Digitalization and the Ever-changing Supply Chain

Stephen DeAngelis

September 19, 2017

One hears and reads so much about the digital supply chain and digital transformation you might erroneously conclude they are mature concepts. Roberto Michel writes, “Discussed under … terms like digitalization or Industry 4.0, digital supply chain management spans multiple technologies and includes its fair share of buzzwords — but there is evidence it’s more than hype.”[1] He goes on to note that the digital supply chain is seen as the future but that progress towards achieving it has been halting. He explains:

“According to MHI’s 2017 annual survey on next generation supply chains, 80% of respondents believe that the digital supply chain will be the predominate model within the next five years — with just 16% saying it’s happening today. Similarly, a 2016 survey from Capgemini found that 50% of those surveyed see ‘digital transformation’ as ‘very important,’ yet only 5% were very satisfied with their progress toward it. Clearly, digitalization will change supply chains, but our understanding of how it will play out is a work in progress.”

It’s fair to say the supply chain is in state a state of flux. If your company is waiting to digitalize its operations until things settle down, it’s in for a long wait. Hailey Lynne McKeefry (@HaileyMcK) explains, “The digital age is upon us — and how organizations manage the transition to leveraging data more holistically will decide supply chain success and defeat. In fact, the only thing that will be constant is change.”[2] A white paper published by IDC, titled White Paper Digital Transformation Drives Supply Chain Restructuring Imperative, provides more evidence that waiting to digitalize is a bad idea. Why? Because your competitors aren’t waiting and “there’s every reason to believe that this pace of change will accelerate and that the supply chain of the future will be in a constant state of flux.”[3]

The Digital Supply Chain Imperative

If McKeefry and other like-minded analysts are correct about the importance of digital transformation, companies can’t afford to be laggards in adopting an effective transformation strategy. Jason Rosing (@JasonRosing), founding partner of Veridian, reminds us that digital processes are not new. “Most supply chains have been involved in digital processes for years,” he writes. “But the digital supply chain relies on the actions of supply chain managers for continued growth.”[4] Logically, a supply chain in constant flux is going to require continuous adjustments by supply chain professionals. The reason digital transformation is an imperative is because technologies are changing rapidly. Maintaining the status quo means your company is falling behind. Rosing bluntly states, “The digital supply chain is growing at a remarkable pace. How companies respond will determine its success in the coming years, and companies that do not successfully navigate these new waters in supply chain management technology will face the possibility of oblivion and competition problems.” McKeefry notes the IDC study identified five stages of maturity for the digital supply chain. They are:

1. Ad hoc. “This stage is characterized by poorly defined goals that sometimes lead to chaos. Movement and change come from individuals, and the positive results are often siloed within the organization. Business goals and IT digital initiatives are not effectively paired for best results and the needs/wants of the customer are neglected.”

2. Opportunistic. “In this stage, the company has captured basic capabilities, and there are processes in place to achieve repeatability on an ongoing basis. However, these organizations are not leaders but instead lag in efforts to develop a comprehensive strategy and execute across the entire organization. Progress tends to be unpredictable.”

3. Repeatable. “The organization has clearly aligned business and IT goals for the near term at the enterprise level. ‘Digital initiatives for product or service delivery and customer experiences but are not yet focused on their disruptive potential,’ the report said. At this stage, the organization has documented, standardized, and integrated capabilities at the business level. These organizations tend to be on par with competitors.”

4. Managed. “An agile management vision combined with embedded digital transformation capabilities are tightly linked at this stage. These business leaders deliver integrated and synergistic business-IT disciplines in order to continuously deliver digitally enabled products and services.”

5. Optimized. “At the most mature level, organizations are affecting markets by using new digital technologies and business markets. A continuous feedback loop has been created to ensure improvement and innovation. Leaders in these organizations encourage risk taking and experimentation in pursuit of innovation.”

One of the technologies assisting companies to increase their stage of maturity is cognitive computing. A cognitive computing platform can gather, integrate, and analyze both structured and unstructured data, which is essential in today’s digital age. It can provide decision makers with actionable insights that will keep them ahead of their competition. A cognitive computing platform can also be programmed to make autonomous decisions and/or automate processes — essential capabilities in today’s fast-paced business environment. David Simchi-Levi (@davidsimchilevi), Professor of Engineering Systems at MIT, observes, “High-tech businesses have spent the last decade implementing systems, processes and data-gathering capabilities to improve their supply chain operations. Within the past 12 months, we’ve seen renewed commitment to continue this quest. In my research, 60 percent of the Global 1000 have recently announced initiatives to reduce costs, with a big focus on supply chain efficiency. How will they do that? By using even more data, applying more advanced analytics and automating more processes.”[5] A cognitive computing platform is ideal for leveraging advanced analytics and automating processes. Simchi-Levi continues:

“It starts with data: quality data, fast data, data from all nodes and even data from points between nodes (from sensors on trucks and train cars, for example). Then, by applying mathematical models and analytics tools — including algorithms that can learn and improve over time — high-tech companies and their logistics partners can glean more insights to better manage risk and leverage opportunities to deliver customer value through flexible operations. … High-tech companies and their logistics suppliers are particularly obsessive about using analytics, both predictive and prescriptive, to improve the last mile of delivery. Using both types of analytics, businesses are optimizing assortment, pricing and transportation flexibility by offering multiple ways to fulfill orders, wherever they are made, in whatever numbers.”

Simchi-Levi goes on to note there is more that can be done given the right data and the right analytics platform.

Summary

The IDC study concludes, “Digital transformation is moving fast, and the time to understand its implications for the supply chain is now.” Companies that leverage a cognitive computing system will find they are better prepared to meet future challenges. If, as the IDC concludes, supply chains will remain in constant flux, digital supply chains must be built upon a foundation that is both adaptable and learns as it works. Cognitive computing fits the bill.

Footnotes
[1] Roberto Michel, “The Evolution of the Digital Supply Chain,” Logistics Management, 3 May 2017.
[2] Hailey Lynne McKeefry, “The Supply Chain Digital Age Requires New Restructuring Initiatives,” Supply Chain 24/7, 12 August 2017.
[3] OpenText, “Digital Transformation Drives Supply Chain Restructuring Imperative,” Supply Chain 24/7, 3 May 2017.
[4] Jason Rosing, “The Digital Supply Chain: How Are Supply Chain Managers Responding?” Cerasis, 25 July 2017.
[5] David Andries and David Simchi-Levi, “How Analytics is Changing High-Tech Supply Chains,” Longitudes, 20 August 2017.