Heralding the next era of supply chain management, digital transformation is creating blurred lines between the digital and physical worlds. Customers and suppliers are coming together in a host of new ways, removing traditional organisational boundaries, and paving new paths for a digitalised future. It’s an overarching and unavoidable revolution, driven by the confluence of several technological disruptions.
The latest digital technologies make it possible for companies to comprehensively transform the way in which their supply chains are managed. Combining digital applications with operational changes helps to yield significant performance improvements that can stand the test of time. However, many companies remain behind the times in this front, failing to seize the opportunity at hand.
The recent pandemic’s disruptive impact on global supply chains has heightened the need for organizations to focus on risk mitigation and increasing resiliency. By capitalizing on digital technologies and increasing real-time visibility into every part of the value chain, companies can proactively identify areas of potential risk prior to an issue, or more quickly notice and respond to disruption.
Digital transformation in the supply chain is the process of applying and integrating information, communication, computing, and a range of connectivity technologies into supply chain operations, from inventory management, the storage of information, all the way to transportation and distribution.
A renowned example of a successful digital supply chain is Amazon. The company spends just over 12% of its overall revenue on the innovation of their technology, not just the technical components of their business operations, but also those within the supply chain. Drones, robotics automation, sensor-based monitoring, augmented reality, and artificial intelligence (AI) all give Amazon the advantage in revenue growth in the consumption and retail supply chain. When compared to the physical supply chain, the digital supply chain offers more benefits about flexibility, thereby reducing overall time and operating costs.
Digital transformation in supply chain, when leveraged well, will help increase business performance while solving many traditional problems related to reliability, agility, and efficiency.
The digital supply chain isn’t just about risk mitigation, it can also be a source for creating increased competitive advantage. Every node in the supply chain is leveraged for business intelligence and greater collective benefit, benefitting the company largely.
A recent McKinsey study found that the average supply chain has a digitization level of 43 percent, the lowest of five business areas examined for the study. A mere 2 percent of the surveyed executives said the supply chain is the focus of their digital strategies.
The McKinsey study suggests that, on average, companies that aggressively digitize their supply chains can expect to boost annual growth of earnings, before interest and taxes, by around 3.2 percent—the largest increase from digitizing any area of a business —the annual revenue can also show growth of up to 2.3 percent, highlighting the long term benefits of the Digital transformation.
Digital transformation is utterly changing the landscape of the traditional supply chain. The change comes in a predominantly positive manner however, with any new development comes a host of issues.
1. Cyber Security Risk
Digital transformation is breaking down the traditional barriers that can hinder innovation and collaboration, but in doing so, it is generating increased opportunities for unwanted visitors attempting to obtain access to a system, therefore exponentially increasing the posed supply chain cyber risks.
With the ubiquity of remote work and extension of internet-connected devices in contemporary society, email has cemented its place as the true system of record for businesses. Unfortunately, email is also the most common attack vector for cybercriminals, with over 96% of all security attacks starting with an email. Using software, such as Mimecast can help prevent new threats and stop advanced email security threats.
Any security gaps in organizations’ supplier networks can serve as ingress points for hackers. Sophisticated hackers frequently exploit third-party vulnerabilities to gain access to their ultimate target. On the flip side, companies can also be the access point for hackers to reach their supply chain partners and end customers, resulting in reputational damage and lost business, particularly if the victim organization is deemed cyber-negligent.
All suppliers and customers should endure an evaluation process that can identify a range of cyber risks. The identified exposures should then be addressed with contractual provisions and clear minimum standards. The measures taken should be commensurate with the risk and overall value of the relationship.
2. Changing Customer Expectations
The customers of today have little to no tolerance for incorrect or delayed orders. Fast fashion and the wide-spread influx of next-day delivery options has left consumers with the expectancy of fast delivery times with limited to no errors with their order. Many companies are re-evaluating their distribution models as consumer shopping habits change.
The expansion of eCommerce throughout the pandemic, along with the digital transformation, increased consumers’ desires to follow an order from placing an order, to transit then delivery. digitizing the supply chain is almost necessary for keeping up with the evolving customer expectations in contemporary society.
3. The Connected Supply Chain
Recent advancements in supply chain technology can give companies insights into asset status and location in real-time. GPS and Bluetooth tracking also allow customers to receive tracking updates. Automation and business intelligence technologies have been central to improving adaptability and optimising the supply chain for variable customer demand. When done right, a connected supply chain can provide results including increased visibility, responsiveness, and resiliency across the entire supply chain ecosystem.
4. Demand-Driven Supply Chain Management
Demand-driven supply chain management isn’t a new phenomenon, however what is new is the vast amount of data readily available, along with our growing ability to draw valuable insights from such data. Traditional methods of demand forecasting are based on historical demand levels, disadvantageously this doesn’t always produce accurate reflections of the current demand environment.
Smart analysis of data provided by embedded sensor technologies monitoring can vastly improve the accuracy of demand forecasting and replenishment. Predictive analysis and machine learning can account for these additional variables to reliably predict demand, recognise patterns, and anticipate changes.
The digital transformation in supply chain management provides an abundance of benefits, along with a host of difficulties in the period of adjustment. Digital technology, despite its seeming ubiquity, has only just begun penetrating industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic. This will become more noticeable over the coming years, as the impact and implications will be more apparent.
Let us know how the digital transformation is impacting your business or consumer habits in the comment section down below.
From The Team @ Cloud9 x