We’re living in the age of the fourth industrial revolution, where the world has been transformed by digitisation. If companies want to keep up with the fluid economy around them – a world defined by big data and continuous analytics – they must digitise processes at the heart of their businesses – their supply chains.
But what does ‘digitising the supply chain’ mean and what is its impact on your business?
How it works
Investopedia defines a supply chain as “a network between a company and its suppliers to produce and distribute a specific product to the final buyer.” A supply chain includes several stages: procuring the raw materials, developing them into a product, stocking the product with a distributor, and distributing the product to the consumer. Traditionally, supply chains separate these stages into siloed processes that interact with each other but mostly function independently.
A digital supply chain changes that. It integrates these different processes into a holistic digitally enhanced supply ecosystem, allowing for greater flexibility and transparency, enabled by real-time information. It does this through the adoption of a wide range of digital technologies – the cloud, big data, 3D printing, the Internet of Things and so on. More and more businesses are integrating these technologies into their daily functioning, and are using the data generated to improve supply chain performance and shape their strategies.
Benefits
- Transparency, communication and new insights – Traditional supply chains rely on the transferring of information from one siloed stage to another. Marketing and sales, for instance, will communicate with the manufacturing department regarding consumer demand, which in turn will communicate with suppliers regarding which components are needed. These first-tier suppliers will then communicate with their suppliers about raw material requirements. This process can be cumbersome and lengthy, particularly for long and complex supply chains; it is also vulnerable to human error. A digital supply chain allows information to be available to all in real-time. Such transparency improves speed and efficiency, as well as allowing better collaboration both within the company and between companies. The data generated by a digital supply chain also enables the use of advanced analytics, which gives access to business insights not previously available. Such insights typically include better demand forecasting.
- Creating a consumer-centric product – Digital technologies allow businesses to collect information on consumer behaviour patterns and needs. This information can then be used to create products that are more consumer-centric and generate more sales. An excellent example of this is the WiFi-connected toothbrush launched by Colgate-Palmolive. The toothbrush collects information on the consumer’s oral care, which the consumer can then track in a mobile app. This app also provides tips on oral hygiene and how to better brush one’s teeth. This resulted in not only increased revenue from sales of the toothbrush, but also from increased sales of their toothpaste.
- Flexibility and speed – Like all things defined by the digital era, digital supply chains function with speed. All data is processed in real-time, which means that companies receive consumer feedback that can be directly used to improve their product in much shorter timespans.
Digital technologies are also being used to improve efficiencies in different links of the supply chain. DHL, for instance, plans to use Google Glass in their warehouses to replace handheld scanners, helping their staff to find items among more than a million individual products and increase their productivity, while Amazon aims to use drones to deliver parcels to its consumers, shortening delivery times.
These are only some of the benefits of a digital supply chain. For a more detailed exploration of the digital supply chain and its impact, see PwC’s excellent report on its potential.
Challenges
Yet, it would be foolhardy to assume that technology in and of itself can bring about a miraculous transformation in a company. For technology to truly work – for a digital supply chain to give your company what you want – it must be integrated intelligently into your existing company structure and then properly leveraged. As the Harvard Business Review explores, 70% of digital transformation initiatives fail – and that’s because companies have not taken the time to understand what they are implementing.
Two common mistakes/challenges that companies face when adopting a digital supply chain are:
– Companies fail to consider digitisation as part of a wider company strategy. In order for a digital transformation to work, you should know where you are going and how digital technologies can help you get there. Li & Fung, when considering what digital technologies they wanted to adopt, mapped out a three-year business strategy that emphasised speed, innovation and digitisation. The strategy allowed them to focus on what technologies they needed and implement the right ones. Their virtual design technology helped them halve the time it takes them to get from design to sample.
– It’s important to understand what resources you will need to effectively gain from a digital transformation in your company. Have your staff been properly trained? Is your company able to respond quickly to real-time data or are processes tied up in bureaucracy and hierarchy? Your company culture and resources must be capable of capitalising on the technology you are introducing – the business must be flexible, quick to recognise and seize opportunities, and remain open to growth.
To implement a digitised supply chain that delivers competitive advantages you need experts with a strategic business focused procurement mindset. As Sukhendu Pal, Chairman and Founder of global management consulting firm Sirius & Company, observes:
“Traditional Procurement Leaders focus on fixing what’s wrong or not working. Procurement Leaders as strategic change agents in the digital world approach change as bottom-up, inside-out and asset based. They power change from within by identifying and leveraging innovators and digitisation.”
To learn how you can make the most of digitising your supply chain, contact Procurement Cube today.
