Digital Transformation in Post-pandemic Supply Chains

Stephen DeAngelis

June 23, 2020

The COVID-19 pandemic has affected lives and businesses in a multitude of ways. Almost every major media outlet, at some point during the crisis, has published a story about why or how supply chains are going to change in a post-pandemic world. Dave Evans (@makrdave), co-founder and CEO of Fictiv, agrees supply chains are going to change. He even suggests how supply chains will transform. “As we move from reeling to reflecting on the disruptions we’ve seen to the world of manufacturing and supply chain courtesy of Novel Coronavirus COVID-19,” he writes, “there are numerous questions being asked in boardrooms, on earnings calls, in the media, and in government. The answer to all those questions is digital transformation. Should I have a more agile supply chain? Yes, through digital transformation. Can we make manufacturing more competitive in higher cost environments? Yes, through digital transformation. How can supply chains pivot fast yet still be robust and resilient to the next disruption? Through digital transformation. Can I shift my supply chain to a new geography without huge cost or risk? Yes, through digital transformation. The list goes on …”[1] Threading its way through all of Evans’ questions and answers there is an implied underlying theme: What business challenges has the pandemic highlighted and how can we address those challenges. Evans isn’t arguing companies should attempt digital transformation without making a strong business case for doing so.

Transformation means keeping up with changing conditions

The staff at Modern Materials Handling asserts, “Supply chain management is under increasing pressure from both classic and contemporary challenges.”[2] Facing such pressure is nothing new for supply chains. Historically, they have always been under pressure to change with the times and they have managed to do so. What might be new is the intensity of such pressure on supply chains. Richard Howells (@howellsrichard), Vice President for Marketing Digital Supply Chain at SAP, insists, “Today’s supply chain is very volatile. Whether we’re talking about Brexit or trade wars or viruses that are closing down borders, they all are providing different challenges for supply chain executives.”[3] In order to confront those challenges, decision-makers need to know what’s happening in general and, specifically, what’s happening with their supply chains. In today’s world, that means collecting data. Howells notes, “The challenge is how to leverage that data and other technologies, like machine learning, artificial intelligence etc. that can come into play there.” Clearly, like Evans, Howells sees digital transformation as the answer to many supply chain questions.

Jonathan Melnick (@JonMelnick14), Director of Research at Lux Research, insists, “Supply chain management challenges come from all directions; upstream, internal, and downstream. Companies are facing internal pressures to be more efficient, integrated, and agile and to meet new consumer expectations of increased visibility into products. … Supply chains are becoming increasingly complex and interconnected, which has made managing risk more challenging.”[4] Like Evans and Howells, Melnick see digital transformation as the answer. He explains, “Digitization allows companies to effectively manage this increasing challenge and risk. … Despite all of these advancements, companies and supply chain solution providers will need to integrate previously siloed areas of supply chain management, increasing value and leading to a more optimized and autonomous supply chain.” Cognitive technologies can help with almost every challenge supply chain managers face; and, they will continue to help as conditions change in the future.

Confused by the terms?

Jack Grimshaw writes, “Digitization is often joined by digitalization and digital transformation in both conversation and business practice. Whilst it can be easy to mistake one for the other when speaking, the functions of each have very distinct differences. Digitalization is a process that, when carried out correctly, can be massively transformative for a business — but it is only possible when an organization has successfully digitized first. As the enabler, digitization converts information and products, such as photos and records, into a digital format. Once converted, these resources can be used to upgrade and streamline processes, eliminating the need for basic things such as paper and face-to-face interaction — something which can be particularly helpful in the trying times that COVID-19 has presented.”[6] Tricia Wang (@triciawang), a self-described Tech Ethnographer & Sociologist, believes “digitization” and “digitalization” refer basically to the same thing. For her, digital transformation is the more important term.

She asserts companies looking to become more efficient rather than truly transforming are involved in digitalization rather than digital transformation. During a 2017 conference, she told participants, “A lot of companies treat digital as if they are ‘doing digital’ — this is ‘digitization’ at its worst — as if it’s some checklist of things to do. It’s very transactional, and people are so busy doing digital they don’t even know WHY they are doing it in the first place! Whereas [some companies] embrace ‘being digital’ — this is ‘digital transformation’ at its best — it’s a total paradigm shift in the culture and operations — it’s not just about buying the latest digital tool, but about creating a new system, new cadence, new mindset.”[7] Digitization is the gateway to digital transformation, but it falls far short of what analysts believe companies need to do to survive in the years ahead.

Digital transformation takes effort

Evans notes, “COVID-19 has shone a spotlight on … outdated supply chain management techniques and found them wanting. They have been exposed as lacking visibility, lacking adaptability or agility and sadly lacking the resilience needed to cope with even minor disruptions.” There is help available. Greg Gorbach (@ggorbach), Vice President of Digitization and IoT at ARC Advisory Group, asserts, “The digitalization of the supply chain enables companies to address the new requirements of the customers, the challenges on the supply side, as well as the remaining expectations in efficiency and sustainability.”[5] Although the discussion to this point might make it sound like digital transformation is simply a matter of collecting some data, buying some new cognitive technologies, and putting everything in place, Jenny Reese, a Senior Manager for Solutions Marketing at Kinaxis, explains digital transformation takes a lot of hard work.

She writes, “A successful digital transformation strategy requires that companies first take a look within and analyze which current processes and systems may be contributing to data latencies, collaboration and communication barriers, talent gaps, inefficiencies and bottlenecks around the world. Once you’re internally aligned with a true understanding of what’s going on in your business today, orchestrating an effective transformation for tomorrow’s success becomes a business-wide approach. … Digital transformation does not happen with the flip of a switch. It requires ongoing strategic efforts to create a balance among new technologies, strategic solutions and traditional systems.”[8] Cognitive solutions, like the Enterra Supply Chain Intelligence System™, can help companies deal with supply chain complexity; however, every solution takes a lot of hard work and tweaking in order to blend new and legacy systems into a truly transformed digital supply chain. Reese asserts, however, that doing nothing, instead of doing something that is hard, is not a good option. She explains, “Supply chain is a constantly moving target. What works today may not have worked yesterday and may not work tomorrow, either. We’re always at the mercy of unforeseen events and disruptions like government regulations, tariffs, geopolitical upheaval, financial crises, pandemics and natural disasters that have the power to change the face of the global supply chain overnight. This means that digital transformation for supply chains is no longer an option — it’s a necessity. In order to stay competitive, reduce risk, meet and exceed rising customer demands, and keep up with the rapid pace of change, business leaders must begin to look at digitization as an investment, not a cost.”

Footnotes
[1] Dave Evans, “Post COVID-19, The Answer Is Digital Transformation, Now What’s The Question?Forbes, 19 May 2020.
[2] Staff, “New report illustrates digital transformation of supply chain management,” Modern Materials Handling, 30 April 2020.
[3] Greg Gorbach, “Digital Transformation in the Supply Chain,” Logistics Viewpoints, 21 May 2020.
[4] Modern Materials Handling, op. cit.
[5] Greg Gorbach, op. cit.
[6] Jack Grimshaw, “What is digitisation in the supply chain?,” Supply Chain Digital, 16 April 2020.
[7] Trevor Miles, “Let’s be clear: Digitization is not the same as Digital Transformation,” Kinaxis Blog, 8 December 2017.
[8] Jenny Reese, “Digital transformation takes more than the wave of a wand,” Kinaxis Blog, 9 April 2020.