Supply Chain Transformation and Digitization, Part 1

Stephen DeAngelis

October 10, 2016

No shortage exists of pundits who insist corporate supply chains must transform over the coming decade. Although their transformation strategies differ, one thing the pundits have in common is the belief that digitization will play a significant role in that transformation. As a result, supply chain transformation is an important step in the effort to transform industrial era organizations into digital enterprises. John Santagate (@j_santagate), a research manager with IDC Manufacturing Insights, explains, “Digital transformation (DX) is the term that is driving organizations of all sizes to think about how they must evolve in order to compete in a perpetually connected business environment with the constant risk of disruption.”[1] He continues:

“The notion of DX emerged as the hottest topic in industry today due to the maturity of digital technologies, and the way in which modern digital technologies are enabling business model and operating model evolution in the effort to better compete in the modern business environment and manage the risk of disruption. Supply chain business leaders must not only be aware of what is happening from a DX perspective, but also be proactively planning a strategy to digitally transform how their supply chain operates.”

Setting the Stage for Supply Chain Transformation

Nicole Pontius, marketing communications manager for Camcode, observes that companies are embracing digitization in order “to capitalize on gains in efficiency offered by automation, greater visibility, the ability to break down data silos, and reduce operational costs.”[2] Even though there is a lot of talk about supply chain transformation (and the role of technology in that transformation), Lora Cecere (@lcecere), founder of Supply Chain Insights, acknowledges the road to transformation won’t be easy. “The level of technology disruption is now so great,” she writes, “that it is about test-and-learn with small, scrappy teams focused on innovation projects. The transformation starts with a clear focus on the business problem. The program is built with the goal in mind. Driving new levels of value will be a fight. Tradition is deeply rooted. The change in front of us will transform the base-level definitions of source, make and deliver. … The biggest obstacles to powering improvement/performance are traditional supply chain thinking, the lack of organizational alignment and a focus on functional excellence. These are tough to overcome.”[3] I was pleased to note that Cecere included my company, Enterra Solutions®, in her article as one of the “scrappy best-of-breed companies” positioned to help companies transform into digital enterprises.

The Leadership Imperative

Whenever changes are made to time-worn practices resistance follows. As a result, strong leadership is required to ensure the changes succeed. According to Sead Fadilpašić, supply chain transformation may require highly-skilled change managers because “more than a third of supply chain executives think they are leading change while employees think differently.”[4] He explains, “Digital transformation is … reshaping supply chain organisations, but there’s a certain disconnect between executives and employees in how they perceive this change. According to a new report by Gartner, 36 per cent of supply chain executives believe they’re ready for the challenge of leading employees through change. On the other hand, just 13 per cent of employees think they’re ready for the same undertaking.” Cecere believes leaders must be bold. She writes, “Leaders will take a different path. They will challenge commonly accepted best practices and test new technologies.” The bolder the vision the greater the need for leadership. Cecere believes that supply chain transformation will encompass three interrelated activities: Outside-in processes; demand-driven networks; and customer-centric supply chains. The following graphic highlights some of activities involved in each of those areas and how they are interrelated.

Source: Supply Chain Insights

The Cognitive Supply Chain

When it comes to supply chain transformation, Cecere believes the ultimate objective is to develop a “learning supply chain.” She explains, “The use of cognitive learning, coupled with ontologies, will drive new outcomes. The architectures for the rules that we have today — Available to Promise, Allocation, Inventory Matching, Deductions, Hands-Free Orders — are inadequate. Why? Today’s rules are simple — single if(s) to single then scenarios. They are not adaptive. In the learning supply chain, the rules will be more flexible, changing with business (enabling the matching of multiple if statements to many thens).” I prefer the term “cognitive supply chain” because the cognitive supply chain goes beyond learning. Vinodh Swaminathan, KPMG’s Managing Director of Innovation and Enterprise Solutions, explains. “The cognitive systems era, which is the most exciting phase of enterprise transformation in more than a century, is upon us. Cognitive software mimics human activities such as perceiving, inferring, gathering evidence, hypothesizing, and reasoning. And when combined with advanced automation, these systems can be trained to execute judgment-intensive tasks.”[5] Cecere concludes, “The implications of this are tremendous. I think the current solutions for planning will become obsolete within ten years.”

