Supply Chain 4.0: The Supply Chain of the Future

Stephen DeAngelis

February 26, 2019

Industry 4.0, the name given to the Fourth Industrial Revolution involving robotics and artificial intelligence (AI), must be supported by Supply Chain 4.0. But what does Supply Chain 4.0 involve? The fact we live in the digital age should provide the biggest clue. Jennifer Overstreet, Director of Digital Content at the National Retail Federation, reports Li & Fung, CEO Spencer Fung, told participants at a 2018 NRF conference, “The supply chain will become faster, digital and more innovative. Move now, or get left behind. The retail supply chain ‘has not caught up with the speed that the world is moving at,’ Fung said. He pointed out a glaring gap: Consumers are fully digital, while the supply chain is mostly analog. That means consumer preferences change every hour, yet retailers make purchasing decisions almost a year in advance.”[1] In other words, the whole world is adapting to the digital age and supply chains must follow. Analysts at Thomas agree with Fung that supply chain processes are lagging behind other business areas. “Although the world of industry and manufacturing is in the midst of a digital revolution,” they write, “the supply chain sphere is lagging behind. Supply chain 4.0 is on the tips of people’s tongues, but all that talk hasn’t yet translated into real action.”[2]

 

Supply Chain 4.0 and digital transformation

 

If you’re unclear what Supply Chain 4.0 and digital transformation is all about, you’re not alone. Rahul Asthana, senior principal software engineer at Oracle, writes, “Have you ever heard someone tell a joke where everyone laughed except for you — because you didn’t get it? That’s how I felt when I first heard about digital transformation. Everyone seemed to know what it was. Everyone was excited about it. In supply chain management, it was all anyone could talk about. … And yet, when I first heard the term, I wasn’t even sure what it meant.”[2] He adds, “The Holy Grail of supply chain management is to, as efficiently as possible, exactly match supply to real demand wherever it occurs. If digital transformation is to ‘transform’ supply chain management, then it must do so in a way that significantly improves this primary objective.” The staff at Manufacturing & Logistics IT agree with Asthana about the objectives of digital transformation; but, they go on to note successful digital transformation can do even more. They explain, “Aside from quickening response times and actions, enhancing visibility across the supply chain, improving efficiency and pin-pointing problems in the supply chain, a successful digital network results in increased data-based decision making within the company.”[4]

 

More efficient and timely processes and better decision-making rely on leveraging the lifeblood of the digital age — data. The Manufacturing & Logistics IT analysts note, “Acting on better and more accurate data, management and personnel are able to ensure that the most appropriate decisions and actions are being taken. … Adapting traditional supply chain structures and strategy to use data more impactfully within an organization is one of the biggest challenges for business moving forward.” But digital transformation requires more than simply gathering and analyzing data. Thomas analysts explain, “Supply chain 4.0 has forward-thinking companies using new technologies cross-functionally to crunch data and identify trends, potential issues, and opportunities across many systems at once. This integrative approach aims to bridge the silos between various applications and technologies in order to get a wider view of internal and external data.” Anyone who has ever tried to integrate large amounts of data across a global enterprise knows it’s a daunting undertaking. Fortunately, technology can help.

 

Supply Chain 4.0 technologies

 

Mike Mortson (@mmortson), CEO of Mortson Enterprises Inc., notes, “The technologies that we are familiar with today, whether they are already in use in our companies, aspirational capabilities or part of some far reaching strategy, provide the platform for the Supply Chain of the future.”[5] He goes on to list many of the technologies supporting Supply Chain 4.0. They are:

 

  • The Internet of Things (IoT)
  • End-to-End Digital Connectivity
  • Cloud Computing
  • Blockchain
  • Big Data
  • Artificial Intelligence
  • Predictive Analytics
  • Machine Learning
  • Virtual Reality
  • Augmented Reality
  • Voice Activated Technology
  • Wearable Devices
  • Robotics
  • 3D Printing and On Demand, Additive Manufacturing
  • Cyber Security
  • Autonomous Vehicles
  • Drones
  • Software as a Service (SaaS)
  • and much more

 

Mortson concludes, “This is a lot of technological capability at hand, with much more yet to be invented and introduced to the world.”

 

Putting Supply Chain 4.0 technologies to work

 

Just as data is not gathered for the sake of having it on hand, technology is not purchased just because it’s the latest novelty. A business case must be made for every byte of data collected and stored and every piece of software or hardware purchased. Manufacturing & Logistics IT analysts, like many others, believe making a business case isn’t difficult. “Automating formerly manual processes and transactions,” they explain, “leads to much greater efficiency, a redistribution of personnel within the supply chain to more specialized roles and an overall reduction in time delays.” Where should you look to find greater efficiencies? According to Mortson, you don’t have to look very hard, “Think about how much duplicate data entry occurs within a company to record various pieces of materials and product information,” he writes. “Now consider that this same data entry occurs between all suppliers, customers and logistics carriers. And consider forecast data, planning parameters, cost and price information, materials details and specifications, purchase orders (and all of the accompanying changes and updates), bills of lading, labels, inventory records, and much more. All of this information is entered into systems and spreadsheets across every link in a given Supply Chain. Some of it is automatically done but much of it is manually entered. And the exact same data is entered into different systems and on to different spreadsheets multiple times. What a waste!” According to the Boston Consulting Group, companies on the leading edge of leveraging Supply Chain 4.0 technologies are seeing a range of benefits.[6] They include:

 

  • Increased product availability of up to 10 percentage points
  • More than 25% faster response times to changes in market demand
  • 30% better realization of working-capital reductions
  • 40% to 110% higher operating margins
  • 17% to 64% fewer cash conversion days

 

Concluding thoughts

 

Asthana concludes, “The history of supply chain management, has always been about information — getting more of it, managing it better and building new capabilities with it. … Emerging technologies are enabling both new sources of data (from IoT and blockchain) and insights (from AI and ML) to close information gaps and better match supply to demand and, in the process, transform supply chain management.” Manufacturing & Logistics IT analysts caution that digital transformation is difficult because of “the complexity of a fully established digital supply chain.” Nevertheless, they add, “When properly incorporated into the business, the opportunities afforded from digital transformation are massive. In addition, it appears that in acting as the ‘central thread’ running throughout an organization’s operation, supply chains are increasingly at the heart of digital change.” In other words, Industry 4.0 is dependent on achieving Supply Chain 4.0.

 

Footnotes
[1] Jennifer Overstreet, “The supply chain of the future,” National Retail Federation, 5 February 2018.
[2] Staff, “The Basics of Supply Chain 4.0,” Thomas, 3 December 2018.
[3] Rahul Asthana, “Making Sense of Supply Chain 4.0,” Material Handling & Logistics, 2 November 2018.
[4] Staff, “The Supply Chain of the Future,” Manufacturing & Logistics IT, 16 January 2019.
[5] Mike Mortson, “Imagining the Supply Chain of the Future!Supply Chain Game Changer, 22 January 2019.
[6] Thomas, op. cit.