Confronted with unprecedented challenges, CEOs are increasingly faced with the necessity of transforming their companies’ global end-to-end supply chains. While transformation will include factors like re-evaluating manufacturing footprint and suppliers, looking more closely at shipping modes, and building a culture of collaboration between all stakeholders, the critical enabler of its foundation is undoubtedly digitization. Two-thirds of businesses recognize the overwhelming imperative to move towards digital transformation in the supply chain if they are to remain competitive.
What is the digital supply chain?
The term “digital supply chain” implies technology, and to be sure, the digital supply chain uses a lot of it. But to say that it is a technological innovation is incorrect. Beyond the technology, digital supply chain transformation is built on processes, people, and cultural receptivity to change. This process begins with the CEO, whose responsibility it is to build a culture of collaboration and integration, secure across-the-board buy-in, and gain true visibility into the end-to-end supply chain for all stakeholders with clear technological leadership, or get left behind.
Total Value Optimization (TVO) is a major enabler of a successful supply chain integration and digital enablement. TVO is a methodology that lies on top of the technology, allowing it to be used successfully, to dynamically anticipate and meet demand by synchronizing the plan-buy-make-move-fulfill supply chain to deliver the greatest value to all stakeholders across the supply chain, at the lowest cost.
The IT investment in digital transformation is necessary, but defining digital transformation by the technology used to implement it is an incomplete analysis. There is a fundamental difference between digitization, and digital transformation.
Gartner defines digitization as the process of changing from analog to digital—a fairly straightforward technology-based process that is low risk and high return, usually based on updating and refining existing processes rather than changing them. Digital transformation, on the other hand, is something else entirely, and is high risk but higher return. Digital transformation involves re-evaluating existing processes and implies more of a revolution than an evolution. Digital technology has been evolving for the last 20 years, but today we are at a revolutionary moment in that evolution—and we are ready to move beyond simple automation and embrace transformation. This means not only investing in technology but in human capital as well, creating new company cultures that are more supportive of change, and eliciting end-to-end support from all stakeholders.
The biggest advantage of digital supply chain is its ability to provide people and processes with all the necessary information and data they need so that they can have true visibility of what is going on in the business and make better, faster decisions. This applies not only to their business specifically, also to their customers, suppliers, and suppliers’ suppliers businesses. This end-to-end supply chain visibility, enabled by digital transformation, will allow companies to provide better service and products to their customers, a better return for shareholders, and more sustainable success for all stakeholders.
What will it accomplish?
Digital transformation, defined as a combination of technology, new business models and improved collaboration and insights, accomplishes several things and has become a major priority for multiple industries. Specifically, a successful digital transformation can:
• Create a competitive advantage through improved operating models and operations so margins improve, sales accelerate, and overall results are better on a long-term basis.
• Deliver deeper insights and better decision making. Since digital transformation is built on data and information, it becomes possible to spot hidden opportunities to improve results and reduce expenses perhaps, without human intervention once all is in place.
• Improve the customer experience. This often involves highly visible tactics such as a more responsive call center or more knowledgeable staff in customer-facing positions, but what happens on the back end may well have an even greater impact. Digital transformation will improve customer experience in myriad ways, for example by re-evaluating shipping to improve delivery times, reviewing warehousing and inventory to improve product availability, and drawing on data and intelligence to find new opportunities to improve the customer experience.
Why digital supply chain transformation programs fail
The technology is mature and readily available, but still, as few as one in 50 digital transformation projects fail to provide adequate ROI, according to the Global Supply Chain Institute. It’s not because the technology isn’t available, it’s because the people and processes are not yet ready to utilize it for the right purpose. The fact is, creating the right processes and selecting and deploying the right tools is a straightforward practice. The point of failure lies beyond those basic tasks.
Data analytics specifically underpins much of this transformation. While the technology used to gather data is often already in place, it’s the analytics – and the process of identifying not just large quantities of data, but the right data for the right purpose – that leads to better decision making.
CNBC reported that last year, major companies spent more than $1.3 trillion on transformation initiatives, and 70 percent of that money was wasted on failed programs. The biggest reason for the failure was a lack of effective communication – the overall strategy, purpose and outlook was often not shared with employees and other stakeholders, and as a result, the companies failed to cultivate the cultural change needed to effect digital transformation.
Another major point of failure is the “shiny things” fallacy, or deploying technology for the sake of technology. Ultimately, while it is possible to enjoy some short-term payoff of digital transformation, the benefit is more likely mid to long term. It is not unusual to see a negative return in the short term, nor should it be seen as an indication of failure.
|Digital Transformation Challenges to Overcome
|Executives unclear about the end-to-end supply chain investment case and implementation journey for their business
|Insufficient CEO leadership/sponsorship and budget
|Operations, procurement, logistics, sales, marketing & IT predominately reside in silos with little collaboration across the enterprise
|Leadership reluctant to change/reinvest its business model to accommodate change and disruptive technologies
|There is no cohesive cross-organizational supply chain/digital vision and strategy
|Companies have a supply chain/technology talent/skills gap across the organization
|Legacy IT systems and culture deeply entrenched and there is resistance to change. The prevailing culture is risk averse – “Why fix it if it isn’t broken?”
|Slow deployment of supply chain collaboration and new technologies means organizations are unable to show early wins to gain employee and stakeholder buy-in
|Digital strategy viewed as a “technology fix”
Source: Maine Pointe
How to make digital supply chain programs work
In any digital transformation, communication is key, not just internally, but with suppliers, partners and all other stakeholders. If those stakeholders don’t buy into the change, it’s not going to happen.
Second, while communication is key, measuring success is just as important, and that’s where the importance of data and metrics comes in. Measuring the supply chain integration and digital transformation program involves setting metrics for how well the program is working—but it also requires metrics along the way to make sure the message is being clearly communicated and all stakeholders are actively engaged.
A successful transformation journey doesn’t begin with IT spending but with a strategy of changing business models and company culture, opening up new opportunities, and selecting and deploying technology to fit those goals.
Corporations face an imperative of keeping up with rapid technological change, and the technologies upon which digital transformation is based—cloud computing, big data, artificial intelligence—are mature and have proven to be valuable enablers. The key to success is seeing these technologies as part of a greater strategy, rather than an end in itself. Technology spending is likely to be part of any digital supply chain transformation, but that spending must be designed to support a broader plan.
CEOs must look more closely at what the expected results of digital transformation are, how to achieve those results and what the ROI will be. The technology will be a strong enabler, but the processes, strategies, communication, collaboration and cultural changes will transform the idea into reality.