Every supply chain function, process and system must be involved in the race to unlock the benefits of digitization. As this rapid disruption continues to displace traditional networks, the digital exhaust that is engulfing the sector, coupled with an ongoing data deluge, is affecting all supply chain elements and forcing organization leaders to rethink how they do business.
In order to maximize the value of going digital, it’s essential to understand what a digital supply chain encompasses. Digital supply chains are built upon web-enabled capabilities. They make the most of connectivity, system integration and the data-producing abilities of smart components, typically through the Internet of Things (IOT). The APICS Dictionary defines IOT as “an environment in which objects, animals or people are provided with unique identifiers and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction.”
IOT enables objects to be sensed and controlled remotely across existing network infrastructure, creating opportunities for more direct integration between the physical world and computer-based systems. Experts believe it could generate enough business value to bring about the fourth industrial revolution, Industry 4.0. Successful companies will enhance value and revenue through IOT by creating new business models and improving productivity, exploiting analytics for innovation and transforming their workforces. According to the Accenture report “Driving Unconventional Growth through the Industrial Internet of Things,” this has the potential to generate $12 trillion of global gross domestic product by 2030.
The first step in attaining such a network is to replace outmoded systems and processes with those that can add value at every point in the supply chain. Moreover, a digital perspective by way of analytics can provide a new way of reading customer expectations and competitor movements. In certain cases, it even can dictate marketplace demand for products and services that did not exist before.
According to the Cisco Systems report “Innovative Manufacturers Recognize the Potential of Industrial IOT and Digitization,” 33 percent of the market is at some stage of adoption, but more than half (52 percent) of companies are not investing in digitization and therefore risk being disrupted. The report also asserts that this digital disruption will affect nearly 40 percent of businesses over the next three-to-five years.
When embarking on the journey to digitize supply chains, it’s important for supply chain management professionals to understand the difference between traditional networks — on which a digital layer has been forcibly fused to provide digital capabilities — and a network that has been built on top of a solid foundation of digital capabilities. Achieving digital transformation is not easy, so a truly digitally enabled supply chain must be proactively network- and analytics-driven.
Following are three essential questions to ask before building a digital supply chain.
1. What are the drawbacks of a traditional supply chain?
As organizations grow, they often experience a duplicity of roles and skill sets, which leads to a significant amount of effort being diverted toward information that is regional or local in nature. Coordination activities are required with regional entities in order to access the data and overcome the related challenges of mismatching templates, systems or data structures.
In addition, technology systems and automation plans frequently are set up with an extremely limited scope. They are designed to meet the requirements of small organizational units already working in silos, thus complicating the landscape even further. This is repeated across the business, giving birth to more redundant and complex processes, as well as a web of legacy systems that have steep learning curves due to the high degree of customization required.
Complexity in the new normal of global organizations and physically disbursed supply parameters is increasing, causing the company to experience
- difficulty getting the right data in a timely fashion
- challenges when using available data to make smart decisions
- the absence of adequate knowledge of technologies and processes
- lack of direction or involvement from leadership
- insufficient support from cross-functional talent
- incomplete knowledge of key industry best practices
- spending that is disproportionate to the amount of time performing maintenance and administrative activities.
2. What are the benefits of a digitally enabled supply chain?
Organizations with digitally enabled supply chains can gain advantages in almost all areas of their networks. In fact, even those on their way to a digital supply chain — currently using a hybrid approach — enjoy significant rewards. (See Figure 1.)
Specifically, digitization can improve forecasting accuracy through faster data dissemination and high-end statistical analysis. Likewise, when reliable data is readily available, the time required to generate a production plan is drastically reduced. Also, in a digital world, orders can be received from multiple channels and be automatically processed based on complete inventory visibility, leaving out the need to touch the orders unless there are exception scenarios to be managed.
These days, production dates often are missed because supply is constrained, material is delayed on the shop floor or items arrive to the shop floor damaged. In a digital world, transit information for products can be constantly supplied to planners and, in any given situation, re-planning can be done in real time to avoid production delays.
Digital supply chains also streamline the integration of various supply chain elements and make key data more easily available. This enables the network to move toward advanced-analytics-based decision-making, eventually bringing about more informed strategies. The data also helps supply chain professionals understand customer behavior and preferences and respond by placing products accordingly at retailers.
Data visibility and real-time tracking also can significantly improve risk management and threats assessment. They highlight and help minimize risks at each node of the supply chain through data automation and heightened monitoring. Supply chain professionals can employ structured, real-time data to perform analyses and gain actionable insights in order to successfully address common shortcomings and risks. Similarly, it’s possible to use the same factors to predict whether a product will reach the customer for outbound shipment of finished goods. This enables companies to create contingency plans.
3. How do I build a digital supply chain?
Improving supply chain visibility and intelligence to enable better decision-making is a top priority for manufacturers globally. According to the Cisco report, today’s best-in-class digital manufacturers are experiencing dramatic outcomes. Stanley Black & Decker reduced its labeling error rate by 16 percent, Sub-Zero cut new product introduction time by 20 percent, and FANUC America reduced downtime and saved $40 million in the process.
One key lesson learned by companies such as these is that digitization can advance supply chain efficiencies, but not in an isolated fashion or without defining the specific points along the supply chain where value can be added.
Digitization opportunities, such as process automation, must be combined with stringent rules-driven processes that ensure that the solution benefits users, customers and the organization. (See Figure 2.)
In addition, for digitization to fully enable processes to become collaborative and transparent, initiatives should be designed that encourage stakeholders to be connected and collaborative. Developing a common tool to support the supply chain over subsidiaries and geographies enables better management at touchpoints and with users, associates, partners, suppliers, vendors and customers. In this way, digitization can support how professionals view their businesses and functions as a whole while providing the flexibility to identify region- and customer-centric focal points and develop micro strategies in order to be more successful globally.
When building a digital supply chain, organizations face challenges they are not always equipped to overcome with internal capabilities alone. Again, they must partner with key stakeholders to find solutions. Such cooperation models require companies to be agile with their processes, systems and knowledge frameworks. This is especially necessary when bringing in specialized partners or building a specific capability quickly. Using available digital avenues and networks provides fast access to solutions that exist in the marketplace, sometimes even overseas.
Digital way of life
Digitization not only provides end-to-end supply chain visibility, but also transforms manual processes.
Implementing digital supply chains can have a significant impact on any company. Decision-making becomes dynamic, new governance models are designed and implemented, and employee roles are enhanced.
Collaboration is essential during this shift, as technologies offer an extraordinary level of coordination among team members, irrespective of their locations. By giving these teams access to real-time data and insights, more accurate and timely decisions will be made. Best of all, many of these plans eventually can be automated to ensure that the supply chain behaves as a single, coherent and optimized entity.
Ajai Vasudevan has more than 20 years of experience in strategy, operations and technology in the automotive and industrial products sector. He may be contacted at firstname.lastname@example.org.
Gaurav Goel has more than 14 years of experience in the manufacturing industry, primarily focusing on business transformations, supply chain optimization, process improvement and technology. He may be contacted at email@example.com.
Shreyas Shukla is a consultant with a focus on projects in the automotive industry dealing with supply chain and sales and operations planning. He may be contacted at firstname.lastname@example.org.
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