What is digital supply chain management (SCM)? The term is frequently tossed around in discussions of the future of logistics, without much time spent explaining its actual meaning. If we had to formulate a basic definition, we would say that digital SCM refers to a supply chain that incorporates multiple modern technologies. That means it harnesses the power of:
- Internet of Things (IoT) sensors as well as the wireless technologies necessary for connecting them and collecting their data.
- Intelligent automation, including robotic process automation (RPA) for streamlining tedious swivel chair work like entering the same information into multiple interfaces.
- Artificial intelligence (AI) for enhanced analytics that fuel better demand forecasting and inventory management, among other benefits.
- Blockchain technology for improved trust between supply chain partners, thanks to an immutable record of transactions.
- Cloud computing, which provides much more scalability and flexibility, in addition to superior connectivity between multiple services, than on-premises IT infrastructure of old.
Overall, the digital supply chain is one that replaces siloed technical systems, analog methods of managing data (e.g., paper-based processes) and predominantly manual tasks (such as relying very heavily on spreadsheets) with digital, often automated equivalents. With the basics down, let’s move on to looking at why organizations pursue digital SCM, what challenges exist and how to approach a digital transformation project.
The rationale for digital SCM
Digitizing the supply chain is a reliable way to boost revenue and earnings. A 2017 McKinsey assessment found aggressive digitization of a supply chain leads to an average of 2.3 percent annual revenue growth and a 3.2 percent boost in earnings before taxes and interest.
With digital SCM, it’s much easier to integrate and share information in real-time, respond to changing business requirements and gain visibility into operations across the supply chain. Oracle has dived into greater detail on this subject, defining six main reasons for moving to a cloud-based supply chain in particular:
- Easier product design and innovation, thanks to fewer silos and end-to-end visibility.
- Superior order management allowing for quicker responses to changes, rapid scaling and the ability to personalize key services.
- Accurate supply and demand planning from anywhere, with enhancements that help respond to materials shortages, late orders and any other issues.
- Much less risk related to procurement and suppliers, in large part because of streamlined source-to-settlement processes.
- Better optimized and integrated manufacturing processes, free from the traditional constraints of disparate systems and outdated spreadsheets.
- More efficient transportation and global trade management that reduces costs and simplifies compliance.
- Even outside of the cloud-specific advantages, digital SCM delivers tangible improvements in areas such as customer engagement and decision-making by giving stakeholders access to more powerful tools and more accurate information than they had previously had access to.
Despite the many potential benefits, a lot of organizations are not taking advantage of them. The same McKinsey research revealed that a meager 43 percent of supply chains were digitized – the lowest penetration rate of any of the five areas it assessed (the other four were marketing and distribution channels, processes, new ecosystem entrants and products and services). What’s holding them up?
The main obstacles on the road to digital SCM
McKinsey attributes the gap between digital supply chain potential and reality to two main causes: technology and management.
- On the technology front, there was an initial burst in digital technology development a few decades ago that quickly leveled off, leading to stagnation that only began to clear in recent years as the innovations we listed earlier – like the IoT, blockchain, etc. – finally emerged. Early tech tapped into data from ERP systems but wasn’t efficient at linking different types of data such as shipment and inventory information, nor at optimizing planning through the use of analytics. Newer technologies enable more extensive business collaboration and IT integration.
- On the management side, difficulties can arise in developing the right processes to fit the new technologies. For example, even a major upgrade to an ERP system might not deliver the expected benefits if corresponding adjustments aren’t made in critical workflows such as demand forecasting. The right roadmap and operational changes are essential in getting the most out of the core technologies underpinning digital SCM.
There are other challenges to keep in mind. A lack of preparedness for the complexities of digital transformation, which can require integrating numerous disparate systems while adding many new applications and services to the mix, is near the top of the list. Fortunately, it’s possible to overcome these hurdles en route to a rewarding digital SCM implementation.
Making digital SCM work: Why an integrated approach is crucial
Considering the vast scope and complexity of many digital transformation initiatives, it’s important to take an integrated approach, ideally with the help of an expert team of integrators. Staying on the right track is easier by combining:
Experienced consultants that understand both industry leading practices and possess high technology competencies (hands-on tech savvy consultants) to couple your processes effectively with technology. Additionally, providing a future proofed roadmap with business benefits and prioritization along with a maturity based approach that brings effective change adoption within your organization
Implementation and integration
When it comes to technology investments, it’s important to align them with your particular vision for a supply chain. That way, the new tools are fully integrated into your operations, in addition to being properly integrated and configured to meet actual needs throughout your supply chain.
Weaving in additional managed services from a proven provider will help stabilize and sustain the cloud deployments that are increasingly popular for ERPs and other SCM solutions. This will ensure you continue to make incremental enhancements to your solutions for continued performance improvements. This can be in the form of business process-as-a-service, analytics-as-a-service, applications managed services among others.
Inspirage is here to help you on your journey to a digital supply chain. Our team of experts will work with yours from start to finish to ensure the selection, implementation and continual improvement of the best available software for your requirements. To learn more, visit our Resource Center or contact our team directly for additional information on getting started with an Inspirage digital SCM solution.