What is supply chain transformation

Digital transformation is the process of integrating digital technologies across all areas of a business in order to change, at a fundamental level, how the business operates and delivers value. It can include everything from IT modernization (such as the adoption of cloud computing or Internet of Things devices) to the creation of entirely new digital business models.

Digital transformation is happening across all industries and in businesses of all sizes as they look to respond and adapt to changing market dynamics and customer demands. In many cases, the goals of digital transformation are to automate tedious manual processes, get more insights from data, and improve the employee/customer/partner experience through intuitive technologies and streamlined business processes.

Supply chain transformation is when digital transformation is applied to supply chains. By adopting and using new digital technologies and business models, supply chain companies are looking to improve their efficiency and effectiveness in the short term while also building up the resiliency and agility of the supply chain for the long term.

At a high level, it’s about embedding digital capabilities throughout the entire supply chain, based on an overall strategic vision, to empower greater collaboration between departments, break down silos, increase efficiencies, improve decision-making, and deliver digitally enabled products or service experiences to customers. It means shifting away from manual, Excel-based functional processes toward end-to-end digital processes and sophisticated data analytics to create smarter, always-on supply chains that provide real-time insights to inform procurement strategies and other decisions. For example, if a manufacturer can use digital technologies to predict possible faults in an asset, they can ensure spare parts are in stock to prevent operational downtimes, production losses and delays to shipments downstream.

Digital transformation roadmaps have often overlooked supply chain challenges and opportunities. But given the disruptions associated with global public health events, natural disasters, unplanned material shortages and shifts in the labor market, supply chain issues are now front and center — and digital supply chain transformation is essential to overcoming those challenges.

For decades, companies have used a cascaded decision-making process, where each function is focused on optimizing only its own view of the supply chain. They made decisions in silos on key performance indicators (KPIs), such as customer demands, that would, in turn, affect factors such as how much product they needed to build and how they distributed. Such decisions could have impacts across the whole organization, but without visibility over the whole system, decision-makers would unintentionally create new challenges, such as a lack of product availability or too much product in the wrong place.

That approach is no longer suitable in an age of elevated consumer expectations for speed and personalization, as well as the increasing volatility of trade, tariffs and regulatory changes. With companies facing unpredictable cash flows and overstretched teams, they must fundamentally transform their supply chains to become more agile in their decision-making — and to improve their ability to both pivot away from dangers and embrace the opportunities presented by the digital world.

The challenge for many organizations is to ensure they do not take an ad hoc approach to transformation, where projects are executed inconsistently or in isolation. It must be done strategically and with end-to-end visibility across the entire supply chain, taking into consideration not only the demands of today but also the demands expected over the next five to 10 years.

Every industry that deals with complex supply chains can be benefit from digital supply chain transformation. That includes high-tech and electronics companies; consumer products companies; life sciences companies; and companies in the industrial, automotive and aerospace/defence industries. While some are further along than others in their digital transformation journeys and are well-positioned to facilitate change, others lag behind and still rely on spreadsheets and other manual processes for supply chain planning. That makes it critical for them to begin their digital transformation journeys as soon as possible.

In practice, supply chain transformation can take many forms. To begin seeing benefits right way, companies can start small and scale transformation as they see improvements. For example, some adopt processes that can take only a matter of weeks to shift key functional teams away from Excel and onto a single source of truth. As they get up to speed, other teams can be brought into the process.

Other forms of transformation can be more ambitious: smart tags that allow retailers to track products from source to shelf, drones that fly through warehouses carrying out stocktakes and robots that assist logistics companies in ensuring deliveries are shipped on schedule, just to name a few examples. It can also involve warehouse automation, predictive analytics powered by artificial intelligence and machine learning (AI/ML), sensors to monitor the status of temperature-sensitive shipments, cloud logistics, autonomous vehicles, fulfilment robots, 3D printing, augmented reality, virtual showrooms, digital twins, crowd-sourced delivery models, delivery robots and much more.

While best-in-breed technology is important, it does not constitute transformation on its own. In fact, more often than not, supply chain transformation is less about technology and more about people and processes: the business model and organizational/cultural shifts required to get the most from any new technology and overcome longstanding challenges such as lack of visibility or siloed decision-making processes.

Implementing systems and processes that connect all different functions of the business, from production to sales to customer service, is essential to supply chain transformation. That should include establishing key performance indicators (KPIs) or metrics that are clearly aligned across every function, so different teams can easily see how their actions affect each other and the overall supply chain.

That visibility can happen only if everyone is held accountable to a single vision. A top-down mandate from the board level to drive supply chain transformation is therefore critical to getting the rest of the company on board. Without that mandate, heads of supply chain will likely run into resistance to change. Leaders must also cultivate the right talent and upskill existing employees so they know how to make the best use of new technologies — and to ensure those technologies become assets to the company rather than time- and money-wasting liabilities.

Building an organizational strategy for digital transformation

Part of the organizational shift required for supply chain transformation comes through a focus on change management: the approaches used to prepare and support individuals and teams through a significant change, including communicating the value of that change to them and the business as a whole. If people aren’t convinced a new technology will benefit them, they’ll go right back to traditional tools such as Excel.

