Digital Supply Chains and why you need one

Supply chains have been a significant part of business for centuries. They connect different parts of production, distribution, and customer service all in order to provide seamless transactions.

The digital revolution has led to an increase in the number of Digital Supply Chains (DSCs) which offer a variety of benefits, such as increased transparency into data streams, decreased cost-of-ownership and greater flexibility. Manufacturers who don’t invest in proper Digital Supply Chain Management can expect up to 44% losses due to supply chain inefficiencies (1), so we will explore how DSCs can help companies maximize their operations while meeting evolving consumer demands.

What is a Digital Supply Chain and why is it important?

With the rise of Industry 4.0, there has been a new approach to how products get into consumer hands―this ties up with new digital models all across the manufacturing business.

A product in the customer’s hands usually follows this process: marketing identifies customer demand and shares it with raw material suppliers. However, forecasting is not perfect, so there are often shortages or surpluses in supply. This lack of alignment between production and marketing means that no one involved understands the process completely.

Manufacturing companies should consider Industry 4.0 as a means to improve their traditional supply chains and services such as retailing, distribution, and warehousing to better suit the needs of consumers. Adopting a Digital Supply Chain is big step towards achieving bigger goals like faster, more precise processes with visibility for the whole company.

What are the benefits of having a Digital Supply Chain?

Manufacturing companies that adopt digital supply chains can cut operational costs by 30% and inventory cost by 75% (2). In order to stay ahead of the competition, manufacturers should implement a digital supply chain leveraging Industry 4.0 processes and digitisation as key differentiator in the future. The benefits for manufacturers are wide ranging:

• Efficiency can be improved through automation of physical and planning work, like the automated warehousing with robots that unload and load materials. The trucks could also have an autonomous network between manufacturers and transport companies to optimise them.
• Granularity is better with digitisation as it enables products to be increasingly more individualised to cater for the customer’s demands.
• One way to improve accuracy is by utilizing data from the raw materials supplier. Data can also be used to make more accurate decisions in the Supply Chain process and help identify risks that may otherwise not have been noticed. This will save time due to the elimination of wasted efforts, as well as provide better insight into the process.
• Forecasting models are improved because of more comprehensive data. Flexibility becomes easier when adjusting the plan for real-time changes in demand. Planning can become a continuous process that reacts to changes in production data, while delivery also becomes flexible.

What are the common challenges to implementing a Digital Supply Chain?

Key challenges of a digital supply chain include practices that result in digital waste, such as:

• Data capturing and management: the data used may not be captured in the best way (e.g., manually with paper in the machines) or infrequently (for instance, with master data related to suppliers).
• Integrated process improvement: While most companies still operate on an individualised process, it is possible to optimise across the entire process. Other companies may not have a continuous digital process running between all of the Supply Chain steps involving suppliers and transportation agencies, which makes it difficult to reach an advanced level in the digital world.
• Physical processes: A company warehouse is still operating manually, not utilising real-time data that can improve the paths in the warehouse and allow for dynamic allocation of new process orders.

How does a Digital Supply Chain work?

According to PwC, a Digital Supply Chain has eight elements: integrated planning and execution, logistics visibility, Procurement 4.0, smart warehousing, efficient spare parts management, autonomous and B2C logistics, prescriptive supply chain analytics, and digital supply chain enablers. All of these elements are dynamic, integrated and needed to have all the benefits from digitisation.

