Get Ready For The Digitization of the Supply Chain
June 18, 2019
Comprehensive supply chain digitization solutions have the potential to optimize product transportation and delivery — but success will come down to the implementation.
The supply chain is facing pressure from all angles. Customers and partners throughout logistics networks are coming to expect real-time visibility and immediate responsiveness at all stages of the process. They want to know temperatures, locations, timestamps, humidity levels, speeds, capacity factors, prices, weights — all in real time. At the same time, companies up and down the supply chain must continue to ensure profitable margins if they are to survive in this demanding ecosystem. The solution — already underway for many forward-thinking companies — is wholesale digitization.
The contemporary conception of supply chain digitization goes far beyond one-off investments, like fleet management or ERP solutions. True digitization, as it’s currently conceived, will require extensive, data-rich deployments for a comprehensive overhaul of the underlying organizational infrastructure on which the supply chain operates. McKinsey calls it Supply Chain 4.0: a near future wherein the Internet of Things (IoT), advanced robotics, analytics, and next-generation software solutions combine to dramatically reshape the exceedingly complex journey of the global economy’s physical product.
The Supply Chain: A Brief History
Supply chain management mainly refers to the orchestration of how products move from materials extraction and manufacture to storage, transportation, and delivery. Supply chain strategies have always sought to extract a profit from this complex, dynamic process, where margins for success can be razor-thin. Over the past decades, and especially with the rise of globalization, new and significant industry challenges have arisen.
The supply chain in the 1950s was focused on logistics — in particular, standardization and mechanization. After the first use of computer systems in the 1970s and 1980s, and as supply chain management became a key area of investment, the 1990s and 2000s saw the rise of ERP software solutions. As the pressure continued to increase, companies tried new logistical strategies, like cost-cutting and “just-in-time” distribution. In an era of globalization, complex shipping processes, and rising customer expectations, it became increasingly clear that companies would have to continually step up their game if they hoped to stay afloat. The next step? Supply chain digitization.
Today’s Supply Chain Challenges
Businesses with a hand in supply chain management continue to face an uphill battle. In some cases, digitization could pose a solution to these issues, while in other cases, incomplete or partial digitization could give rise to additional issues. A basic ERP program or a few sensors won’t add much value. It will require the right kind of digital investments to answer these challenges:
Standardization: It’s not unusual for companies to deal with different standards, practices, and terminology while doing business. It can be a major challenge to operate across regions, across the globe, or across vendors, customers, and partners. Typically the answer to this is more manual effort to fill in the gaps. Of course, with the sheer volume of today’s data and transactions, this isn’t a feasible solution — attempting to work across disparate systems or data formats is likely to result in misunderstandings and errors.
Visibility: A lack of visibility or even delayed visibility into supply chain operations can negatively impact logistical success. As customers and stakeholders come to expect instantaneous updates, too many parts of the supply chain remain in the dark. At the same time, while software solutions have helped to streamline the process, many leave data siloed by department, function, or company, without allowing true intra-departmental integration that could keep data consistently visible and usable.
Complexity. The supply chain is undoubtedly complex, with multiple relationships between various supply chain trading partners. It takes a great deal of coordination and management to move products through the supply chain, meet objectives, and turn a profit. Manual processes are insufficient for managing so many moving parts, and only the right kind of digitization has the potential for streamlining the process while ensuring accuracy.
For decades, stakeholders have progressively applied some form of digital technology to supply chain management. But not all businesses are up to date in their processes. Only more recently has the reality of a fully integrated, tightly synchronized digital supply chain become more widely attainable. Now, the race for digitization is on — a Future of Supply Chain survey from SCM World showed that 67% of companies surveyed considered the digital supply chain “disruptive and important” for the future of their business.
For companies facing the above challenges, successful digitization primarily relies on one thing: data. Digital solutions are all about collecting enough data — and the right data — to enable better decision making. While producing and aggregating data have become easier than ever, a truly digitized supply chain will be able to leverage that information in combination with IoT devices, legacy systems, and emerging software solutions to enable real-time action. It takes the right technologies to build the foundation for an effective data-rich digital supply chain and offer the end-to-end supply chain visibility that companies need.
Supply Chain 4.0: A Digital Future
McKinsey predicts that Supply Chain 4.0 will have a significant impact over the next few years, to the tune of 30% lower operational costs, 75% fewer lost sales, and far greater agility. In the near future, companies that currently rely on manual processes, physical paperwork, and siloed ERP software will switch over. More and more businesses will deploy digital technologies to keep up with the competition and better integrate with their partners. But what does it take to achieve this full visibility?
The digital future of supply chains relies on thousands of IoT devices, generating data that must be aggregated, processed, and visualized. Software platforms capable of integrating and standardizing multiple data sources are desperately needed. Stakeholders will need to establish a common operational picture to maintain flexibility. More than any hardware solution, or any specific software solution, the digital supply chain will be enabled by the strategic manipulation of disparate data sources.