Data, Digitalization, and Supply Chain Transformation

Stephen DeAngelis

September 14, 2020

In dark times, people look longingly for the dawn of a new day. The coronavirus pandemic resulted in dark times for many supply chains and, as a result, much is being written about how supply chains can transform and usher in a new day of supply chain operations. Michael Schrage, a research fellow at the MIT Sloan School of Management, explains the global outbreak of COVID-19 has “dramatically accelerated digital transformations worldwide. … As Microsoft CEO Satya Nadella publicly observed, ‘We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning to sales and customer service, to critical cloud infrastructure and security.'”[1] Schrage adds, “While many business operations can swiftly transform, other key processes defiantly resist digital acceleration. Supply chains are a case in point: Spreadsheet- and ERP-dependent supply chain operations had to radically revisit and revise expectations. Yesterday’s digital transformation road maps proved largely useless.”

Douglas Heintzman, Vice President of Strategy and Evangelism at Insolar Technologies, agrees with Schrage that yesterday’s supply chain strategies have not always proven up to the task at hand. He writes, “For many decades, companies focused on supply chain optimization to drive down costs, minimize inventories, and improve asset utilization. The unfortunate consequence of this strategy is that the world’s supply chains lack the flexibility and buffers needed to react and adapt to disruptions. The lack of transparency across the supply chain makes it incredibly difficult for customers to really understand the value of products. It is also extremely difficult to discover waste and illegal or unethical practices.”[2] Supply chain professionals are looking to data to provide them with light.

Digital transformation begins with data

According to Schrage, “COVID-19’s impact revealed that supply chain business continuity plans had both the wrong data and the data wrong. Top management literally couldn’t see what was happening — or needed to happen — to ensure safe and reliable deliveries under duress. This came as a shock. Data, not digitalization, was their immediate problem.” At Enterra Solutions®, we have often found the most difficult part of a client engagement is getting the right data in the right format to accomplish what they desire. Schrage concludes, “Legacy leadership teams need to understand that decisions around data — not digitalization — drive successful supply chain transformation.” Of course, at some point, you need to do something with the data and that’s where technology comes into the picture.

The staff at Magaya writes, “Whether you’re a keen early adopter or a resistant technology laggard, there’s no denying that digital transformation is all around us.”[3] Because every supply chain is unique, it’s often easier to explain what digital transformation isn’t than what it is. The Magaya staff writes, “Here’s what it’s not: digital transformation isn’t just about adopting shiny new technology because it’s trendy. As a recent article in CIO puts it, ‘Digital transformation is a foundational change in how an organization delivers value to its customers.’ If technology isn’t driving new value to your customers, then what’s the point? Whether you’re looking to offer new services, speed up lead times, or trim costs, at the end of the day, you want your digital transformation to align with your business goals and objectives.”

Digital transformation: What’s the point?

There are many reasons companies want or need to undertake digital transformation efforts. When digital transformation first became a buzzword, many subject matter experts talked about how digitalization would optimize supply chains. According to Schrage, optimization was surprisingly not the most significant benefit of digital transformation. He notes, “Targeted transformation investment overwhelmingly emphasizes greater visibility and transparency rather than supply chain optimization. … Digital-first enterprise success demands clarity-first supply chain design. Digitally transforming supply chains requires digitally transforming transparency and visibility. Transformational transparency is what leadership needs to measure; visibility is what leadership needs to assess. Unless they first determine data access, quality, and lineage, digitalization can’t deliver agility or reliability.” Heintzman agrees with Schrage that supply chain visibility and transparency are top priorities for digital supply chains. He writes, “Today, supply chain participants typically have only limited visibility into their top-tier suppliers. They don’t have any visibility into their secondary or tertiary suppliers, and may not even know who they are. As a result, they don’t see when bad things are headed their way, and have trouble figuring out what to do when things don’t go to plan. … It also becomes important as companies strive to understand the discrete cost of inputs to better understand the real cost of complexity, to tackle climate change impact, and to insure that human rights and worker conditions are being adhered to.” Below are five characteristics Heintzman believes digital supply chains must embrace.

1. Visibility. According to Heintzman, “New supply chain architecture must allow participants to understand the status of all their parts and other inputs to production, and understand the status of the supply chain behind those parts and inputs. They will need to have visibility into alternatives and the inventory, capacity, and credentials of the companies behind those alternatives.” He believes, in many cases, blockchain (aka distributed ledger) ledger will provide a solution. He concludes, “Visibility also allows for provenance tracking. This can be essential for food safety and insuring that sub-quality, fraudulent parts don’t get into the supply chain for critical machinery.”

2. Digitization. Heintzman insists the future of supply chains should be paperless. He writes, “Transactions throughout the world’s production and supply chains have traditionally been conducted through forms, packing lists, and bills of lading which are commonly paper based. Some customs documentation has to be on paper by law. The reliance on paper documents has been largely due to the fact that shippers have not seen enough economic or security rationale to make a change. This will now change quickly. Digitization isn’t simply a matter of cost reduction anymore; it is a matter of enabling visibility and risk management.”

3. Privacy. Every week new data breaches are reported during which personal customer data is leaked. Governments around the world are cracking down on companies who fail to protect their customers’ personal data. Heintzman observes that businesses also have information they want protected for competitive reasons. As a result, he writes, “Privacy controls are therefore essential. Supply chain participants need to be able to control who can see what information and independently verify that privacy controls are in place and are effective.”

4. Incentivization. A common saying nowadays is “data is the new oil.” In other words, data is a valuable resource and companies should look for ways to get the most value out of it. “It is extraordinarily difficult to perfectly align the interests of stakeholders on a continual basis,” Heintzman writes. “As such, it is useful to have a mechanism which incentivizes behaviors where such non-alignment exists. Some supply chain participants will be willing to pay for some information in the supply chain.”

5. Automation and augmented decision-making. Eventually, companies want and need to do something with the data they have. Heintzman writes, “As data gets digitized, and records and business logic become shared with a common agreed to truth, there is a huge opportunity to improve efficiency through automation. The potential value of automation will be further accelerated as technologies such as IoT, 5G, and artificial intelligence are integrated into supply chains.” Cognitive technologies can also help decision-makers discover actionable insights that can improve processes and profitability.

Concluding thoughts

Schrage concludes, “The smarter bet recognizes that the odds favor supply chains becoming supply networks that, increasingly, will learn to optimize not just internal coordination but customer outcomes.” The Magaya staff adds, “It’s a race to deliver the fastest service at the lowest price, and old school methods just won’t cut it anymore. Even the most macro-laden spreadsheets won’t be able to keep up with the requirements of today’s modern supply chain businesses.” Keys to success include knowing what needs to be known, collecting that data, and then leveraging that data to obtain the best outcomes.

Footnotes
[1] Michael Schrage, “Data, Not Digitalization, Transforms the Post-Pandemic Supply Chain,” MIT Sloan Management Review, 29 July 2020.
[2] Douglas Heintzman, “Rethinking supply chains in a post-COVID-19 world,” Medium Insolar, 10 June 2020.
[3] Staff, “What is digital transformation and where does it fit in your supply chain strategy?” Magaya, 6 July 2020.