Beyond Efficiency

“In today’s digitally disrupted world,” writes Gary Hanifan (@GHanifan), a managing director at Accenture, “a highly efficient supply chain is no longer enough. Digital customers expect uniquely tailored experiences that are not only delivered on demand, but also customized to their always-evolving preferences and performed at hyper speed.”[6] Hanifan offers three suggestions companies should consider as they plan their transformation strategy:

1. Take Your Digital Investments to the Next Level. “Trendsetters … [prioritize] higher level technologies — such as artificial Intelligence (AI), machine learning and the Internet of Things (IoT) — that provide real-time insights into functions and processes at each level of the supply chain. In fact, digital trendsetters outspend followers on digital 8:1 overall, with almost three times as many trendsetters as followers investing in AI and nearly twice as many investing in the industrial Internet of Things (IIoT). … Valuable, and often immediate, insights from smart technologies allow trendsetting companies to optimize processes across the supply chain and build strong, hyper-flexible experiences for end customers, best positioning them for growth and profitability.”

2. Align Management to Digital Priorities. “As ownership of technology decision-making shifts from the CIO to executives responsible for individual business areas, C-suite executives including chief operating officers (COOs) and chief supply chain officers (CSCOs) will also need to raise their technology games. … To alleviate the obstacles facing digital implementation, companies must rethink their operating model, and take steps to ensure that digital is prioritized in business strategy and implemented across the entire C suite. This requires new areas of focus, additional key performance indicators (KPIs) specific to digital performance that capture market share and more cross-functional governance.”

3. Utilize Digital Investments to Build New Levels of Collaboration. “Trendsetters’ digital ecosystems encompass all stakeholders, including startups, in a fluid and proactively managed network. Trendsetters recognize the risks of data sharing, but they leverage digital to enable safe and easy access to information. They understand the importance of looking beyond their four walls to collaborate, manage risk and create optimal experiences. By engaging proactively across a broad and fluid ecosystem, trendsetters are tapping into partners’ digital strengths and ideas to drive significant innovation.”

Summary

Hanifan notes, “Digital trendsetters are doing digital differently, successfully combining strategic digital investments, clear business objectives and fluid ecosystems to create hyper-flexible, highly collaborative supply chains that enable superior service and profitable growth.” Puneet Saxena, Vice President of Industry Strategies at JDA Software, adds, “The next revolution in supply chain management is upon us. A dramatically empowered customer, a rapidly changing workforce and an unprecedented amount of technological innovation have ushered in an era of tremendous change for both manufacturing and wholesale distribution companies. Manufacturers and distributors that recognize future trends at an early stage, and implement intelligent strategies to capitalize on them, will realize a significant advantage over enterprises that stick to their old ways of doing business.”[7] In Part 2 of this article, I’ll discuss some of the strategies various experts recommend for transforming corporate supply chains.

Footnotes
[1] John Santagate, “Leading Digital Transformation in the Supply Chain,” Supply & Demand Chain Executive, 5 August 2016.
[2] Nicole Pontius, “Transformation via Technology: The Key Drivers of Digital Supply Chain Disruption,” Business.com, 19 August 2016.
[3] Lora Cecere, “Supply Chain 2030: Forge a New Path,” Supply Chain Shaman, 13 September 2016.
[4] Sead Fadilpašić, “Supply chain execs and employees feel differently about digital transformation,” ITProPortal, 1 September 2016.
[5] Vinodh Swaminathan, “Embracing the Cognitive Era,” KPMG, 22 January 2016.
[6] Gary Hanifan, “Digital Trendsetters: Transforming Supply Chains by Doing Digital Differently,” Supply & Demand Chain Executive, 13 September 2016.
[7] Puneet Saxena, “Technology Trends For The Digital Supply Chain,” Manufacturing Business Technology, 26 August 2016.