The digitized supply chain-supply chains characterized by rapid information flow, advanced analytics, and digital processes that mirror or even anticipate processes in the physical world-are on the way. According to MHI’s “2017 Annual Industry Report,” 80% of respondents believe that digital supply chains will be the predominant model within five years.
The benefits of digitized processes include potential cost reductions, customer service benefits and agility in meeting demand. In fact, according to a recent survey for logistics company DHL of nearly 350 supply chain professionals, more than 75% of businesses recognize the cost reduction benefits of digital information and analytics technologies. The same study found that 95% of respondents are not yet fully capitalizing on the potential benefits digital age analytics and innovations like robotics offer.
Belief in the benefit of digital supply chains may be widespread, but with so many technologies potentially in the mix-sensors, connected vehicles, visibility tools, robotics, predictive analytics and software that models physical systems-it can be hard to figure out where to start. Just how can a company move from a traditional, linear supply chain to a digitized supply chain network?
Unlike past information technology (IT) eras, when planning for IT improvements often focused on rolling out new major systems like enterprise resource planning (ERP) or a transportation management system (TMS) because they were lacking or outdated, today many companies are looking at ways to create real-time fulfillment visibility across logistics networks, or apply analytics on top of transactional systems. In short, it’s not enough to pass transactions between systems and plan and execute in siloed steps, but rather, have digitized processes and analytics-enabled insights to make the supply chain faster and more flexible.
The pace of change with e-commerce and consumer habits adds urgency to digitization. Whereas companies used to revisit IT plans every couple of years, now companies are finding they need to refresh IT capabilities more frequently, says Stephen Lapper, a digital supply networks leader with Deloitte Consulting. “As rapidly as things are changing and moving around in the market, many organizations have trouble just trying to figure out where to get started with digitization,” he says.
P.S. Subramaniam, a principal with consulting firm A.T. Kearney, agrees that there’s a lot of noise around supply chain digitization, making it hard to get started. ‘There are a lot of people touting answers and solutions,” he says. “With all this noise, companies may struggle with even being able to say: ‘What problems am I trying to solve and what is the business case?'”
Subramaniam and Lapper agree that the remedy to this uncertainty is to assess supply chain digitization against the objectives that matter most to a company, and test out small blocks of new capability in an agile manner. There is no single framework for going digital, but there are methodologies for figuring out what will payoff without spending a couple of years doing it.
“The pace of change needed with digital supply chain transformation requires a completely new way of thinking about how you’re building your capabilities,” says Laaper. “We see companies shifting away from static roadmaps to much more dynamic process.”
The breadth and depth of the digital supply chain concept is why it makes sense to break it down with nimble methods. There are many potential technologies involved.
According to Deloitte, digital supply chain management may include gathering insights from distributed data, sensors, and connected assets to drive actionable improvements via advanced analytical and digital solutions. The idea is to move from linear supply chains to connected, nimble networks “characterized by a continuous flow of information and analytics” as Deloitte puts it.
A lot can fall under this umbrella, which is why agile methods and steering committees are vital to rapid screening of ideas, explains Laaper. Deloitte calls its approach the “digital foundry.” It consists of short phases to assess the value of particular digital capabilities.
“When an idea comes into the digital foundry, the team will spend a short period of time, usually about four weeks, putting meat on that idea to see how it will apply to the business,” Laaper says. “That idea will then go to a steering committee, who will vote it up or down. For those that proceed, they progress in an agile manner. We’ll then take an ongoing assessment of initiatives and see if they are creating value. And if they are, we can continue to invest-and if not, we’ll shut them down.”
The digital sprint methodology at A.T. Kearney also involves rapid assessment of capabilities. The first sprint should be both quick and low cost, says Subramaniam. At this stage, companies aren’t trying to build production ready apps or integrate to back-end data sources. “You literally duke it out on an idea scale and if an idea wins you build on it,” he says. “And, if an idea doesn’t win, there is no real loss-you learn from it and move on.”
While digital sprint ideas should tie into company goals, it’s a mistake to take too much of a “top down” mentality, Subramaniam adds. The best digital innovators take a more “bottoms-up” approach to foster a groundswell of ideas to assess in sprints, resulting in a “portfolio” of digital capabilities. “It’s actually associated with some level of creative madness,” he says. “You can’t be that deliberate about it.”
One example of a digital sprint, says Subramaniam, involved an auto parts retailer that wanted to enhance its standing as “first call” supplier for repair shops. It had good inventory accuracy at its stores but needed digital functionality that would convince shop owners it could get parts delivered quickly.
With these goals in mind, says Subramaniam, the company quickly mocked up an app that shop owners could use to see if a part was available close by and that would track delivery progress. The mock up wasn’t a production ready app, but was enough to assess value. “If you can’t quickly show how some functionality will work, it’s more difficult to figure out the value proposition,” he says.
