The Smart Digital Supply Chain

Stephen DeAngelis

August 30, 2018

Numerous articles have been written about the importance and benefits of digital supply chains. Analysts from PLS Logistics note, “A digital supply chain is similar to a typical supply chain, but the foundation is built on web-enabled abilities. Many supply chains use a combination of paper-based and IT-enabled processes. A true digital supply chain goes further than this hybrid model to entirely capitalize on system integration, connectivity and the information-producing capabilities of ‘smart’ components.”[1] Whenever the modifiers “smart” or “intelligent” are used in combination with business processes, you can be assured artificial intelligence (AI) or cognitive computing are somehow involved. Business analysts aren’t pushing digital supply chains because they involve shiny, new technologies that seem right for the Digital Age. They are promoting digital supply chains because they are better supply chains. Bain analysts Sam Israelit, Peter Hanbury, Rodrigo Mayo, and Thomas Kwasniok report, “With the options that digital technologies provide to develop new business models and new strategies, companies that integrate digital technologies into their supply chain can quickly improve service levels while cutting costs up to 30%.”[2]

Digital Supply Chain Trends and Technologies

Although many articles leave the impression transforming traditional or hybrid supply chains into digital supply chains is simply a matter of digitizing everything, transformation can be challenging. Israelit and his colleagues note, “Despite [numerous] advantages, many companies are struggling to keep pace with an onslaught of digital trends that are disrupting traditional supply chain management, slashing response times and raising customers’ expectations. The speed of change is overwhelming, especially for those that are not digital natives. Seventy percent of executives expect digital innovation to have a significant impact on their supply chains during the next five years, according to a recent Bain survey, up from just 63% in 2016.” Below are some of the trends and technologies creating supply chain disruption.

Data. The digital supply chain rests on a foundation of data. That should come as no surprise since data has always played a significant role in the supply chain. Over the years, many of the artifacts dug up by archaeologists have turned out to be records of trade transactions. What makes data different today is that most of it is digital. Undigitized data will continue to decrease in the years ahead. Every new technology that becomes part of a digital supply chain will rely on digital data. Robert Daymon notes, “In order to effectively leverage big data in your organization and drive meaningful results, it’s critical to start out on the right foot – which means gathering the right information. Understand precisely what data needs to be captured, tracked and acted upon — as timely, accurate and complete data can provide a holistic view of an organization’s operations and improve collaboration, both internally and with supply chain partners.”[3]

The Cloud. Robert J. Bowman observes, “Virtually every kind of business software has rushed to the cloud over the last decade or so.”[4] Hosting software in the cloud ensures enterprise-wide software is always up-to-date and being uniformly used. As Bowman notes, “Going to the cloud means more than simply changing the address of their servers. … The natural benefits of cloud technology, include lower maintenance costs and the avoidance of disruptions caused by regular software upgrades.”

Sensors and the Internet of Things. Sensors are becoming cheaper and more ubiquitous. Their significance lies in the data they generate. Sensors can help monitor machinery, processes, products, logistics, and inventory. All of that data is connected by the Internet of Things (IoT) and transmitted to advanced analytic platforms where data is turned into knowledge, information, and insights. Academics from RMIT University caution, “The correct use and analysis of the vast amount of data available to a business has the potential to transform supply chains as we know them, but also the power to disrupt. Without the appropriate tools and expertise to manage large amounts of data, organizations can become overwhelmed and unable to gain valuable insights, causing issues across the supply chain and wider business functions.”[5]

Artificial Intelligence and Cognitive Computing. AI is what helps businesses make sense of big data. The Economist notes, “AI is making companies swifter, cleverer and leaner.”[3] Sudhir Jha (@sudhir_k_jha), a Senior Vice President at Infosys, told the Economist, “Integrating AI into the complex web of production and distribution — the supply chain — will have a bigger economic impact than any other application of the technology and affect a larger number of businesses.” The reason AI will have such a significant impact on supply chain operations is because AI is so adaptable. AI can help solve optimization challenges, automate processes, monitor equipment status, help with finances, aid risk management, improve forecasting, and the list goes on.

To underscore how challenging digital transformation can be, analysts from McKinsey & Company point out many industry sectors have yet to hit the 50% mark when it comes to digitalization. Digital maturity for various industries (in order of digital penetration) are: Media and entertainment (62%); retail (55%); high tech (54%); healthcare systems and services (51%); travel, transport, and logistics (44%); telecom (44%); professional services (42%); automotive and assembly (32%); consumer packaged goods (31%).[6] They note that operations, processes, and supply chains vary by sector and business executives must completely understand their business model to ensure they adopt the right strategy. They conclude, “In the quest for coherent responses to a digitizing world, companies must assess how far digitization has progressed along multiple dimensions in their industries and the impact that this evolution is having — and will have — on economic performance. And they must act on each of these dimensions with bold, tightly integrated strategies. Only then will their investments match the context in which they compete.”

Summary

Most consultants and analyst agree digital supply chains will be essential to compete in the Digital Age. Analysts from Amber Road conclude, “Transforming a global supply chain requires a fully digital solution. Ensuring that all of the key capabilities are digital is essential to deploying a comprehensive and cohesive solution that works interactively. Without that, the organization will be left with bits and pieces that may work well individually, but can’t provide a complete picture without a great deal of manual intervention.”[8] Key components of a full digital model include:

  • Sourcing
  • Logistics
  • Trade Operations
  • Trade Compliance

They add, “Every party — internal and external — needs to be digitized to play their part in the solution. All of the data around products, suppliers, transactions, and movements also needs to be digitized. … This digital model is not only the basis for transforming the operations of the supply chain, but also the foundation for providing key capabilities that enable more efficient and effective business processes. Best-in-class solutions deliver such key capabilities as collaboration functionality, increased automation, and analytics. The benefits a digitized global supply chain solution provides are so substantial that organizations deploying this technology will have a fundamental competitive edge in the market.” If you don’t think digitizing your supply chain is an imperative, you probably need to reevaluate your position.

Footnotes
[1] Staff, “What is a Digital Supply Chain?“, PLS Logistics, 31 July 2018.
[2] Sam Israelit, Peter Hanbury, Rodrigo Mayo & Thomas Kwasniok, “Building a Digital Supply Chain Ready for the Future,” Supply Chain 24/7, 29 March 2018.
[3] Robert Daymon, “Using Big Data to Improve Your Supply Chain,” Logistics Viewpoints, 19 July 2018.
[4] Robert J. Bowman, “A Journey to the Cloud Enables the Push to a Digital Supply Chain,” SupplyChainBrain, 9 July 2018.
[5] RMIT University, “The digital transformation of the supply chain industry,” Supply Chain Dive, 11 July 2018.
[6] Jacques Bughin, Laura LaBerge, and Anette Mellbye, “The case for digital reinvention,” McKinsey Quarterly, February 2017.
[7] Staff, “How AI is spreading throughout the supply chain,” The Economist, 31 March 2018 (subscription required).
[8] Amber Road, “The Strategic Imperative for Digitizing the Global Supply Chain Execution Process,” CIO, 2018 (registration required).