But perhaps most important is the development of an end-to-end organizational strategy for digital transformation. For many companies, the hardest part of supply chain transformation is that it has to be continuous and proactive. Transformation efforts often fail because they isolate parts of a larger problem, such as investing in AI/ML capabilities without first updating their data-collection processes. A strategy that encompasses all areas of the supply chain can help overcome this issue. When developing that strategy, companies should:

• Develop tighter linkages across functions: A truly end-to-end strategy requires a business-wide approach, with supply chain planning functions working closely with other parts of the company, including sales and inventory management, which play important roles in order management and demand planning. Also, supply chain choices directly affect an organization’s ability to deliver on customer, board, shareholder, regulator and other stakeholder expectations. That’s why the whole organization needs to be involved in and aligned with the transformation, and be fully briefed about changeover plans so as to minimize implementation challenges.
• Rethink and restructure core supply chain choices: Carefully assess all areas of the supply chain, including suppliers (and their suppliers), and consider how digital technologies can be used to decrease risk and increase efficiency at every step. Then, restructure supply chain planning processes as needed to break free from siloed and fragmented workflows, which jeopardize business outcomes.
• Create a logical plan with progressive, accomplishable goals: Supply chain transformation won’t happen overnight; while you can start to make measurable improvements in weeks, other processes may take iteration and reiteration. Identify areas that would benefit most from digitalization in the short term and go from there.

Among the many benefits of digitalizing the supply chain are improved data, better connected supply chains, more efficient production and lower working capital, to name a few. It also enhances visibility and collaboration across the entire supply chain, making it possible to detect, predict and better manage risks to internal processes (such as a decline in factory productivity) as well as external risks (such as adverse weather conditions that may lead to slowdowns from suppliers).

Digital transformation can also improve the flexibility of supply chain processes, for example, by allowing businesses to quickly and easily switch focus to manufacturing specific products for a short period before shifting back to their usual tasks. It can also lead to cost savings by using data and automation to help procurement teams identify the most cost-effective suppliers. Plus, tools like robotic process automation and AI/ML solutions can reduce the time planners spend completing low-value, repetitive tasks. And with access to a broader set of data-driven insights, supply chain leaders get clearer, more reliable demand signals, leading to greater optimization of production, inventory, pricing, suppliers and more. They can also optimize across more variables than just the traditional cost-focused supply chain metrics, using data to find the right balance between long-term customer satisfaction and short-term profitability, for instance. A digitized, strategic supply chain can respond quickly to shifts in demand, immediately identifying exceptions to plan for and quantifying the business impacts with tools like what-if scenario planning.

Ultimately, investing in digital technologies and adopting new digital business models allows companies to manage the supply chain more effectively. In turn, that helps improve customer satisfaction (by delivering greater personalization, customization and responsiveness) and enhance their competitive edge (both in the marketplace and when it comes to attracting and retaining top talent), leading to higher revenues and a greater return on investment.

The synergies between supply chain and digital transformation also connect to broader corporate initiatives such as sustainability, with an agile supply chain able to reduce energy and material waste by avoiding unnecessary orders and optimizing for end-to-end flow.

With more and more data sources becoming available to guide supply chain planning decisions, the right software is critical to ingesting all that data and delivering insights that enable faster, smarter decision-making. That’s why supply chain planning software should be a core part of any supply chain transformation strategy.

Software can easily connect data, processes and people so the entire supply chain is always in sync: no more spreadsheet sharing or alignment meetings. Instead, if one person makes a change in the software, everyone else instantly understands the impact on themselves, their teams and the organization as a whole. This can help shorten planning cycles, cut manufacturing lead times, trim finished-goods inventory and improve on-time deliveries. Plus, planners have more time to make proactive improvements to supply chain processes — and in moments of disruption, they don’t waste time organizing many different teams and data sources.

Advanced supply chain management software also provides real-time visibility across the entire supply chain ecosystem, and is capable of instant and continuous synchronization across:

• Demand planning: Respond to forecast changes more quickly by creating realistic consensus-based plans and by proactively monitoring and improving forecasts and order status.
• Supply planning: Get continuous visibility into whether demand plans can support material and capacity constraints, and the ability to execute on those plans all the way down to the shop floor.
• Inventory management: Develop targeted inventory improvement solutions, simulate changes to inventory policies, and understand and balance trade-offs between on-time delivery, revenue risk and inventory.
• Sales and operations planning (S&OP): Set financial targets, measure progress, identify gaps between supply and demand, and re-balance plans to maximize opportunities and minimize risk.
• Control towers: See the health of your business and supply chain at a glance while seamlessly controlling operations with AI and predictive algorithm-based automation that continuously improves your operations.

By making supply chain management software a core element of their digital transformations, companies create a single source of truth for their global supply chains, enabling them to break down functional silos, collaborate across organizational boundaries, and gain insights into risks and opportunities that help drive profitability and improve customer service. It also ends the reliance on spreadsheets for supply chain planning, improving operational efficiency and accelerating in-production go-live times.

Finally, modular software gives companies the ability to start small and easily expand by adding new modules that deliver a wide range of advanced planning functionality, such as supplier collaboration, transportation optimization and S&OP capabilities, as needed. This enables businesses to see a return on investment sooner.