A new study from the Capgemini Research Institute called, “The digital supply chain’s missing link: Focus” has identified a clear gap between expectations of what supply chain digitisation can deliver and the reality of what companies are currently achieving. While exactly half of the organisations surveyed consider supply chain digitisation to be one of their top three corporate priorities, most are still struggling to get projects beyond the testing stage.
Digital supply chain initiatives
Digital supply chain initiatives use digital technologies to optimise operations across the supply chain by enabling connectivity, data management, insights and automation. When we refer to digitisation of supply chain, we refer to the following:
• Taking a process or task that is performed manually or offline today and delivering it more efficiently with digital tools
• Using digital processes and data to make something more effective and consumer centric
The benefits of supply chain digitisation can be wide-ranging—cost savings, improved customer satisfaction or even the launch of an entirely new business model. For example, Amazon is looking to roll out its drone-based ‘prime air’ program to deliver customer shipments within 30 minutes. This will reduce the operational costs of last-mile deliveries and improve customer satisfaction. Moreover, it will also open up opportunities for new business models—for example, charging fees to customers for this sub-30-minute delivery or letting other retailers pay to use prime air’s infrastructure.
Delivering the highest returns
The size of the prize explains why supply chain is one of the top priorities for organisations. Our recent research on automation shows, for example, that automation initiatives in procurement and supply chain functions deliver the highest returns compared to other functions. We found an ROI of 18% for supply chain, three percentage points more than for Human Resources, and four percentage points more than IT.
New technologies deployed by supply chain organisations
Digital technologies help organisations to solve various issues and even enable new opportunities. As we set out earlier in our journey to consider—“What are digital supply chain initiatives?”, there are a range of technologies impacting various parts of the value chain. Each of these technologies finds applications across multiple use cases.
Figure 1 provides a snapshot on the adoption of these various technologies and the ability of organisations to scale these technologies to implementation. As we can see, organisations are not able to take these projects to scale—almost all of these technologies are at a nascent stage of implementation.
i. IoT and automation are the leading technologies deployed at one or more sites at scale in the supply chain
Rogue Ale—a brewery based in Newport, Oregon—had a critical supply chain issue. The hops it needs to brew its beers have to be delivered from their farms to their breweries within twelve hours. Temperature and humidity also play a considerable role during transportation of the crop. Rogue Ale implemented an IoT-based solution to develop an efficient tracking solution and a reliable transport mode. Sensors track and collect temperature and humidity levels throughout the journey while the shipments are tracked via GPS. This helps to deliver product quality, manage risk and ensure supply.
Faurecia—an automotive Tier 1 supplier—utilised automation as a key pillar for its Industry 4.0 initiative. Its Columbus factory at Indiana has production equipment and material handling systems, which are networked together allowing continuous data flow. A key feature of the plant is the automation of material handling systems, which comprises of 30 automated guided vehicles working alongside 17 three-axis robots. This enables loading and unloading and intralogistics of almost 4,000 storage locations and can operate 24x7.
ii. Blockchain, advanced analytics and Artificial Intelligence (AI) are around the corner when it comes to large-scale implementation
There is an increasing consumer awareness on sustainability, particularly for food items. A London-based NGO utilised blockchain to develop a “catch-to-consumer” tracking platform to ensure transparency and accountability throughout the supply chain. Fishing crew attach an RFID to the fish, and the information is then added to a blockchain ledger creating a tamper-proof trail. This can track the fish throughout the value chain from catch to canner and on to the consumer.
AI and advanced analytics can play a significant role in supply chains and can deliver a substantial payoff. As Figure 1 shows, organisations are testing a combination of these at great levels (63%), next only to blockchain. This is driven, in particular, by the manufacturing and consumer product industries, with use cases, such as, demand/supply planning and predictive maintenance. Cisco, which has a highly diverse global supply chain with more than 300 product families, leverages AI that draws on geographic information systems to optimise its customer service delivery operations, such as, customer-to-service-depot, around the world. The system along with predictive analytics enables them to deliver technical services and distribute spare part inventory more effectively.
Driving investments in supply chain digitisation
For most organisations (77%), saving costs is the main driver for investing in digital supply chain initiatives. In addition to cost gains, supply chains can help deliver a better customer experience. However, less than two out of five organisations make supply chain investments with the aim of becoming more customer centric. This means that many organisations are failing to seize the opportunity to make their supply chains more consumer driven and agile.
A US-based pharma manufacturer is using predictive analytics to enhance the customer experience during order fulfillment without exceeding its inventory target levels. The solution helped improve demand planning accuracy by introducing exception-based forecasting. Improving the quality of master data, and increased collaboration in key markets, provided a more accurate view of customer needs and resulted in a more precise forecast. This has resulted in a significant increase in forecast accuracy (of up to 15%) across product lines.
Ecosystem to support digitisation of supply chain
A significant majority of organisations that scale (78%) say that they lack responsiveness from their supply chain partners. At the same time, 91% of them also say that they need greater data sharing among partners. Interestingly, this sentiment drops for those who have not successfully scaled. This might reflect the high expectations that those who have scaled a collaborative supply chain.
Strong, collaborative partnerships offers significant opportunities, such as, collaborative design (with upstream partners) and collaborative demand planning (with the downstream partners). However, partnerships can be resource-intensive. One approach is to collaborate with a smaller segment of critical suppliers and distributors or retailers. For example, distributors could be segmented according to their logistics needs and suppliers could be segmented based on their willingness to collaborate, their technology infrastructure, their service level agreements or other factors.
Unlocking value in supply chain transformation
As well as learning from organisations that have successfully scaled supply chain initiatives, the report recommends that companies looking to make progress should focus on three key areas:
• Advocate and Align: Ensure transformation efforts are driven by C-suite leadership and senior management. Supply chain digitisation is a complex process that spans planning, procurement, IT and HR and as such, it cannot be led by any one business unit and must be driven from the top to succeed. Leadership needs to advocate for this transformation and to provide strategic focus on objectives and what to prioritise. Supply chain digitisation is integral to achieving business objectives and must also be aligned with wider efforts—for example, to increase transparency and improve customer satisfaction, so that it is not considered solely as a cost-cutting exercise.
• Build: For supply chain digitisation to be successful, both upstream and downstream partners (suppliers and distributors/logistics providers) need to be onboard and made part of the digitisation efforts. Breaking the silos among the various supply chain functions as well as the technology teams is also critical to the success of supply chain initiatives.
• Enable: While the above help in starting digitisation, in order to sustain it, organisations also need to invest in key areas of building a customer-centric mindset and developing a talent base. They need to devise approaches to attract, retain and upskill their employees.
Scaling the digital journey
The pace of digital disruption is ever increasing, and organisations are being forced to constantly reinvent themselves. Supply chains have moved from being merely cost centers to being enablers of competitive advantage. Organisations and their leaders today certainly get the criticality of supply chain digitisation, but many approaches lack direction and, as a result, fail to scale up effectively. By stretching themselves too thinly across multiple initiatives, organisations are unable to see programs to completion or gain the benefits of scaled adoption. Focus, therefore, is the critical ingredient for achieving success from the next-generation, consumer-driven digital supply chain. Successful organisations will have clear frameworks to identify the right digital initiatives that are aligned with their goals, learn fast from their pilot implementations and be determined and able to reach scale.