Chuck LEAN Business Consultant
For all the effort that companies devote to improving the performance of their supply chains, relatively few have unlocked the full potential of digital technologies. [removed] found that the average supply chain has a digitization level of 43 percent, the lowest of five business areas that were examined. A mere 2 percent of the surveyed executives said the supply chain is the focus of their digital strategies. Are their priorities misplaced? Perhaps. The same McKinsey research suggests that, on average, companies that aggressively digitize their supply chains can expect to boost annual growth of earnings before interest and taxes by 3.2 percent—the largest increase from digitizing any business area—and annual revenue growth by 2.3 percent.1
In our experience, most of the disparity between potential and actual gains from [removed] can be explained by technology gaps and management choices. Technology gaps have occurred because advances in supply-chain technologies tailed off after an initial burst of innovation. This yielded technologies that enabled companies to streamline routine activities, expand the capabilities of particular systems, and enhance analytical practices. Valuable though these technologies have been, they didn’t perform the sophisticated functions that transform supply-chain management. It has taken some time for technology innovations to accumulate and coalesce into new offerings. Now that better digital solutions have become available, companies can make greater improvements in supply-chain performance.
Seizing that opportunity, however, has proved surprisingly difficult for many companies. A common error is to overlook operational changes that would let a company take full advantage of digital technologies. One major healthcare company upgraded its enterprise-resource-planning (ERP) system, with the aim of reversing a decline in supply-chain service levels. Yet its service levels continued to drop—until it reworked processes such as demand forecasting. Fixing operations without making complementary technology improvements can be equally problematic. At a large consumer-goods company, supply-chain service improved rapidly following a series of operational changes but soon reverted to its original level because the technologies weren’t in place to support the new operations.
The right approach to digitizing supply chains integrates suitable leading-edge technologies with revamped operations. Many managers will be familiar with the basic transformation approach: establishing a vision for the future supply chain, assessing the supply chain’s current state, and developing a transformation road map. In a digital transformation, this approach has some new features. The vision will call for a combination of no-regrets improvements as well as more speculative changes that can be pursued over time. The assessment needs to consider whether operations and technology are sufficiently integrated and whether the company has the talent strategy and organizational structure that will favor innovation and continual improvement. Furthermore, the transformation road map will have compressed timeframes, given the ease with which the latest digital solutions can be scaled up. In this article, we offer CEOs and senior executives further detail about each step, with examples showing how digital transformations work in practice.
How supply-chain capabilities and technologies have evolved.........
The low rate of supply-chain digitization has much to do with the capabilities of the technologies that companies have had available until recently. Supply-chain management was one of the first business functions to undergo substantial technology upgrades, as developers created applications to take advantage of data generated by ERP systems. Those applications largely focused on improvements in three areas: streamlining transactional activities such as those involved in end-to-end planning, supporting major operations such as warehouse management, and sharpening the analysis on which decisions are based.
What these technologies didn’t yet provide, though, were transformative capabilities for supply-chain management: [removed] (for example, inventory, shipments, and schedules) from internal and external sources; uncovering the origins of performance problems by delving into ERP, warehouse-management, advance-planning, and other systems all at once; or forecasting demand and performance with advanced analytics, so [removed] and problems can be anticipated and prevented.
What current technologies do you have?
Where are you on your Supply Chain Digitalization project?
