The Digital Supply Chain Imperative

"Supply chain is one of the last places where you have all of these analog problems," asserts Trae Stephens (@traestephens), a principal at Founders Fund, "and there’s so much room for these problems to be corrected with digital solutions. The market is absolutely enormous, and our entire economy hinges on whether we can do this efficiently.”[1] A plainer and more pointed call for supply chain transformation is hardly possible. Phil Wainewright (@philww), Co-founder of EuroCloud, adds, "Digital transformation in the supply chain goes beyond new tech to bring fundamental changes in how an enterprise organizes itself to meet customer needs."[2] As with most business endeavors, digital supply chain transformation requires companies to rethink their approach to people, processes, and technology; however, "digital" implies that technology is the driver in this latest transformation movement.

The Supply Chain as a Differentiator

"The supply chain IS Business,” Lora Cecere (@lcecere), founder of Supply Chain Insights, wrote back in 2013, “not a department within a business.”[3] Brendan Williams, Associate Director and Lead for Digital Consulting at ALM, would probably agree with that assessment. He explains, "Many companies across industries are increasingly looking to their supply chains as important sources of differentiation and competitive advantage."[4] Whether you call today's business era the Information Age or the Digital Age, processes and technologies perfected during previous eras aren't going to provide either differentiation or competitive advantage in today's business environment. That's why digital supply chain transformation has become an imperative. Williams adds:

"The impact of new technologies — in particular, digital technologies such as data analytics, cloud and mobile computing, the Internet of Things (IoT), and advanced robotics — are having on companies' supply chains has been especially great. As well as acting as exogenous forces that — by enabling new competitors with new business models to disrupt established industries and create new markets — are changing the role of the supply chain, digital technologies also provide companies with a powerful set of tools and approaches that are changing how supply chain organizations carry out that evolving role."

Kurt Cavano (@KurtCavnoak), GT Nexus President, told Wainewright, "It's not just a digital transformation of saying, 'Oh, I'm going to make my supply chain digital.' It's also a transformation of how my organization works and how it fits together." One of the technologies not mentioned above that can help companies make things fit together is cognitive computing. I define cognitive computing as the combination of semantic intelligence (i.e., natural language processing and artificial intelligence) and computational intelligence (i.e., advanced mathematics). The Enterra Solutions® entry in the cognitive computing field is the Enterra Enterprise Cognitive System™ (ECS) — a system that can Sense, Think, Act, and Learn®. Cognitive computing democratizes access to advanced analytics because users can interact with these intelligent systems using natural language. Cognitive computing systems can gather and integrate both structured and unstructured data and can help break down corporate information silos to provide a single version of "the truth" for decision makers (i.e., all departments draw from the same database). This capability alone can help companies with their digital transformation efforts and make things fit together. Other benefits offered by cognitive computing systems include the ability to automate routine decisions, optimize processes, and provide business executives with actionable insights. In short, cognitive computing systems will be the brains of the intelligent enterprise.

You might be asking yourself, "Is there any real substance to the buzz about the digital supply chain?" Boston Consulting Group analysts, Amit Ganeriwalla, Gideon Walter, Libor Kotlik, Robert Roesgen, and Stefan Gstettner, answer that question in the affirmative. They write, "Leaders in digital supply chain management are enjoying increases in product availability of up to 10 percentage points, more than 25% faster response times to changes in market demand, and 30% better realization of working-capital reductions, on average, than the laggards. They have 40% to 110% higher operating margins and 17% to 64% fewer cash conversion days."[5] That's why Capgemini analyst Raman Katyal reports, "From car makers eager to help customers with service reminders to retailers targeting audiences with custom offers over mobile apps — just about everyone seems to be getting on the Digital bus."[6] Even though Stephens insists there remains much room for supply chain improvement, Pam Mangas (@pam_mangas) observes, "Perhaps no manufacturing department has felt the impact of the Digital Age quite like supply chain."[7]

Leveraging Digital Supply Chains

Abe Eshkenazi (@aeshkenazi), Chief Executive Officer for APICS, told Mangas, "Twenty years ago, supply chain was relegated to a corner of the business. Now, supply chain touches every element of a business and supply chain managers have to understand how all the different functions — marketing, sales, finance — of the business work together and navigate those waters." To put it another way, improving the supply chain improves the business. Ganeriwalla and his colleagues agree. They note, "Leading companies are using digital supply chain technologies to redesign their operating models and go-to-market approaches in order to generate significant growth in revenues and margins. Companies can find new routes to customers, decentralize activities, and substantially speed up delivery, among other tactics." They recommend three key strategies they claim agile companies are using to leave behind less nimble competitors. They are: Fixing performance gaps; innovating business processes; and disrupting the supply chain. To implement these strategies they suggest the following steps:

"Immerse yourself in the possibilities. Companies should put their best people to work scanning the landscape of digital supply chain management. This 'digital immersion team' can collect innovative ideas from outside the company — even from other industries — about ways to innovate and disrupt their business rather than simply improve existing processes. ...

Prioritize the opportunities. Out of the hundreds of ideas that may result from this research, companies should select the ones that could be relevant and useful — the digital applications that have the potential to create significant value for the business and address gaps in performance. Managers can then map those ideas against current business challenges in order to identify areas of alignment. Finally, they should develop a business case—based on the potential uplift in sales and decrease in costs or inventory, for instance — for the opportunities that seem the most relevant, realistic, and financially rewarding. ...

Launch pilots. Following the immersion and prioritization phases, companies should design a handful of pilots that can help them learn what works before they scale initiatives throughout the company. ...

Build the infrastructure for success at scale. Even the best-designed pilots will fail if the organization is not ready for them. Companies often need to build capabilities, systems, structures, and processes unique to their industry and business context in order to succeed."

At Enterra we call this a "crawl, walk, run" approach to transformation. This approach allows companies to prove and tweak solutions before scaling them.

Summary

Companies lagging behind their competitors in transforming their supply chain risk their future. The BCG analysts conclude, "Digital supply chain management has matured and is generating substantial value. Organizations need to move quickly to apply the highest priority opportunities to their business and industry context. They must find the right mix of fixing performance gaps, innovating business processes, and disrupting the supply chain. Companies cannot afford to wait. The competition is already making moves, and the leaders in digital supply chain management are building a financial advantage that will be more difficult to overcome with each passing year." Katyal adds, "Digital Supply Chain is when information converges with the physical environment. Operationally, a digital supply chain is all about standardizing, automating and integrating systems and data to create a real-time operating and decision-making environment. To my mind, the outcomes are pretty straightforward: sustainable cost savings, better relationships with partners, improved visibility, and reduced volatility." Enough said.

Footnotes
[1] Robbie Whelan, "Flexport Raised $65 Million in Venture-Capital Funding for Expansion," The Wall Street Journal, 26 September 2016.
[2] Phil Wainewright, "Transforming the supply chain for better customer experiences," Diginomica, 26 September 2016.
[3] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[4] Brendan Williams, "Helping Firms Digitally Transform Supply Chains," ALM Intelligence, August 2016.
[5] Amit Ganeriwalla, Gideon Walter, Libor Kotlik, Robert Roesgen, and Stefan Gstettner, "Three Paths to Advantage with Digital Supply Chains," bcg.perspectives, 1 February 2016.
[6] Raman Katyal, "Unlocking the Future Value Network with Digital Supply Chain," BPO Thought Process, 28 August 2015.
[7] Pam Mangas, "How Ever-Evolving Technology is Transforming the Supply Chain Function," GrayWay, 11 January 2016.

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