A digitized supply chain is not always top of the list for organizations that are undergoing digital transformation of one kind or another.
Most roadmaps for digital transformation are focused on improving the network infrastructure and processes in typically office-based environments.
Supply chain management is often left behind in digital transformation pursuits—just 2% of decision makers report that supply chains are the focus of their digital strategies.
Organizations for which supply chain management factors as a major part of their operations have an important decision to make regarding the digital transformation of their systems: what can be digitized and how far should their strategies go?
Why Is Digital Transformation Important in Supply Chain Management?
Supply chain management benefits from digital transformation in much the same way that other areas of operation do—it speeds up processes and improves efficiency.
This is easier said than done, but the results speak of themselves. A McKinsey study found that businesses that have substantially digitized their supply chains can expect to boost annual growth of earnings before interest and taxes by 3.2%.
When you consider that supply chains, on average, rank lowest in terms of overall digitization, you can see how many businesses are missing out and falling behind by not engaging in a long-term strategy to develop their processes.
With the introduction of digital solutions and software, supply chains can be drastically improved.
Why Is Supply Chain Management Lagging Behind in Digital Transformation?
The indications across the industry suggest that digital transformation is developing at a significantly slower rate than other industries.
This is for a variety of reasons, namely:
With the industry rising in prominence, SMBs are investing more than ever into their supply chains.
The analytics market, mostly driven by DX-related initiatives like AI and machine learning, was worth $3.6 billion in 2018 and is expected to hit $7.1 billion in 2023.
This has led to a large increase in job demand, and a subsequent lack of talent to fill the gaps. The estimated demand to supply ratio for qualified individuals is 6 to 1.
As most business executives know, the supply chain is a complex aspect of an organization. Many decision makers are reluctant to digitize and unsure of the correct strategy for a roadmap.
Unfortunately, the vast majority of SMBs simply can’t miss out on ensuring they have a digital transformation strategy for their supply chains.
As with countless other verticals, some businesses therefore have a tendency to rush their transformation efforts, leading to unsatisfactory results which can unfairly stigmatize the process.
A crucial aspect of any digital transformation is successful leadership from the top. Without a strong hand guiding your DX plan, it will be doomed to failure.
Emphasis on change management, through educating end users on digital initiatives to help adoption, is a huge part of ensuring success.
Failing to build a foundation and getting the right person to see the project through from start to end will invariably lead to disappointment. An estimated 95% of businesses are failing to see the benefits of digitization because of an inability to properly implement their strategies with strong management.
Preparing for the Future
Digital transformation has been met in some parts with a mixture of excitement and trepidation. Trepidation because of the staggering amount of companies which fall short of their expectations for DX.
Those decision makers who are reluctant to implement a digitized supply chain will likely find that transformation is an inevitability, rather than a choice. Customers expect turnarounds to be quick and have become accustomed to lightning-fast transactions.
A digitized supply chain allows businesses to shift their models from large, slow-moving inventories to a streamlined operation dictated by the needs of the consumer with faster processing and shipping. Older manual operations will simply not be able to cut it as industry 4.0 begins to take hold.
Silos are a costly and wildly inefficient aspect of any business. For supply chains, people, teams, or tasks which are siloed means operations aren’t streamlined and it’ll hit the bottom line.
This is especially important to SMBs. With rising inflation necessitating cost reductions in the supply chain, it’s vital that businesses explore every option to streamline. It’s estimated that gross cost reduction needs to be 4-6% in order for organizations to hit their productivity targets.
With silo-based initiatives in digital transformation offering estimated operational savings of 5-10%, it’s easy to see why so many are implementing strategies to avoid siloing within their supply chains.
Actionable Data from Analytics
Perhaps the most significant revolution of supply chain management. Advanced analytics provides insights into operations which give decision makers a crucial source for streamlining.
Around two-thirds of supply chain managers acknowledge that analytics is central to the operations of their supply chains. Analytics help managers forecast their inventories more effectively, track products better, see demand patterns, and assess shipping performance.
Incorporating data analytics into your supply chain will effectively give you a crucial advantage over your competitors by offering you greater insight into your processes than you’ve ever had before—strengths, weaknesses, bottlenecks; it’s all in the data.
Flexibility is an integral part of digital transformation. Anyone who’s ever conducted a strategy for DX will tell you that creating a more agile and flexible business is essential.
With supply chain management, this means being able to make decisions in an instant and, if necessary, changing direction quickly. This is most evident in just-in-time (JIT) production—the practice of being able to dictate exactly how much inventory you need at any given time.
This is achieved through data, and affords your business the flexibility of being able to precisely determine what you need and when you need it to meet demand.
A digitized supply chain is similar in many ways to implementing advanced tech into any other aspect of your business. Process automation is central to many DX strategies, and the supply chain is one of the biggest beneficiaries of it.
Manual processes that consume a considerable amount of labor can be eliminated, and automated inputting means the likelihood of data errors is reduced substantially.
Digital supply chains are dependent on automation, continuously fulfilling orders, meeting high demand, and lessening the impact of operational costs.
While SMBs don’t and can’t necessarily operate the supply chains to the same level of a multinational corporation like Amazon, it’s perfectly reasonable to adopt similar methods—like automating workflow triggers—to improve your efficiency.
- Businesses that don’t implement digital strategies for their supply chains risk falling behind
- Digitized supply chains offer far greater opportunities for streamlining than manual processes
- Digital transformation can help cut operational costs to counter rising inflation
Impact is a leading provider in managed services, working with SMBs across every industry. We offer tried-and-tested strategies for digital transformation and process optimization and we only partner with vendors offering best-in-class solutions.
Click here to find out more about our managed process optimization program.