Laaper agrees an agile approach to supply chain digitization can’t be exhaustive when it comes to requirements gathering and testing early on. “We encourage companies to think through what their vision is, what the end-state is they want to achieve, but to not be so specific that they feel that need to get it down to the ‘nth’ degree with requirements,” he says.
While digital technologies like blockchain and artificial intelligence (AI) can be applied to specific supply chain issues (like product traceability in the case of blockchain), it’s best to turn to appropriate technologies only after assessing for gaps in your capabilities, says Dwight Klappich, a research vice president with analyst firm Gartner.
“Rather than starting the digital supply chain conversation with AI, it’s better to look at the future state you want to be in and then think through how those future-state processes can be enhanced by AI,” says Klappich.
Gartner uses a matrix methodology with clients to assess supply chain needs, says Klappich. This matrix examines key processes on both the demand side and the supply side, assesses the relative strength or weakness of processes in the context of the desired future state, and looks to address shortcomings.
“This approach helps you map out where you are with current capabilities and where you have gaps,” Klappich says. “The needs will differ by company. One company may find it has a strong sales and operations planning process, but its inventory planning is weak.”
Klappich also sees technology assessment becoming more wholistic as companies grapple with the type of cross-enterprise and inter-departmental orchestration needed today. “In the past, the ‘to-be’ focus was often on creating the requirements for a specific system for one functional area within the company like manufacturing or distribution, whereas now, the ‘to be’ assessments are more about defining the areas of orchestration the business needs to work on,” he says.
There are some common needs when it comes to supply chain digitization. For instance, underlying execution systems like ERP or warehouse management systems (WMS) need to have high inventory accuracy and solid execution of procurement and replenishment processes to set a foundation for predictive analytics or visibility tools.
“It becomes even more challenging to digitize your supply chain because there are so many different systems being used, even within one company/’ notes Norm Saenz, Jr., managing director with St. Onge, a supply chain consulting company. “In many companies, there are multiple ERP systems or supply chain applications that hold needed data, and you also need data from logistics partners. It’s challenging because digitization means understanding systematically what’s happening throughout your entire supply chain-all the way from your upstream suppliers through your network and out to the end consumer.”
Digital solutions that act as a visibility layer for goods in transit are a common need, as companies try to keep pace with e-commerce fulfillment and ultimately provide better customer service, notes John Sidell, principal with advisory firm New Course.
“Having that visibility layer really acts as the backbone for e-commerce fulfillment, especially for inventory in motion, whether it’s a parcel shipment leaving one of your facilities, as well as for inbound shipments from suppliers,” says Sidell.
The challenge with achieving near real-time visibility is that the data usually isn’t sitting in one system. The needed updates and shipment details might be in multiple systems within your organization or those of logistics partners, which is why visibility “control tower” solutions that combine integration with visibility functions have gained favor.
Additionally, Sidell points out, visibility layers shouldn’t just give updates, they should also have mechanisms for taking actions. “You might need to re-route a shipment, so at your control tower level, you should also be able to invoke actions across your network,” says Sidell.
Of course, underlying execution systems need to be accurate for visibility tools to know where at-rest inventory is located, while solutions like vehicle telematics or location tracking of shipments give visibility over goods in transit. The end goal with visibility and associated analytics is to be able to pinpoint arrival times, notes Sidell. “Visibility is the foundation, because if you know where things are, you can make much better commitments to your customers,” he says.
Saenz agrees that the end game with digitization is to have better control and predictability. Various solutions, from Cloud-based predictive analytics, or IoT solutions in facilities, can help with providing better visibility to issues like shipments, lead times, and the ability of a facility to process orders.
“You have a lot of power in your supply chain if, through digitization, you know where everything is and you have access to real-time information about activity through your network,” Saenz says. “When all those elements are in place, you can make the right tactical changes when you see obstacles arising.”
Think big, start small
Companies looking to create a digital supply chain don’t need to build one from scratch. Various vendors can provide solutions for visibility, global trade management or AI.
Services from third-party logistics (3PL) providers might also fit into a digital supply chain strategy because 3PLs may offer digital capabilities around shipment visibility, in addition to having strong systems for TMS or WMS. “They [3PLs] have a lot of technology that can help enable part of your digital strategy and provide better visibility, rather than you spending your capex on trying to create those capabilities,” says Saenz.
To succeed with digital supply chain efforts, companies have to “think big, start small, and scale fast,” says Deloitte’s Lapper. Some digitization efforts might be more incremental in nature, like connecting machine assets on a manufacturing line to analytics, while others might be “net new” digital capabilities, like providing connectivity to products in the field to enable new services to customers.
In either case-enhancing current processes or enabling new ones-the same agile methods can make digital supply chain easier to build. “We encourage companies to think big, but not in a way that creates a lot of limitations upfront by having to gather all possible requirements,” Lapper concludes. “You can prove that a smaller idea works, gain success and then build on that.” ?
This article was written by Roberto Michel from Logistics Management (2002) and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to firstname.lastname@example.org.