The supply chain industry has been confronted with unprecedented challenges in 2020 and will likely continue in 2021 (and beyond).
So, how can you capitalise on these challenges to turn them into a positive impact for your bottom and top lines?
By transforming your company’s global end-to-end supply chain through digitalisation. This is the answer that McKinsey in a recent study provides. This study suggests that companies pursuing a digital transformation in supply chain can expect to boost annual growth of earnings before interest and taxes (EBITDA) by 3.2% and annual revenue growth by 2.3%. Meaning that the ROI coming from supply-chain digitization is the largest of all business areas.
Accenture goes even further to reinforce the importance of traditional freight and logistics companies embarking the digital journey. “If they persist with ‘business as usual’, traditional players can expect to lose both competitiveness and value. If, however, they harness the power of digital technologies and build new, digital business models, they could significantly enhance their competitiveness, boosting EBITDA by approximately 13% annually”.
Aligned with McKinsey and Accenture’s perspectives, Sam Palmisano, former Chairman and CEO, IBM and Founder, Centre for Global Enterprise (CGE) states…
“The biggest weapon a company has to outperform its competitors over the next 3 years is the Digital Supply Chain. The Digital Supply Chain will dramatically improve revenue and reduce costs while delighting customers. A true winning play.”
WHAT IS THE DIGITAL SUPPLY CHAIN TRANSFORMATION?
There are various definitions and understandings when it comes to digital supply chain transformation. Forbes indicates four common concepts:
1. Replacing manual, paper and pencil processes with digital data and process support.
2. Using autonomous mobile robots and other forms of robotics in the supply chain.
3. Applying machine learning (ML) and artificial intelligence (AI) to supply chain Big Data.
4. Obtaining better digital data to support an end-to-end supply chain involving multiple tiers of a company’s supply chain.
These concepts imply different maturity levels. Some of them are confined to the four walls of the company – low maturity level – while others extend to suppliers, customers, and key supply chain partners up and down multiple tiers – higher maturity level. No matter the maturity level of your supply chain, AI and machine learning will have a role to play.
Digital transformation is different from digitization. Gartner defines digitization as the process of changing from analog to digital form, also known as digital enablement. Digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself. This is a key difference with digital transformation that doesn’t involve only technology. It goes beyond.
Digital transformation by Gartner is the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model. The foundations on processes, people, and culture are critical to obtaining great ROI. It involves re-evaluating existing processes and implies more of a revolution than an evolution.
Digital transformation is a combination of technology, new business models, and improved collaboration and insights. It is moving beyond simple automation to embrace transformation.
HOW TO IMPLEMENT THE TRANSFORMATION?
McKinsey’s paper found that the average supply chain has a digitization level of 43%, the lowest of five business areas that were examined. Only 2% of the surveyed executives said their supply chain is the focus of their digital strategies.
The article explains that this low rate of supply-chain digitization is related to the capabilities of the technologies that companies have had available until now. These technologies didn’t provide transformative supply-chain capabilities such as linking and combining cross-functional data (for instance, inventories, shipments, and schedule) from internal and external sources or forecasting demand and performance with advanced analytics for more accurate planning.
As well as the issue with technology capabilities, major failures in the past may be preventing executives from moving forward on the digital path. CNBC reported that out of $1.3 trillion spent on transformation initiatives, 70% of that money was wasted on failed programs.
The article points out the lack of effective communication – the overall strategy, purpose, and outlook with stakeholders – as the biggest reason. This demonstrates that the right processes and culture must be in place. Change management is critical.
Make sure you do the following:
- Digital supply chain planning – developing a roadmap for the transformation, cross-functional collaboration is a must to ensure all departments are aware/plan for the supply chain changes. Gartner indicates that less than 50% of organizations have not yet started to build a roadmap for supply chain transformation.
- Assess the current supply chain – how can automation make your processes more efficient? Are there information silos that need breaking down?
- Ensure people/processes are equipped – training, correct analytical skills etc.
READY TO TAKE THE LEAP? HERE ARE THE 8 OUTCOMES YOU CAN EXPECT WITH YOUR DIGITALLY TRANSFORMED SUPPLY CHAIN.
1. Manage Growing Customer Expectations
Recent online trends have led to growing service expectations combined with much more detailed orders. In B2B, customers share similar expectations about fast, flexible, and low-cost shipments. Nonetheless, studies show that 70% of companies are unable to predict delays in their deliveries which turn into the inability to meet customer expectations.
A digitalised supply chain will allow you to increase your speed and be much more precise. The customer experience will also improve, for example, by re-assessing shipping to improve delivery times and analysing warehousing and inventory to improve service levels and OTIF.
With a digitally transformed supply chain, you learn to understand your customers better. You are better prepared to plan, forecast, and be more agile and responsive to changes or unexpected events.
