The Digital Supply Chain — Building Block of the Future

Pundits have argued for years that the term “supply chain” inaccurately depicts the real world. “The supply chain, as the name suggests, was the creation of a world of linear thinking,” writes Sangeet Paul Choudary, Founder & CEO of Platformation Labs. “Even today, its logic — from the upstream sourcing of components to the distribution of final products — remains very linear.”[1] The point Choudary and others are making is that, in a globalized world, “supply chains” have become so complex they are better envisioned as networks. This will become even more evident as traditional supply chains becomes digital supply chains. I’m sure some people will continue to argue for eliminating the term “supply chain” (digital or otherwise) from our lexicon; however, some terms live on well past their useful lives (think about golfers who still use the term “fairway woods”). “Supply chain” is likely to be one of those terms.

The Rise of the Digital Supply Chain

“The last several decades have seen the rise of complex global supply chains,” Choudary explains. “It started with a favorable cross-border trade climate that eased the coordination of multi-country supply chains. A dramatic fall in associated costs, aided by the Internet, enabled manufacturing functions to move to the most efficient geographical locations. The corresponding rise of enterprise resource planning (ERP) software helped manage physical flows across these supply chains.” As consumers and commercial interests have learned how best to leverage the power of the Internet, the importance of connectivity and data analytics have also grown. “Over the last ten years,” Choudary observes, “increasing digitization of consumer interactions has provided manufacturers with greater insights, allowing them to be more responsive to fluctuations in demand. This has further driven the rise of lean manufacturing, characterized by lower inventory and increasingly complex coordination with other suppliers across the supply chain. Supply chains are now poised for their greatest transformation yet — their reorganization as platform-mediated ecosystems. Platform refers to the technology that enables market stakeholders, such as producers and consumers, to interact openly.”

Analysts have long argued that supply chains need better visibility and more collaboration among stakeholders. The digital supply chain is a step in the right direction. Some supply chain professionals, however, are wary. In the past, they have listened to vendors make promises about IT technologies that turned out to be expensive investments that failed to produce promised results. They wonder whether today’s cutting edge technologies — like the Internet of Things, big data, cloud computing, and cognitive computing — are just more empty, over-hyped buzzwords. Since those technologies provide the foundation for the digital supply chain, those concerns must be addressed. Roberto Michel writes, “How digital supply chain management — the broad concept that Cloud-based systems, analytics and monitoring of goods, vehicles and other assets via the Internet of Things (IoT) — will improve the way supply chains run, is top of mind for many in logistics today. Also discussed under similar terms like digitalization or Industry 4.0, digital supply chain management spans multiple technologies and includes its fair share of buzzwords — but there is evidence it’s more than hype.”[2] He goes on to note that the digital supply chain is seen as the future but that progress towards achieving it has been halting. He explains:

“According to MHI’s 2017 annual survey on next generation supply chains, 80% of respondents believe that the digital supply chain will be the predominate model within the next five years — with just 16% saying it’s happening today. Similarly, a 2016 survey from Capgemini found that 50% of those surveyed see ‘digital transformation’ as ‘very important,’ yet only 5% were very satisfied with their progress toward it. Clearly, digitalization will change supply chains, but our understanding of how it will play out is a work in progress.”

Michel believes companies should focus on six digital supply chain trends identified by logistics experts. They are:

  1. Network-focused visibility. “One of the hallmarks of digital supply chains will be the ability to see and understand the activities and events of multiple players.”
  2. IoT and Process Apps. “For the IoT data to be more useful within supply chain management software foundations, software vendors will need to do more to ensure that sensor data can be leveraged within applications.”
  3. Scenario-based planning. “The IoT is great at using telematics, sensors and geo-positioning signals from devices to pinpoint location and condition of assets, but much of the IoT’s value will come using that awareness to make better decisions.”
  4. IoT, smart roads, and predictive analytics. “Routing and scheduling for final-mile delivery of goods, along with real-time insight into delivery progress, can help retailers save on fuel costs and fleet efficiencies, but the larger benefits might just be customer-service focused.”
  5. Automated Warehouses. “Digital supply chain management isn’t all about the IoT and visibility into goods in transit — it will also involve mobile robotics at the DC level to reduce labor requirements and help DCs keep pace with e-commerce growth.”
  6. Elimination of TMS Data Silos. “While many application categories are adopting Cloud deployment, TMS is a natural for Cloud deployment … because it transforms transportation management from a siloed, internal activity to a process that can easily link up with third-party logistics providers, carriers, or digital freight matching providers.”

For those familiar with the capabilities of cognitive computing platforms, it’s easy to see how they can be leveraged as the foundation upon which a digital supply chain can be built. Pierfrancesco Manenti (@PierManenti), research vice president with SCM World, states, “The future of digitalization within supply chains has the industry sitting up and taking notice. Our community of supply chain professionals is certainly putting digitalization at the top of the agenda as companies are looking to invest heavily in new technologies that will improve the end-to-end supply chain. While it can be said that digitalization itself is not a new process, the extent to which it is being made a priority — by not only the chief information officers (CIOs) but also the chief supply chain officers (CSCOs) — is significant.”[3]

Summary

“Today’s digital technologies enable the supply chain to attain situational awareness and context-sensitive decision making,” writes Hugo Moreno. “In this way, it becomes customer-driven, personalized, agile and responsive. This digitized supply chain not only increases efficiencies but also leads to improved customer experience and revenue growth.”[4] Although the digital supply chain will be the eventual result of connected world, it is only a step towards the broader goal of creating a digital enterprise. Moreno explains, however, that it is an important first step. “To function in a connected, informed, smart and automated way,” he writes, “the supply chain will be further and further embedded into every other function. … The objectives of the digitization of the supply chain will keep moving from the nuts and bolts — agility, resilience and smart processes — to focus on the ultimate objective, which is satisfying the customer. … While efficiency and cost savings are key, make sure to also build the supply chain as a foundation for new business models. Start your digitization with the desired business outcome — and build your supply chain accordingly.” Choudary agrees that the digital supply chain is just a stepping stone to a reimagined future. “Beyond the restructuring of processes,” he writes, “a digitized supply chain also creates opportunities for entirely new revenue models. Specifically, the ability to track a product beyond the handover to the customer, and on to actual use, lends itself to a whole range of new business models.”

Footnotes
[1] Sangeet Paul Choudary, “The Era of Linear Supply Chains May Soon Be Over,” Knowledge, 2 June 2017.
[2] Roberto Michel, “The Evolution of the Digital Supply Chain,” Logistics Management, 3 May 2017.
[3] Pierfrancesco Manenti, “How to Approach the Digital Supply Chain Future,” Material Handling & Logistics, 17 May 2017.
[4] Hugo Moreno, “How A Digitized Supply Chain Can Give You A Competitive Edge,” Forbes, 25 May 2017.

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