The Digital Supply Chain – perspectives and practical steps
2nd February 2021
In this article Jamie Loder, Director at 4C Associates sets out some perspectives on the digital supply chain gleaned from his work and wider reading over the past year to add to the wider debate and insight on the topic.
It is my opinion that digital approaches that work with people, rather than around or against them, tend to achieve more impact while proving easier to implement and more sustainable over time. Such approaches work by improving access to information, streamlining decision-making, and facilitating cross-functional collaboration and trust.
When organisations embarked on transformations in the past, they could begin by defining the desired end state. Introducing a lean production system is a very difficult enterprise, for example, but companies starting out on their lean journey at least understand how they ultimately want things to work. That vision of a goal makes it much easier to take the right steps in the right sequence, and to measure the progress of the overall transformation.
Right now, digitally-enabled supply chain transformations don’t have the same luxury. Digital technologies are evolving so rapidly that there hasn’t been time for many of them to prove themselves at scale. There is no Toyota of the digital supply chain, providing a template for other organizations to copy. Indeed, supply chains are so specific to each company’s product range, operating footprint, and customer needs that such universal archetypes may never emerge, even after years of experimenting.
If companies introduce new technologies without also making changes to their operating systems, mindsets, and management infrastructure, they risk “digitising the current firefighting” rather than fundamentally transforming their supply-chain performance.
The second trap is the adoption of a technology-first perspective: the digital hammer looking for an analog nail. Here, companies find an impressive digital approach, then hunt for places to apply it across their supply chains. Working this way, companies end up digitizing their current, suboptimal processes. That limits the value of digital approaches and may even make it more difficult to capture larger improvements over the longer term.
To find a way forward in this challenging context I propose four key areas through which the supply chain focused executive can begin to implement digital change. These are:
- Decide on the future capabilities you want
- Identify the gaps
- Design options to close the gaps
- Build a balanced road map
Four steps to a digital supply chain
A good place to begin when shaping a digital strategy is understanding the industry context and the company’s starting point. For example, many companies start with customised legacy IT systems. Replacing these with the latest off-the-shelf digital tools can generate new revenue, improve responsiveness, increase efficiencies and reduce the total cost of ownership for IT systems.
Leading companies develop the culture, data analytics and IT systems to support their digital strategy and business objectives. They pursue specific goals with near-term value while adopting a clear view of their digital destination. And they remain ready to pivot as their industry evolves.
1. Decide on the future capabilities you want
The key to building supply chains that will be competitive in 5 or even 10 years is anticipating change. Leaders evaluate where the industry is going and identify the supply chain capabilities they need to get there.
Anticipating change is a strategic leap into the future but most leadership teams can gauge what their business may look like in 3, 5 and 10 years. The 3-year vision is likely to be more concrete, while the 5-year and 10-year visions will be more conceptual. For many retailers and consumer products companies, it is clear that e-commerce has raised consumer expectations and that traditional retail distribution and replenishment models are unable to meet the needs of their customers who are demanding shorter lead times.
Successful companies avoid incremental moves by envisioning just how extreme the future might look. For example, what would happen if the entire business moved from high margin to low margin or if it shifted from standard products to custom products? These scenarios can help supply chain teams identify what the company would need to do differently and what new capabilities any such changes would demand.
2. Identify the gaps
Figuring out the ideal future state for a supply chain allows leadership teams to identify missing capabilities and start building them. In my experience, companies that make the right short-term investments to improve supply chain performance generate significant savings to fund long-term investments.
3. Design options to close the gaps
Leading companies create a portfolio of near-term and longer-term options to help them close the gaps between their current supply chain and the future ideal state. For example, they may consider outsourcing elements of the supply chain to minimize the complexity of serving certain businesses or segments. Alternatively, they may consider closing multiple gaps through one common IT platform supporting multiple businesses, with additional specialized capabilities specific to certain business units supplementing this core shared system.
4. Build a balanced roadmap
One challenge for leadership teams contemplating a supply chain upgrade is identifying near-term steps that will help pay for future innovations. Successful companies build a short-term roadmap with concrete initiatives that will start delivering benefits quickly and provide flexibility in reaching long-term supply chain goals.
I believe these steps and the overall perspective can help companies begin to address the digital challenges and opportunities they face. For more information about this and how we can help your company please contact me at 4C Associates (jloder@4CAssociates.com).