Digital Supply Chains: Do or Die Imperative?

“Supply chain professionals are now told on an almost daily basis that their next challenge is to digitise the supply chain,” writes Chaney Ojinnaka (@ochaney), CEO and Founder of VendorMach.[1] The 2017 MHI Annual Industry Report, developed jointly by Deloitte and the Materials Handling Institute (MHI), concluded supply chain professionals are hearing and believing that message. “Out of all survey respondents,” Jennifer McKevitt (@mckvt) reports, “80% believe that digital supply chains are imminent, with 16% currently embracing the concept and another 64% intending to engage within the next five years.”[2] Ralf Seifert, a Professor of Operations Management at IMD, reports not all evidence supports that conclusion. According to Seifert, the second edition of the IMD Global Supply Chain Survey, which surveyed experts from leading European companies about supply chain activities over the next three to five years, found “the experts give less importance to key areas of digital transformation, such as digitalization of interactions with suppliers, channel partners and consumers, and the use of ‘Big Data’. New technological advances, such as robotics, the Internet of Things (IoT) and 3D printing, are seen as being of even less relevance in the period.”[3] Those results beg a couple of questions: Who is correct? Are digital supply chains really a do or die imperative? Seifert asks another question about the naysayers, “Are they at risk of missing out on the rapid development of ‘Supply Chain 4.0’ or even ‘Value Chain 4.0’? As my colleague Carlos Cordón, Lego Professor of Strategy and Supply Chain Management, noted in a recent article, the supply chain function at many organizations is rapidly evolving to not only deliver value at the lowest cost but create customer value and translate it into higher sales.”

Digital Supply Chains rely on Data

Digital supply chains are powered by data. McKevitt writes, “The digital supply chain, fueled by customer expectations and the availability of vast amounts of data, is a necessary adaptation to increased demand and e-commerce transactions. The exponential rise in collectable data powers the move toward the sharing of information, which speeds and tweaks the supply chain for greater accuracy and efficiencies. Digitizing the supply chain involves a continuous flow of information between the physical and digital worlds. The sharing of data passes information directly to staff who employ it while working within the supply chain and can therefore make necessary adjustments to orders and production. This back and forth exchange of information — digital and practical — acts as a gateway between effectively integrated technologies.” Analysts from the Materials Handling Institute observe that data availability is both a blessing and a curse. “New digital business models are increasingly more complex and exponential data growth is overwhelming businesses,” they write. “If companies can’t interpret data then there is a barrier in achieving the automation and efficiency they desire. Decision making happens slowly and results can generate false insights.”[3] On the other hand, using the right data in the right way can generate lucrative results. In the article by Cordón mentioned above, he writes, “The digitalization of supply chains, with the breadth of sales and ordering data available, now makes it possible to calculate by how much supply chain improvements are increasing sales and profits, and the numbers are often amazing.”

In another article, McKevitt writes, “As the world has become globalized, the supply chain has turned to data, the cloud and connected technology for the same purpose. The Internet of Things is becoming less of a gadget and more of a requirement within supply chains, as greater visibility and transparency demands require a constant flow of data.”[5] Lora Cecere (@lcecere), CEO of Supply Chain Insights, makes an interesting observation. “One of my insights,” she writes, “is that there is a radical difference between automation and digital transformation. It is also clear to me from the research that most of today’s focus is on automation, not digital transformation.[6] She explains:

“When we automate, technology makes the existing process more efficient. In contrast, when we digitally transform, we ask ‘What is possible?’ This includes disintermediation, changes in routes/methods, and use of different forms of data and advanced analytics. The team who is digitally transforming is questioning the atoms, electrons and flows of today’s processes.

  • Atoms. Can substrates be manufactured with yeast? What is possible with reclaimed materials? The possibilities with 3D printing?
  • Electrons. What does planning look like with cognitive computing? Is there a need for manual manipulation of master data with the evolution of artificial intelligence? Can an ontology enable process automation? Can we share resources/assets within a community (like Uber)? What is the role of hyperledger? How can Internet of Things (IOT) transform processes?
  • Processes. Should goods flow through distributors? Or directly to customers with layered value-added services? What does an outside-in process look like? How can new technologies help to sense true demand?

I could go on and on, but I think you can see the difference.”

One thing that automation and digital transformation have in common is their reliance on technology. McKevitt adds, “Globalization used to be the supply chain’s obsession, as companies embraced access to foreign suppliers and greater trade capabilities to boost their competitive advantage and reduce costs. Now, as the world has become globalized, the supply chain has turned to data, the cloud and connected technology for the same purpose.”

Technologies Driving Digital Supply Chains

MHI analysts suggest there are nine technologies involved in digital transformation. They are:

  • Inventory and network optimization
  • Sensors and automatic identification
  • Cloud computing and storage
  • Robotics and automation
  • Predictive analytics
  • Wearable and mobile technology
  • Autonomous vehicles and drones
  • 3D printing
  • Internet of Things

Another technology that should be added to the list is cognitive computing. Clearly, not every industry is going to be impacted by these technologies in the same way or to the same degree. The technologies likely to have the greatest impact are cognitive computing and cloud computing. Cognitive computing platforms are essential for inventory and network optimization; process automation; advanced analytics; and for providing decision makers with actionable insights.

Summary

Seifert believes digital supply chains are an imperative. He concludes, “Supply chain leaders must balance short-term benefits and the longer-term investments needed for an efficient and effective supply chain that is ready for the future. … This involves the following three key activities: First, getting the basics right — implementing supply chain best practices and improving supply chain performance using tried-and-tested methods. Second, having a strategy for an increasingly connected and digital world — no revolution, but continuous evolution of a digital supply chain where greater transparency and analytics leads to improvements in delivery times, reduction of inventory, reduction of supply chain cost and risk, and increased ability to create value for customers and, therefore, sales. And third, being ready for big technology shifts — involving robots and autonomous vehicles, 3D printing and connected products, and the internet of things, to improve product and service offerings and reduce costs.” Although I agree with Seifert that digital supply chains are an imperative, his suggestions about using tried and true methods and evolving rather than revolutionizing supply chain practices depend very much on circumstances. Cordón explains, “We should … start to use the term Value Chain 4.0, because we might need to re-combine and re-think how we work and organize companies. The key is how to generate and capture value in the whole chain. And it looks very different from the past. … In short, the digital revolution is creating a whole new paradigm for what used to be the supply chain. It was once about delivering the right quality at the lowest cost, with the agreed service level; now it is about increasing sales, creating more value and capturing it.”

Footnotes
[1] Chaney Ojinnaka, “Digitising the supply chain,” ITProPortal, 10 April 2017.
[2] Jennifer McKevitt, “Survey: Digitization essential for next-generation supply chains,” Supply Chain Dive, 11 April 2017.
[3] Ralf W. Seifert, with Katrin Siebenbürger Hacki, “Digital supply chains – Do you risk falling behind?Supply Chain Movement, 30 March 2017.
[4] Staff, “Digital Supply Chain: It’s All About Data,” Materials Handling Institute, 4 November 2016.
[5] Jennifer McKevitt, “Digitization is the supply chain’s path to the future,” Supply Chain Dive, 4 November 2016.
[6] Lora Cecere, “Digital Transformation: It Takes a Village,” Supply Chain Shaman, 6 April 2017.

Follow me on Twitter