Global supply chains are going through their most disruptive period in recent memory. This has changed the focus of supply chain conversations from cost reduction to resilience and agility. Executives have realized that building agile, resilient supply chains requires a “digital-first” approach, and next-generation supply chain technology is certainly promising a positive step change. As a result, many corporations are embarking on digital supply chain transformations.
We have found that to truly enable an effective supply chain step change, a digital transformation must address five foundational areas. Each is a crucial pillar in a resilient supply chain, so a narrower approach is unlikely to have a significant impact. Let us take a deeper look at these areas.
- Overhaul Data Architecture and Incorporate Unstructured Data
The paradigm of exclusively using internal, neatly structured data to making supply chain decisions and forecasts is no longer best practice. This is because many external, unstructured data sources such as social media trends and weather now have an outsized impact on demand and supply.
Hence, overhauling the architecture to create a true enterprise-wide data lake is now a foundational enabler. The impact of such an overhaul is routinely underestimated. We’ve seen it unlock a whole new set of digital tools, mainly big data analytics tools using AI and ML, which can then have a truly transformative impact. Conversely, deploying next-generation technology without resolving underlying data issues can undermine the entire investment.
Even simpler changes than a data lake can have a huge impact. For example, simply standardizing the format of master data such as SKU names can create a new level of transparency and enable a step-change in inventory management.
- Maximize Visibility Within the Enterprise
The immediate impact from unlocking data silos can be felt in the form of visibility. Increased visibility has the effect of doubling inventory levels, without adding any of the costs. For example, if a factory runs out of a small spare part that is needed, such as a belt, it has to spot-buy at a premium —or worse, interrupt production. Simultaneously, another factory nearby in a sister business unit may be sitting on an inventory of that same belt, the only problem being a lack of visibility across the BUs.
[box type=”info” align=”” class=”” width=””]In the wake of recent disruptions, visibility has become a crucial aspect of supply chain transformation projects. When trying to build supply chain resilience and agility, increased visibility is a low-cost alternative to raising physical inventory levels at each factory.[/box]
- Enable Holistic Collaboration Across the Extended Supply Chain
While visibility builds resilience by harnessing internal resources, collaboration reaches the same outcome by harnessing external resources. Traditionally, technology solutions have offered a limited ability to collaborate along three dimensions:
- Order Collaboration
- Forecast Collaboration
- Inventory Collaboration
However, we’ve often found large corporations are still working with spreadsheets attached to emails to coordinate plans with suppliers. This is because the capability in legacy systems is often limited and not real-time. The latest technology not only provides this real-time ability but also expands the collaboration to an additional three dimensions:
- Capacity Collaboration
- Quality Collaboration
- Master Data Collaboration
The combined effect of real-time collaboration along all these dimensions is truly transformative. Collaboration can drive improvements in a variety of business outcomes, including cost reduction, reliability, and resilience. It’s therefore crucial that a supply chain transformation focuses on driving the next level of supply chain collaboration enabled by the latest technology.
- Incorporate Real-time Demand Sensing in Planning
While supply disruptions like the microchip shortage or the Suez Canal fiasco have grabbed headlines, the demand side has been equally volatile in recent years, especially in the short term. As consumer technology and social media have evolved to influence purchasing behavior, it’s become inevitable that these new unstructured data elements must be factored in to adjust short-term demand plans.
[box type=”success” align=”” class=”” width=””]Traditional monolithic ERPs still work on a concept of periodic planning based on structured data; it’s difficult to add on a demand sensing layer on the fly using new, unstructured data. Emerging next-generation technology now incorporates real-time data flows and demand sensing as part of the base solution, leading to a step-change in short-term forecasting accuracy. A digital transformation must therefore leverage the benefits for these technological improvements.[/box]
- Upskill the Workforce to Maximize Improvements
The above changes are driven by technological advances, but no transformation is complete without addressing the people element. However, this isn’t just about training personnel to use new tools. While that training is needed, it’s crucial to recognize that the above changes represent not incremental updates but true paradigm shifts:
- From structured internal databases to unstructured data lakes spanning organizational boundaries
- From countering volatility with inventory to countering it with visibility
- From zero-sum negotiations with suppliers to collaborations for improved customer outcomes
- From monolithic, periodic planning to real-time, agile sensing and response
These are huge shifts in thinking. Clearly, a true digital transformation will not be successful without a concurrent mindset transformation. This requires experienced practitioners to unlearn their existing best practices and embrace new ones, making this the most important component of training.
A digital supply chain transformation that addresses all of the above will holistically transform a firm’s operations, no matter the industry. We’ve seen significantly improved outcomes even in sectors like insurance and IT, where the firms didn’t even have physical supply chains. Such change enables people and technology together to react organically to changes in the external environment, thereby improving efficiency, effectiveness, agility and resilience — creating a lasting competitive advantage.