1. Integrated planning and execution: To reduce costs and lead times to respond effectively, all aspects of a supply chain should be integrated: suppliers, manufacturing, logistics (distribution), storage, and customers. For example, if there is a shortage of raw material on the supplier side (think steel for autos or construction) then this integration allows all parts of the supply chain to collaborate.
2. Logistics visibility: To counter the lack of complete information, traditional Supply Chains are now expecting real-time updates on shipments and need reliable, real-time data on transportation. This is just one example of a type of data that logistics can have that would leverage deep analytics to optimise the process strategically. This means that it’s necessary to have a Track and Trace (T&T) system with real-time data of any shipment in any transport mode.
3. Procurement 4.0: There are many aspects of buying that have already gone digital, some nearly exclusively so, and you can see a trend in the future for more technology to continue the digital supply chain journey.
4. Smart warehousing: Warehouses are constantly evolving to meet the changing demands of customer fulfilment. With a smart warehouse, this means preparing loading docks before arrival and utilising technology to not only automate inventory but in many cases maintain it without the need for human intervention. For example, with sensor-based systems tracking items on shelves, augmented reality and robots may be used to perform automated inventory management.
5. Efficient spare parts management: Producing accurate forecasts for spare parts can save manufacturing costs when everything is well-managed.
6. Autonomous and B2C logistics: Autonomous vehicles are also starting to be used in-house to move raw materials or components around by selecting the best route autonomously. Driverless trucks are also being used to send the products to costumers, and changing how they are interacting with the product.
7. Prescriptive Supply Chain analytics: DSCs allow prescriptive analytics by optimising any number of factors across the entire chain or modifying it as needed for simple decisions.

Digital Supply Chains can be hard to implement, but having a strategy is key.

How can we create a Digital Supply Chain?

Only 13% of manufacturers (3) have a digital infrastructure and supply chain that is dynamic and optimised using advanced analytics, such as machine learning and AI. By 2023, the number of organizations leveraging digital solutions in their businesses is expected to double and this trend will be driven by the growth of big data.

Most manufacturers already have some sort of data from ERP systems so building a Digital Supply Chain can begin with embracing more digital integrations with the ERP system and improving governance of the platform.

Integrating data from multiple sources including IoT, social media, weather, then combining it with machine learning techniques can help planning teams build more granular, more accurate plans. Furthermore, many new pricing algorithms have been engineered to take the demand and inventory levels into consideration, which automatically minimise all levels of risk.

Logistics teams can continue to operate at a higher level with the help of artificial intelligence and 3D printing. People are also are taking advantage voice, touch, and graphical user interfaces to do more work in warehousing/ trucking-related aspects. Robotics and exoskeletons can do a single task automatically, reducing the need for manual labour. 3D printers create spare parts which makes this segment of the manufacturing industry more profitable.

Business intelligence solutions with no coding can provide granular, real-time data. This provides us with a never ending stream of performance management and exception handling. Machine learning can reduce the need for human intervention by automating root cause analyses and implementing appropriate countermeasures.

Supply Chain management requires collaboration and the ability to see everything. To make this possible, it is essential that all team members have access to a cloud solution. Modern cloud-based ERPs are an important feature if you want to handle more granular customer requests. They use big data and machine learning to provide insight for customers by looking at any number of sources, including social media networks. ERPs can also offer a global view of the Digital Supply Chain, creating continuity and interconnectedness among all stakeholders.

It is very important to ensure that the implementation of a Digital Supply Chain is taken as seriously as other core business processes. It will impact how people work, requiring buy-in and alignment to support the change. Similarly, data in the Supply Chain is key and is necessary for unlocking benefits so data silos need to be broken down to be successful.

Implementing a Digital Supply Chain is no small task. It will require careful planning and attention to detail, but the benefits are worth it. The most important thing you can do for your business right now is find out how we can help you implement this strategy in your company so that you see all of the benefits sooner rather than later. Schedule a call with our CEO today to learn more about what we offer!

Further reading

Cited reports

1. Future Growth Manufacturing report
2. Supply Chain 4.0 – the next-generation digital supply chain
3. Delivering the Digital Dividend - Supply chain digital readiness

Broader reading

• What Is Digital Supply Chain Management? from Bit Sight
• Drivers of the Digital Supply Chain in Manufacturing from Through Put
• Manufacturing a truly digital supply chain in four steps from The Manufacturer
• Why Is the Digital Supply Chain Important for Manufacturing? from Otto Motors
• How digitization makes the supply chain more efficient, agile, and customer-focused from PwC