Digitalization Is a Must in Today’s Supply Management Toolbox
In December, just a few days before the holidays, I was in utter shock to see that we had already checked every box on our shopping list. Well ahead of schedule by my standards!
That, of course, did not happen because of my effectiveness as a well-planned shopper. For months, we tried to get whatever we needed — from presents to food for the table — due to shelves not being as full as before, and that it would be impossible to order some things at the last minute and expect to have them on time.
This past year has been a roller coaster. Global manufacturing has picked up pace, demand remains high and the game of catch-up between demand and capacity has been intense. From labor shortages to container prices, severe weather events, and transportation and warehouse issues, businesses have been put to a big stress test. And just as things were looking up, the coronavirus omicron variant pushed our roller coaster car down again with more restrictions and more uncertainty.
In this environment, businesses need to be flexible and agile. Customers value a quick turnaround of order processing, secure and transparent shipments, and fast and traceable delivery. That was difficult to accomplish in 2020 and 2021, but many of the businesses that pulled it off did it through technology.
From Offline to Digital Supply Chains
Transforming a traditional, offline supply chain into a digital, interconnected system is not a new process, but it is certainly one that has garnered a lot of attention over the past 24 months. The idea of a digital supply chain is not about moving digital products through the network, it is about how the supply chain is managed.
From DHL and Lufthansa to Walmart, Amazon and Alibaba, leading organizations are investing in technology that allows them to digitalize operations, giving them intelligent manufacturing processes and logistics channels. Use of sensors to track inventory levels, drones to handle and deliver goods, robotics for manufacturing control and automation — all are part of the Fourth Industrial Revolution, also called Industry 4.0 or smart manufacturing.
Technology has long been at the center of manufacturing improvements. In the late 1700s, water and steam power led the First Industrial Revolution. A century later, electricity helped introduce assembly lines and mass production for the Second Industrial Revolution. Computers were the main driver of the automation of production processes in the early 1970s for the Third Industrial Revolution. And the Fourth is about connectivity between people, automation, digitalization and data.
Industry 4.0 is possible through a series of advanced technologies. Tools and systems like cloud computing, 3-D printing, Internet of Things and Internet of Services, robotics, artificial intelligence (AI), radio frequency identification (RFID), big data systems and simulation allow devices to connect with each other, exchange data, perform actions and control each other. Yes, it is complex and expensive to implement. It is also inevitable.
Digitalization requires improvements to a business technological structure; it involves applying highly complex technologies and transfers of big data volumes — analytics is key. This requires upskilling of the labor force, a process that is expensive.
It is also disruptive — so change management is critical. Initial user resistance is not unusual, and it is understandable: (1) There is not much standardization in these technologies, (2) the learning curve is steep and (3) they can be seen as a replacement for the workforce. However, the benefits are significant. Real-time interaction and data exchange between systems allows for shorter product development, cost efficiency and better customer service. Optimization and easier duplication of business processes leads to a reduction of operational waste as well as a dynamic that has become a key imperative for supply chains: transparency.
Transparency Across Digital Supply Chains
Highly disruptive environments, like a pandemic or drastic climate event, remind us of the value of technologies that provide end-to-end supply chain transparency. More and more organizations are evolving towards technology-driven networks and digital ecosystems that provide them with actionable data to manage complex supply chains and mitigate risks. From blockchain technologies to AI, big data analytics, early warning systems, digital platforms and supplier pre-qualification systems, digital supply chains benefit from having full visibility and control of performance and risks across the entire value chain.
For example, early-warning systems and blockchain/track-and-trace technology can enable a company to quickly detect risks, even in real time, like when a supplier’s business is affected due to such disruptions as lockdowns, financial troubles or inventory problems. It can then use data analytics to predict the impact, simulate recovery scenarios, and enact the right recovery move. The use of digital collaborative platforms, like digital pre-qualification and supplier management systems, can then provide the company with access to alternate suppliers to work with to mitigate disruption and deploy recovery strategies.
Digitalization has changed the traditional supplier selection process. Suppliers play a key role in the ability for businesses to implement and improve the performance of their digital supply chains, as well as to stay competitive. As a result, choosing the right supplier and monitoring its performance are important procurement activities.
Supplier selection and evaluation are processes that entail multifaceted analysis based on dynamic data. They are not one-time, static processes, but rather ones that require continuous attention, standardization and transparency across the organization. They should also be flexible and agile since visibility is different upstream than downstream. Visibility is easier downstream across distribution networks that a buying organization has more control over. Upstream, the data is segregated across more tiers, making data ownership, influence and control become more difficult. This is another reason businesses lean on digital systems to achieve end-to-end visibility across their entire supply chain networks.
As we move into 2022, many of the disruptions that have affected supply chains over the past two years will continue. It is undeniable that the global business community is in a better position today to weather the storm than in the spring of 2020. Businesses continue to adapt and implement processes, procedures and technologies that give them better visibility and control of disruptive events across their supply chains.
As consumers, we always benefit from this. I am feeling optimistic about my 2022 holiday shopping list — I hope I don’t need to buy as much ahead of time as I did last year.