When is my supply chain digital?

Everybody wants to go “digital” these days. But haven’t we been doing digital things in the supply chain for a while now? We are using computers and software and we have been exchanging data for many years, right? Many digital applications that we use today, find their origin in the 1980’s or even 1970’s. EDI (electronic data interchange) originates back from early 1970’s with a first application at Heathrow Airport in 1971 (Wikipedia). The first users to install SAP did this in 1983 (“Heraeus of Hanau”, Germany), and SAP R/3, which almost all of us still use today, was introduced in 1993 (SAP.com). Excel 1.0 was introduced in 1985, replacing Multiplan and competing with market leader Lotus 1-2-3, remember?

It is very hard these days to find a supply chain that does not use any digital tools to calculate the stock, place an order and transfer information to a supplier. Therefore, indeed, one might say that every supply chains is already digital.

What does it mean, digital?

We believe that the digital supply chain actively develops 4 areas (more than others) to increase its effectiveness and efficiency:

digital development areas RGPDigital development areas © RGP

Generating data happens everywhere, because of tools such as scanning (a long existing technology), RFID (product and location data), OCR (optical character recognition, electronic document reading), IoT (Internet of Things; status and location data), AI (artificial intelligence) and machine learning (generating new data based on existing data and algorithms). Once data is generated, it needs to be exchanged: the second digital area. For this, the main tool today is the internet. As a subcategory, we use interfacing, where 2 or more computers can exchange data across internet. Today, direct access and RPA (robotic process automation) are catching momentum. RPA is a tool that runs processes without human interference and as an example, it can take data taken from one system, and upload it in (almost any) other.

The third digital area is the storage of data. Cisco predicts that by 2021, data center storage installed capacity will grow to 2.6 ZB, nearly a 4-fold growth (source: Cisco.com; 1 ZB = 1021 bytes). Traditional data centers are rapidly losing ground compared to these cloud solutions. Finally, the fourth digital area is the one where we benefit from all these efforts: the usage of the data. Data is used once translated into information (facts and predictions) based on analytics and science to support the decision-making process, and it can be used to instruct robots to perform actions.

Why going digital?

The three reasons that make it worth the effort:

  1. To save time and cost by moving resources from non-value-add tasks to value-add tasks
  2. Increase accuracy,  make less mistakes (computers do not make as much mistakes once programmed correctly)
  3. Respond faster (computers can do tasks quickly and during inconvenient hours)

Most digital tools do not come for free. The general principle is to invest up front (increased Capex) and enjoying the benefits in the day-to-day operation (reduced Opex).

Digital enablers

AT Kearney and WHU Logistics have provided a comprehensive overview of six digital enablers (already in 2015). They also say that supply chain managers need to manage the implications of the digital transformation of their function and of the underlying business model at the same time.

Digital enablers2

Source: European A.T. Kearney/WHU Logistics Study 2015 Digital Supply Chains

Business models will change due to developments such as connected products, embedded services, shared products (or products as a service) and omni-channel distribution. The digital transformation of the supply chain function means we are moving towards digital planning, -supply, -manufacturing and -logistics, with 4 areas of digitalization: supply chain integration, supply chain automation, supply chain reconfiguration and supply chain analytics.

Making it more digital: the digital road-map

This brings us to the core question: when is my supply chain digital? The answer is that all supply chains are digital, but some are more digital than others. To make your supply chain more digital, you can follow the digital development road-map, that by the way, is broader than supply chain management alone

digital roadmap

Digital road-map © RGP

After scouting and experimenting, 3 things can happen:

  1. Failure: experimented innovation does not bring the expected benefit. Failure is part of the game. Or as Daniel Newman (CEO of Broadsuite Media Group) likes to put it: “The secret to digital transformation success: fail fast to innovate faster.”
  2. Incremental success: innovation will lead to smaller changes with few to modest impact, can take longer to make full impact and focuses only on specific parts of the supply chain.
  3. Revolution: step change, happens quicker than expected, and has full-chain impact or even industry impact

We have seen some real revolutions, like what happened to the books- music industry due to Apple, the travel industry and the omni-channel development in retail. The consumer has been given the ability to buy products anywhere anytime, in the store and online, but also in the store online (the customer display in the store), and allowing them to receive the goods at home, or pick them up in the store or pick-up points. For many companies, this has significantly changed their supply chain and even business model and some have been able to change the competitive landscape to their benefit (others failed). These developments are however very difficult to spot and not many of us are among the first movers. Many of the first movers are start-ups that the larger corporates now try to copy in protected environments.

The smaller, more incremental changes happen more often but go more unnoticed. The implementation of EDI, the SSCC-barcode and RFID are examples . RFID has been a promising solution and some companies, particularly in fashion are using is more extensively these days. RPA is a technology that we expect to increase gradually over the next few years. More and more companies show serious interest to implement solution starting at smaller scale.

Conclusion: every supply chain is digital, but some are more digital than others

We all use digital tools in our supply chain. Some companies have been able to implement revolutionary tools that changed the business and their position in the industry. Not all of us will be that lucky. The key is to be bold enough to invest and combine failures with smaller improvements and maybe a step change from time to time. This step change could enable the company to change the competitive landscape dramatically.

Auteur: Paul Hehenkamp

Managing consultant supply chain management at RGP

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