Digital Supply Chain Transformation: Are You Ready?

Stephen DeAngelis

April 11, 2016

Research conducted by Source for Consulting in partnership with business applications and service provider Advanced revealed, “Just 37 per cent of supply chain executives are using analytics technology to assist in operational decision-making.”[1] That’s surprising considering most pundits believe digitization (i.e., the utilization of big data, artificial intelligence, and advanced analytics) is a business imperative. “In order for a company to compete in the growing digital economy,” writes Brian Taylor (@BrianB2BCopy), “it has to become a digital enterprise.”[2] Jessica Twentyman (@jtwentyman) adds, “Organizations have little choice but to overthrow their traditional business models as digital technologies sweep through their industry.”[3] There is no better place to begin the transformation into a digital enterprise than the supply chain. David P. Storch, Chairman, President and CEO of AAR Corp., writes, “Global supply chain leaders in every industry are embracing digital practices that are setting new standards — and leaving companies with traditional supply chains in the dust. This new digital supply chain is opening a world of opportunities for a range of businesses with increased visibility and control, allowing them to be more flexible, responsive and efficient than ever before.”[3] Lora Cecere (@lcecere), founder of Supply Chain Insights, isn’t fond of the term “digital supply chain”. “I hate buzzwords and try to sidestep hype,” she writes. “Digital supply chain is such a buzzword.”[4] Nevertheless, she encourages business executives to embrace the digitization. She explains:

“Five years ago the buzz in marketing was rampant. The talk was all about digital marketing. Today marketing is just marketing. The term digital was dropped. The reason? Digital media and technologies were quickly absorbed into marketing processes and redefined the norm. Few companies speak of digital marketing now: it is just assumed. In supply chain, leaders are just starting to think about digital. A frequent question from my clients is, ‘What is a digital supply chain process?’ My answer is that a digital supply chain process uses new technologies to define processes to sense, respond and orchestrate bidirectionally from market to market (from the channel to supplier networks). The processes move at the cadence of the market. This is a very different definition than the traditional supply chain practices that are often touted as ‘best practices.’ Supply chain practices are almost 35 years old, and they are slow to change.”

Cecere is correct in pointing out that a transformation is only complete when modifiers used to describe it are dropped. At some point in the future, “digital” will be dropped from terms like supply chain or value chain or value network. The fact that pundits still write about “digital” supply chains underscores the fact that companies are still transforming and have a ways to go. The news isn’t all bad. Donna Fritz, Vice President of Marketing and Product Management for TAKE Supply Chain, writes, “The emergence of supply chain collaboration, big data, and green/sustainable supply chains has generated a lot of ink over the past few years. Despite all the buzz, only recently has there been actual movement at the business level. Due to advances in software architecture, data management, and solution delivery, these concepts are now being transformed into real-world applications, which in turn deliver tangible results.”[5] Let me provide a concrete example of how “going digital” can help improve operational decision making. One challenge all suppliers face is retailer chargebacks. Retailer chargebacks are not new, but they do represent an ongoing challenge to profitability. The best description of the challenge I have come across was written over a dozen years ago by Anne Zeiger.[6] She writes:

“There’s no doubt about it: manufacturers who fail to meet a retailer’s vendor standards can get into financial trouble. After all, shave off $20 here for a short lot, $5 there for a cracked pallet and $10 over here for a mangled shipping label, and before long, it can run into real money. Manufacturers, consultants and trade groups supplying retail businesses are up at arms over these chargebacks, arguing that their profits are being slashed unmercifully — and sometimes unfairly — by retailers claiming noncompliance. In some cases, they say, the requirements are petty, arbitrary or even illogical. What’s more, retailers may change the standards regularly, making it difficult to keep up with what’s required. ‘Even though retailers will swear to you that chargebacks aren’t a profit center, the candid opinion in the industry is that retailers intentionally make compliance difficult to make it a profit center,’ says Norman Katz, CEO of vendor-compliance consulting firm KatzScan Inc., of Deerfield Beach, Fla.”

