Is the Downstream versus the Upstream Digital Supply Chain Being Left Behind?

Stephen DeAngelis

February 5, 2018

The end game for every supply chain is to get something (i.e., a resource, part, product, or service) into the hands of a customer. A typical definition of a supply chain is: “A network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer.”[1] Over the past several decades, the emergence of the Internet and mobile technologies have forced companies to implement digital supply chain strategies for customer-facing (i.e., downstream) supply chains. Not as much attention has been given to supplier-facing (i.e., upstream) supply chains. As a result, Tony Morgan (@tadmorgans), consumer industries chief technology officer for IBM UK, openly wonders, “Is there a risk of the supply chain being left behind?”[2] He explains, “While retailers are developing new ways of engaging with their customers and implementing cutting-edge AI in their distribution centers, supply chain management is often ignored. Supply chain professionals understand the value of their organization’s investments in customer-facing innovation and in automating aspects of the supply chain, but they harbor a nagging fear that the critical area of the business they work in risks being left behind.” He concludes, “As online and store deliveries become increasingly near real time, the need to address this imbalance in focus has never been greater.”

The Digital Age demands a Digital Supply Chain

George W. Prest (@mhi_ceo), Chief Executive Officer of MHI, insists, “Smart, connected operations are the future of supply chains.”[3] The two words to focus on in that statement are “smart” and “connected.” In the context of future supply chains, connectivity means being part of the Internet of Things (IoT), sometimes referred to as the Industrial Internet of Things (IIoT). You have to be connected before you can be smart. Why? The IoT is really an ecosystem involving sensors, connectivity, and analytics. The IoT transmits data generated by sensors to advanced analytic platforms (like cognitive computing systems) and, when action is required, sometimes transmits instructions back automated machinery. Without connectivity and the data it transmits there is no “smart” operation.

The IoT, however, is still under development. Prest reports, “According to preliminary results from the survey MHI and Deloitte is conducting for the 2018 MHI Annual Industry Report, 60 percent of respondents say that IIoT is creating a competitive advantage and disrupting supply chains. Of the 80 percent that say these solutions will be part of their supply chains in five years, only 20 percent say they are utilizing them today. These early adopters are successfully combining technologies to improve speed and agility and increase efficiency and visibility.”

When pundits talk or write about the need for digital supply chains, terms like “agility,” “efficiency,” and “visibility” are often used. For example, Cliff Henson, Senior Vice President of Global Supply Chain at Hewlett Packard Enterprise, writes, “Supply chains are facing the perfect storm of disruption — from radical transformations of industry to disasters like the extreme weather events recently felt across the world. For large and complex supply chains like HPE, digital technologies offer an opportunity to predict and manage this risk by future-proofing operations with increased visibility, agility and efficiency.”[4] Clearly, Prest and Henson believe improving visibility, efficiency, and agility requires leveraging smart, digital technologies

Future Proofing the Supply Chain means getting Smart

As I noted earlier, the digital supply chain involves an ecosystem of sensors, the IoT, and advanced analytics. You can’t isolate those components and achieve the same benefits. Normally, however, when people talk about smart machines they are referring to machines connected to an artificial intelligence (AI) platform (e.g., a cognitive computing platform). Amy Drew Thompson writes, “The machines that move material and product along supply chains are getting smarter — increasing efficiency, eliminating monotony and collecting mountains of useful data.”[5]

As Morgan noted, downstream supply chains have been making leveraging data for some time. He writes, “Machine learning is already driving customer insight and engagement solutions. The same technology should be applied to the key challenges faced by buyers, merchandisers and logistics teams. It can continuously improve supply chain operations by analyzing information from multiple internal and external sources, identifying trends and patterns in data, and flagging issues. Increased investment and adoption of AI enables a more intelligent, demand-sensitive and customer-centric supply chain.” Analyzed data is what makes a digital supply chain smart.

Most analysts agree companies organized around Industrial Age principles need to transform in order to succeed in the Digital Age. Nate Anderson, a partner at Bain & Company, writes, “Many [business executives] understand that to be competitive five to 10 years from now, they need to start building their digital capabilities today. They also know that investing in digital operations is no longer just about improving efficiency. Big Data, advanced analytics and connected hardware are powerful tools that can change a company’s strategic direction and create new sources of competitive advantage.”[6] Creating a digital supply chain is just a part of overall digital enterprise transformation. Anderson suggests five things companies can do to create a digital supply chain. They are:

1. Give operations executives a bigger role in setting strategy. “In a digital world, operations executives are increasingly responsible for helping develop the company’s strategy, not just implementing it. Digital has unlocked a new set of capabilities that companies can use to out-maneuver the competition.”

2. Take the first steps. “Identify a few digital trends that matter most to operations, and determine a strategy that positions the company to win. Use the company’s digital vision as a guide to ask the question: Does this investment or decision move us toward that vision?”

3. Set ambitious targets. “In addition to continuous 1% to 2% efficiency gains per year, aim for much larger gains on the order of 10% to 15% (or more) in three years. This kind of performance leap requires a new mindset within operations. … The only way to achieve that ambitious leap was to invest heavily in digital technologies.”

4. Invest in capabilities. “Digital leaders start early, investing in the skills and expertise. They look for opportunities to build competence in areas such as automation, predictive maintenance and the Internet of Things (IoT).”

5. Add Non-operations Members to the Team. “Cross-functional teams that include both doers and dreamers are best able to design an investment strategy for digital operations. Their different perspectives are vital to understanding where the business is going, how customer needs are changing, how competitors are likely to evolve and new business models that may emerge.”

Anderson concludes, “Digital technologies are likely to create new winners and losers at a pace industries have not experienced in the past.”

Summary

Anderson asserts, “Companies that identify the digital trends affecting their industry and customers now and that begin experimenting will be best placed to navigate the changes ahead.” Both upstream and downstream supply chains need to be included in any digital supply chain transformation. Anderson adds, “Successful companies recognize that while it’s impossible to predict the future, delaying an investment in digital operations can make them vulnerable.” No company wants to find itself tossed into history’s dustbin. That’s why digital transformation is an imperative for most businesses.

Footnotes
[1] Staff, “Supply Chain,” Investopedia.
[2] Tony Morgan, “Is there a risk of the supply chain being left behind?RetailWeek, 20 December 2017.
[3] George W. Prest, “Smart, Connected Operations are the Future of Supply Chains,” MHI, 11 December 2017.
[4] Cliff Henson, “4 Ways to Future-Proof Your Supply Chain,” Longitudes, 13 November 2017.
[5] Amy Drew Thompson, “Real Genius: The Machines Are Getting Smarter,” MHI Solutions, 11 December 2017.
[6] Nate Anderson, “How to Digitalize Your Supply Chain in 5 Steps,” IndustryWeek, 20 October 2017.