where the majority of influenceable GHG emissions typically originate.
Unfortunately, many companies so far only reduce their emissions through isolated initiatives such as changing packaging, consolidating orders and the change of transportation modes. Although this should have a positive impact on their carbon footprint, the true levers to substantially reduce GHG emissions lie somewhere else. Optimizing end-to-end supply and distribution networks – from sourcing over production to delivery – has a much higher and more sustainable impact. This is especially true for companies that could partially regionalize their supply chain.
This is where our digital twin comes into play. This digital replica of your supply chain is not only capable of optimizing costs but include CO2 emissions as part of the decision framework. Consequently, this kind of analytics and related decisions made on top management level need to be supported systemically by organizational design, the right metrics, and incentives as well as more than a pure cost-reduction objective.
Multi-Objective Decision-Making with the Digital Twin
When companies approach us regarding potential sustainability improvements in their network, the key questions usually are: Where are potential sources to reduce my emissions and what impacts do they have on costs? What is the right balance of CO2 reduction and supply chain cost? What changes would I have to make in my supply chain if I were to reduce my CO2 footprint by 10, 20 and 30 percent?
The goal for supply chain leaders should be to better understand the potential trade-offs between costs and CO2 footprint. A digital twin helps to create transparency and support decision-making. To achieve this goal, we usually employ a field-tested method, starting with the traditional cost-based analytics and given service levels. By using a digital twin, we can change the target base and redesign the network based on the objective to reduce CO2 emissions. In multiple iterations, we combine the cost and CO2 trade-offs based on your given cost and CO2 reduction goals and illustrate the complex and multi-dimensional findings (Fig. 2). Furthermore, the digital twin illustrates with geographical maps how your future supply chain might change considering the combined targets of low(er) costs and emissions.
This way, our digital twin solution helps you to narrow down your options faster and support decision-making when you evaluate the right supply chain strategy for your company based on goals such as climate neutrality.
The digital twin also helps with other tactical and strategic decisions. The holistic approach and the many use cases show the unlocked potential to e.g., save costs and emissions at the same time.
We love to be challenged – please contact us to jointly find out, how we can support you on your supply chain transformation journey. Let us validate, how we can bring your decision-making processes to the next level, while making your supply chain greener.
We would like to thank Dominik Hartung and Tim Wäger for their valuable contribution to this article.