Zeiger hits the nail on the head when she notes that “requirements are petty, arbitrary or even illogical” and that “retailers may change the standards regularly, making it difficult to keep up with what’s required.” She later adds:

“Simply keeping up with standards changes, much less meeting the standards consistently, can be difficult, Katz says. ‘There’s no standard for vendor compliance manuals,’ he notes. ‘Everybody is presenting this in a different way, from one retailer to another. It’s a very painstaking, time-consuming process to understand what changes.'”

Enterra Solutions® tackled the chargeback challenge for Conair®. We developed a solution that continuously monitors retailer websites for updates, imports updates into the system, and applies analytics to the order fulfillment process. The Retailer Compliance Module eases the pain of keeping up with changing compliance requirements. This is important because, as Zeiger notes, “suppliers have little choice but to figure out ways of meeting vendor standards, even if they’re unhappy about them.” Another benefit of “playing the game well,” as Zeiger puts it, is that compliance feedback can be used “to improve its supply practices.” The retailer compliance module saves money, alerts decision makers to potentially costly situations, and helps create dispute packages when retailers have erred in making a chargeback. That kind of support is not the only way supply chains will benefit from digitization. Digitization means different things depending on your industry and your goals. Cecere elaborates:

“Ask yourself, ‘Where is my opportunity? Is my opportunity in the area of digital manufacturing?’ (The use of Internet of Things and 3D Printing to transform manufacturing.) Digital logistics? (The use of GPS, telematics, and cognitive learning to build logistics systems that sense and adapt.) Digital sourcing? (The use of new network technologies to sense and manage supplier relationships to ensure ethical and reliable sourcing.) Digital path to purchase? (The automation of the moments of truth in the buying cycle to decrease demand latency and better sense shopper and consumer demand in real-time.) Start with the goal in mind and focus on the greatest value proposition.”

Process automation is another way digitization is going to transform enterprises in the future. Although robotic process automation is starting to garner more attention, I believe it is only the first step towards cognitive process automation powered by cognitive computing capabilities. David Riffel, Solution Consulting Director at TAKE Supply Chain, observes, “When you think of an automated process, the words agile, flexible or nimble may not be the first words that typically come to mind. Most people think of automated processes as efficient, accurate, or repetitive — but not agile.”[7] Cognitive process automation will change all that since cognitive computing systems learn as they work. Riffel adds, “Today’s best workflow automation tools have the flexibility to be quickly configured with rules and alerts that you choose to match your desired process, so that you are not forced to live within a narrow process dictated by the tool. These rules and alerts can enable your people to only get involved in a process when an exception occurs that requires their attention, but can also keep them out of low-value-add transactional activities that can be completed extremely rapidly without their involvement.”

If you are just starting down the transformation path, Cecere’s questions are a good place to start the process. The digital economy is racing towards us and only digital enterprises will survive the initial impact.

Footnotes
[1] “Analytics Technology Massively Underused In Supply Chain Operations,” European Supermarket Magazine, 30 January 2016.
[2] Brian Taylor, “The digital economy will steamroll your business if you don’t adapt,” TechRepublic, 2 March 2016.
[3] David P. Storch, “On the Flight Path to Tomorrow’s Digital Supply Chain,”Huffington Post The Blog, 10 December 2015.
[4] Lora Cecere, “Embracing the Digital Supply Chain,” Supply Chain Shaman, 16 February 2016.
[5] Donna Fritz, “3 Keys to Successful Supply Chain: Collaboration, Big Data & Sustainability,” EBN, 1 October 2014.
[6] Anne Zeiger, “Retailer chargebacks: is there an upside? Retailer compliance initiatives can lead to efficiency,” BNET, October 2003.
[7] David Riffel, “Putting the Runaway Train on Rails: Workflow Automation Increases Supply Chain Agility & Efficiency,” EBN, 26 August 2015.