2. Ensure Full End-to-End Visibility
Supply chain visibility is the key to balancing supply and demand.
Based on Accenture’s research, 80% of the supply chain data you need to make decisions resides outside of your organization. With you controlling only 20%, to make faster and better decisions, visibility across all the different supply chain participants is a must.
Not only will you be able to foster visibility with your customers and supply chain partners, but a digital supply chain will allow the necessary information and data to be shared across your businesses’ people and processes. Information silos will reduce, allowing your business to provide better services and products to their customers, a better return for shareholders and ultimately, sustainable success.
Since visibility is established at every stage of the product lifecycle, and this is combined with a solid supply chain collaboration platform, lead times decrease by 20% to 40%.
3. Unlock deeper insights and stronger decision making
The foundations of a digital transformation are data and information, allowing the traditional functional information silos to reduce. Through technology – including AI and machine learning, big data, automation, etc – you can spot hidden opportunities, overcome human biases, and make more informed and thus, better decisions. Read more about how digital technologies can improve your supply chain.
Prescriptive supply chain analytics offers decision support for managers and data-driven plans can be developed via Data Visualization tools. Prescriptive analytics uses optimisation or embedded decision logic rules to define what should be done in a certain situation. This form of analytics is the most advanced of existing analytics.
4. Leverage Automation
A digitally transformed supply chain increases automation and with this, efficiency. It eliminates manual re-keying errors, improves data accuracy, and makes the supply chain more responsive by automating many time-consuming, manual processes, and facilitating decision-making at multiple stages in the life cycle.
Examples of automation are as follows:
- Side by side initial costing
- Generated alerts when POs are in danger of delays or complications compared to plan
- Identifying and qualifying products eligible for free trade programs
- Most appropriate shipping mode, carrier, and schedule – considering time, speed, priority, etc.
Automations lead to greater agility while reducing expensive and time-intensive errors.
5. Low Investment, High ROI
You may think that digitizing your supply chain implies a high upfront cost and to have a complete IT team ready for the rollout. Although it may seem that way, it’s not. Implementing a SaaS solution is a low initial investment and you can pay-as-you-go.
SaaS, or software as a service, is a cloud-computing service model. To be more precise, SaaS is a licensing and delivery model used by software vendors to give users access to a fully functional and complete software product through a web browser, on a subscription basis.
As SaaS is becoming more widely accepted and thus popular, costs are becoming lower and lower. You can consider this a double-dip on your financials.
On one side, you benefit from a lower cost; and, on the other side, you can have all the benefits of a fully digitalised supply chain – optimized costs and increased revenues as you have more resources and time to spend on activities that will create value for your company now that you are freed up from the manual processes.
6. Improve your Agility and Resilience
A more agile supply chain is a more resilient supply chain.
Building agility and flexibility into your supply chain through digitisation is key for the future (given what we have seen in 2020). Digitalisation can offer automated alerts when problems arise and offer managers greater visibility in the palm of their hands – this will boost your supply chain’s resilience.
The commentary from Freight Waves on How Digital Transformation Builds Supply Chain Resilience indicates that digitized communications and automated alerts are critical functions that you can’t afford not to have. With the talent shortage during COVID-19 disruption, everyone wants a better way to communicate and know what’s happening. However, those interactions are not in person, if possible.
Digitized communications and automated alerts that handle most of the communication and status requests allow for management by exception. In simple terms, this means that while everything is going well, within the boundaries set, you don’t need to take action. You will intervene only when issues arise that fall outside of the capabilities.
Timely intervention is vital to supply chain resiliency.
7. Improve Collaboration
Transforming your supply chain digitally will enable you to shift your mindset from one that sees your supply chain as a linear process (limited information sharing) to one that sees it as a system of networks. Integrating your existing systems with the help of technology will enable your company as a whole to gain a full overview of each pocket within the business. Doing so will improve your company’s collaboration capabilities.
Collaboration brings high value to your organization. For instance, collaborating earlier in the product lifecycle reduces development and turnaround time, with a market increase in fill rates averaging 10% to 15%.
Another example is with multimodal logistics coordination. It helps to identify inefficiencies in shipment variability and reduces transportation cost by 5% to 20%.
8. Cultivate a Competitive Advantage
McKinsey study shows that some companies are not currently harnessing the power of digitally transformed supply chains. Although, doing so will provide you with improved operating models and operations to increase margins, optimize costs, accelerate sales, and overall better long term results.
SET-UP YOUR SUPPLY CHAIN PROCESSES FOR SUCCESS
To withstand the challenges presented to the supply chain industry, it is becoming more imperative that your organisation capitalises on digitalisation to strengthen your supply chain. By taking a holistic approach, considering technology capabilities, processes, and culture, you are set up for success.