Is the Digital Supply Chain the New Reality?

Stephen DeAngelis

July 19, 2017

Companies taking a wait-and-see approach to digitizing their supply chain shouldn’t wait very long according to George W. Prest (@mhi_ceo), CEO of MHI. He claims the digital supply chain is already the new reality. “Consumers are driving this trend as they demand more buying options and faster service from supply chains that are always-on,” he writes. “Sensors that enable the collection of massive amounts of supply chain data, coupled with automation, cloud computing and predictive analytics are creating continuously operating supply chains that are more efficient and more cost-effective than traditional models.”[1] Prest draws his conclusion from the 2017 MHI Annual Industry Report, “Next-Generation Supply Chains: Digital, On-Demand and Always-On, which found “80 percent of survey respondents believe digital supply chains will be the predominant model within five years. Sixteen percent say they already are.”

 

Digital Transformation is an Imperative

 

Robert Handfield (@Robhandfield), Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University and Director of the Supply Chain Resource Cooperative, believes companies may have a little more time to transform their supply chains. He explains, “Scenarios are being painted of computers operating in a real-time environment, using blockchain to process transactions, relying on Internet of Things to order goods and services, which are delivered by drones to consumers’ homes. The reality of this scenario is far-fetched indeed, primarily because futurists are dramatically underestimating the degree to which people organizations must change to deal with these technologies.”[2] Although he calls digital supply chain scenarios “far-fetched,” Handfield nevertheless believes digitization is an imperative. It’s the timing he questions. He quotes Bill Gates who once stated, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” I suspect Handfield would extend Prest’s five-year deadline for digital transformation to ten years.

 

Although the horizon for a fully digitized supply chain ecosystem may still be in the distance, I wouldn’t wait too long to get started. Prest agrees. “If you have not done so already,” he writes, “the time to jump into this new digital reality is now.” Handfield also agrees that starting now is an imperative. “These insights,” he writes, “suggest that change management is not just [an] option, but truly [an] imperative in a period when so many new technologies are coming on-line. Waiting for something to happen will be result in failure to adapt, and ultimately, to extinction.” Mark Barry adds, “The reality that supply chain managers must deal with is simple — connected customers demand the ability to order from anywhere, fulfill from anywhere, and return to anywhere. To meet these demands, supply chain managers can’t persist with existing processes and technology. If you want to achieve profitable supply chain execution, you have to take the necessary steps toward building a cloud-ready supply chain.”[3] He continues:

“The rapid pace of the omni-channel eCommerce world is shedding light on issues with paper-based workflow and process modeling. These issues include:

  • Disconnected systems along the supply chain
  • Inaccurate (or outdated) information at various stages
  • Hours of time wasted on data entry
  • Resources wasted on counting inventory for paper-based records
  • Lack of business intelligence regarding inventory levels

These challenges are driving companies to focus on optimizing supply chain cost and profit to become more event- and customer-driven.”

Alexa Cheater (@Alexa_Cheater), Marketing Content Manager at Kinaxis, concludes, “You must ACT (aspire, challenge, transform) now if you want to have any hope in taking your supply chain profitably into the future.”[5] Like Handfield, she believes the digital enterprise is not quite here but it is coming soon. “Another aspect to envisioning the future, she writes, “is recognizing the impact digital capabilities have on the supply chain. They’re finally starting to deliver real business value. While artificial intelligence (AI) has been around for years, [Gartner Vice Presidents, Debra Hofman and Michael Burkett,] say it’s only now that it’s approaching a stage that will disrupt supply chains as we know them. Advanced algorithms, machine learning, big data, deep learning, neural networks, natural language — all are coming into play in creating a dynamic and self-adapting supply chain that functions much like the human brain. This reality is a lot closer than you may think.”

 

Digitization and Cognitive Computing

 

Steven Banker (@steve_scm), Service Director for Supply Chain Management at ARC Advisory Group, notes, “We are moving from the buzzword ‘Internet of Things’ (IoT) to the term ‘digitization.’ As a supply chain professional, the digitization I’m most interested in is the ‘digital supply chain.’ The concept of the digital supply chain encompasses IoT, but also includes the idea that sensor data needs to be leveraged in applications that take that sensor data, turn it into actionable tasks that are embedded in the right process step that can be executed by the right person.”[3] As President and CEO of a cognitive computing firm, it should come as no surprise that I believe cognitive computing platforms will be the foundation upon which digital supply chains will be built. Cognitive computing platforms can gather and analyze both structured and unstructured data (in real-time if necessary) and provide actionable insights for decision makers. When applicable, cognitive computing platforms can also make autonomous decisions and/or manage automated processes. Cognitive platforms also learn as they go (meaning they get better over time). Banker believes “we are only scratching the surface of what is possible with a digital supply chain.” He goes on to note that the concept is not new. He quotes a statement Bill Gates (@BillGates) made back in 2000:

“As I was considering these issues … a new concept popped into my head: ‘the digital nervous system’ … A digital nervous system consists of the digital processes that enable a company to perceive and react to its environment, to sense competitor challenges and customer needs, and to organize timely responses.”

Banker adds, “A nervous system can take our sensory inputs – sight, sound, touch, taste, and smell – and a person can react either instantly or more thoughtfully to what is happening around them.” In the past, I have also used this biological analogy.[6] As I see it, the IoT forms the nervous system and cognitive computing provides the brains. The organs and appendages are business operations and processes. Cheater concludes, “Your digital platform needs to encompass customers, ecosystems, connected devices, intelligence and IT systems. It has to lead to the creation and alignment of your company’s digital path.”

 

Summary

 

Peter Sondergaard (@PeterSonderg), senior vice president and global head of research at Gartner, told participants at a 2017 conference, “Digital technology is reshaping the supply chain. The CSCO of the past was most concerned with enterprise resource planning (ERP) implementations and master data management. Now, supply design and supply chain analytics are in the top five priorities for leading enterprises.”[6] Fully mature digital supply chains may not yet be a reality, but they soon will be. Companies need to start NOW on their transformation journey if they are not already are course to embrace the digital supply chain.

 

Footnotes
[1] George W. Prest, “Digital, Always-on Supply Chains are the New Reality,” MHI, 13 June 2017.
[2] Robert Handfield, “The Digital Supply Chain Will Change Everything… Ask Gary Kasparov!Supply Chain View from the Field, 21 June 2017.
[3] Mark Barry, “The First Step to Building a Cloud-Ready Supply Chain,” Business2Community, 1 June 2017.
[4] Alexa Cheater, “ACT now to take your supply chain into the future,” 21st Century Supply Chain Blog, 25 May 2017.
[5] Steve Banker, “Bill Gates and Digitization: Ahead of the Curve Yet Again,” Forbes, 25 June 2017.
[6] Stephen DeAngelis, “The Internet of Things: Giving the World a Nervous System,” Enterra Insights, 18 November 2015.
[7] Gartner, “Digital business means big changes for Supply Chains,” The Resilience Post, 24 June 2017.