Are you concerned your competitors are successfully leveraging technology in their supply chain?
Technologies like AI, big data, augmented reality are not just buzzwords and they are driving value.
So how exactly do these technologies translate into tangible results for your company?
WHY ADOPT DIGITAL TECHNOLOGIES?
In a recent research paper “Digitalisation in Procurement and Supply 2020”, The University of Melbourne together with CIPS (Chartered Institute of Procurement and Supply Chain) indicates that companies adopting digital technologies are focusing on cost reduction, as they are looking for operational efficiencies.
The paper highlights that the key motivating factors to embrace these technologies are:
- Operational efficiency (22%)
- Performance of the existing system (16%)
- Operational costs (15%)
- Employee productivity (15%)
Big data is an exception, as 34% of companies indicate that the purpose of its adoption is to gain a competitive advantage.
Cost reduction is an important and tangible benefit to an organisation. It’s clear when you see a positive impact on your P&L. After all, numbers are numbers. Nonetheless, this is a limited view of all the value that such digital technologies can bring to your business. There are other benefits such as real-time capability, agility, and transparency.
Indeed, the impact of technology on your EBITDA is through cost reduction as well as through revenue generation. By taking a holistic approach, technology can create new stronger processes and business models. This means that in your ROI analysis, both cost reduction and revenue increase need to be taken into account.
WHAT ARE DIGITAL TECHNOLOGIES?
You are probably interested in the answer to this question from a pragmatic perspective. An article from MIT (Massachusetts Institute of Technology) provides clear examples:
- With IoT, collecting data at every checkpoint, from the status of raw materials flow to the condition and location of finished goods.
- With IoT as well, connected and sensored “things” – like shipping containers, or warehouse stations – enables communication and delivers more insights than in the traditional supply chain. IoT deployments are particularly of value for fleet management and freight monitoring.
- Making unplanned route changes to expedite product delivery, for instance, or swapping out materials to take advantage of better pricing or availability with Artificial Intelligence (AI).
- Going deeper with AI and advanced analytics, by tracking different factors such as location, weather, environmental status, and traffic patterns, you can know if a shipment of refrigerated products is at risk for equipment failure and take the appropriate actions to manage the situation.
As the MIT article states with the last example, you may reroute the delivery to a closer distribution center or proactively send a repair crew to prevent spoilage. This use of the data goes beyond historical analysis. Your company can be proactive and anticipate issues or customer’s demand.
Supply Chain Digital mentions a similar example with Amazon. The giant online retailer prepares and ships before the customer places the actual order. Amazon then matches the customer with the shipment that is already in the logistics network towards the customer.
WHAT TECHNOLOGIES ARE MOST OFTEN IMPLEMENTED?
The research paper by The University of Melbourne together with CIPS shows that 95% of the firms are on the journey to digitalisation with some form of technology for the last three years. The results show that 30% of companies have had cloud computing for the last three years, while 22% and 15% plan to implement it within the next one and three years respectively.
These results are consistent with the main reason behind cost efficiency, as cloud computing enables remote work, an upward trend accelerated by the Covid-19 pandemic. The different stakeholders can see and share the data for decision making.
The paper also highlights that 24% of firms have had big data in place for the last three years with 18% and 19% planning to implement it in the next one and three years respectively. The challenge, the article notes, is how to convert big data into real and practical insights.
There are other popular technologies such as IoT, augmented reality, and Radio Frequency Identifier (RFID). Per the 2019 Supply Chain Digital and Analytics Survey, companies are doing well in implementing technologies in the lower end of complexity but facing numerous challenges with high-tech or advanced capabilities. The future outlook in Deloitte’s survey shows company investments in the following areas:
- Differentiated customer experience
- Real-time supplier collaboration
- Manufacturing Equipment Optimisation
- Customer connectivity and Engagement
IF THESE TECHNOLOGIES ARE SO GOOD, WHY ARE COMPANIES NOT FULLY ADOPTING THEM?
Digital technologies are transforming supply chains and this trend does not seem to stop anywhere. In an article of July 2020, Gartner identifies the top supply chain technology trends.
Nonetheless, Christian Titze, vice president analyst with the Gartner Supply Chain Practice indicates “The vast majority of organisations have a cautious approach to adopting supply chain applications and technologies”. Titze added, “However, even cautious supply chain leaders must keep an open mind and embrace long-term perpetual change.”
The research paper from The University of Melbourne together with CIPS includes cost as the fundamental hurdle, including technical set-up, training, and on-going support. Deloitte ads the lack of talent with the required skills for the adoption of digital technologies. 82% answered that the number one talent challenge is internal expertise.
The implementation of online technologies could bring great benefits to your organisation – higher EBITDA – if implemented in a thoughtful way with the required expertise and skill set.
Adopting technologies in procurement and supply can dramatically improve your business operation efficiency, employee productivity and customer experience.