May 27, 2021
When we talk about a digital supply chain, what are we really talking about?
We’re really talking about digitally-enabled collaboration. Enterprises have come a long way connecting business functions internally via ERP systems. Now, the digital supply chain is helping integrate trading partners externally—digitizing, connecting and automating inter-organizational processes to make them more efficient, effective and economical. It’s a phenomenon that is transforming supply chain KPIs and even reinventing the competitive landscape in certain sectors.
How will a digital supply chain help my business?
When trading partners are digitally connected, much of the potential inefficiency and inaccuracy are removed from many different functions. Overall operating costs and business risk is lowered, while process speed and business growth is accelerated. And, in general, your use of capital is optimized throughout. It’s kind of hard to see without a specific example, however, so let’s take a look at your common, everyday sales order.
A customer may email a PO, which a customer service rep will then enter into an ERP. The order will be pulled or transferred, and if the order can be immediately accommodated it will be packed and shipped. An invoice will be issued, the warehouse will update its inventory and the sales price will be added to AR. So, nothing too unusual happening here. But it’s not optimal, is it? In the above scenario there’s an anxiety-inducing “black box” quality whereby buyers don’t really know what’s going on with an order outside of periodic, vague updates. For one thing, the buyer is assuming the seller actually has the product in stock and can deliver in time. The order isn’t entered in real-time; it sits in a rep’s email or on their desk until they can get to it. And what if it’s ordered incorrectly or the quality of the product isn’t up to par? The seller goes through all of that, then has to eat the costs and waste the time associated with doing it all again. Not ideal at all.
A digital supply chain would let the buyer see into the seller’s back office. That means they can confirm that inventory is on hand, and even review and confirm QA/QC certifications for each product. Their order is automatically submitted to the seller’s ERP, so it’s exactly what the buyer asked for. And every step along the way is transparent and traceable, enabling the buyer to see what’s going on from the factory floor to the specific truck delivering their order. Less work, less risk and more value for everyone. And this value can be created not just for order-to-cash processes but across practically any supply chain process from procurement to logistics.
What is the difference between a digital supply chain and a digital supply network?
Ah, that’s a good question. So the optimal scenario I just discussed in which trading partners within a single supply chain are digitally connected is a digital supply chain. So BASF, for example, has a digital supply chain that’s optimized and collaborative. A digital supply network, by contrast, is the aggregate of all companies and supply chains connected across hundreds of organizations. So think of not just BASF, but also the hundreds of other companies connected via the Elemica network. Something like a trillion transactions are conducted across our network annually in industries as varied as petroleum refining to textiles to tires and pharmaceuticals. And the great thing is that these hundreds of organizations might not do business with each other today, but if they enter into a business relationship tomorrow there is an existing supply chain infrastructure waiting for them that will give all parties a competitive advantage.
Where does global business stand in terms of supply chain automation?
Well, that really depends on the industry vertical, as well as the type of enterprise. I think on the whole the number I keep seeing most often, and with the highest degree of credibility, is about manufacturing businesses and it states that by next year around 40 percent of all manufacturers will have a digital transformation initiative in place. So there’s a lot of value left to be created.
Are there any business or operational aspects of your supply chain that can’t be digitized and automated?
Well, strategy for one thing. We can do extraordinary things with a digital supply chain, and optimize organizational execution to an amazing degree. But we still need people to take on people-suited problems. We’re not creating human-free processes here; we’re simply freeing up people to do the things only people can do—and there are still a lot of those. Organizational leadership, many aspects of human resources, research and development, many types of sales functions, etc. People often ask when we feel like most industries will adopt a 100 percent humanless supply chain. And the answer is: never. All of this technology, all of the interconnectivity and advanced Industry 4.0 advances; it’s all there to empower people across the organization and supply chain. Highly automated, connected and intelligent digital ecosystems paired with human touch will help customize end-user experiences, optimize workflows, etc.—getting the best from both the people and technology involved in the process.
If you can only afford to automate one supply chain function, what should it be?
This is a very common question, but the answer is typically quite specific to each organization. A more productive way to consider this issue is to understand that the first step in implementing a digital supply chain is to build a roadmap for your specific organization that can take you from where you are now to where you want to be. This is actually more work than people first appreciate. At Elemica, we have a formal consultation service called a Digital Transformation Journey in which we walk organizations through this process. Of course, our way is just one way to do this, and the important thing is simply that you’re honest with yourselves about your current situation and that you’re able to review opportunities for connectivity value creation in a comprehensive way. Building out a digital supply chain is a technology initiative, but it’s also strategic, operational, financial and developmental.
How does a digital supply chain deal with data inconsistencies?
This is something that’s improved a lot in recent years. We’ve developed a variety of applications and technologies to ensure that trading partners can access and make use of transactional data. For everyday levels of data discrepancy, our network relies on what we call a Universal Translator™ that creates Universal Business Documents out of every data type as a way to standardize information for transactional use. For out-of-the-ordinary inconsistencies whereby, for instance, as a result of M&A activity, a business has disparate data labels and values for various products or locations or services, we have a module called ENRICH. This is a module that helps normalize data values across the supply chain. It integrates into all of your other platforms to do things like pre-process data, flag order lines with unrecognized line items, try to find out the correct nomenclature for everything and just make it easier for all of your systems to work together in general. With the rise of artificial intelligence and machine learning, these technologies are getting more and more effective all the time.
How secure is my supply chain data while all this is going on?
It’s very secure. The nature of technology in general means nothing is 100 percent secure, and that’s just a risk we take everyday with online banking and the internet and everything else. But when it comes to supply chain data, extensive protocols are put into place to protect data—and these measures are performed by every organization involved in the implementation. Businesses and governments go to great lengths to employ custom supply chain security applications and protocols, encryption, blockchain, predictive technologies, proactive testing and so forth. Many of the most prominent corporations in the world route transactions across our network, and each of them has an aggressive and innovative portfolio of digital security measures and technologies that must go into place before a single transaction is conducted.
What’s the biggest mistake many enterprises make when digitizing their supply chain?
In my opinion, it is being shortsighted and not thinking through potential solutions at scale. For example, say a company makes automobiles and maybe they struggle finding suppliers for wiring harnesses. They want to employ technology that will help streamline supplier identification, selection and contract negotiation. They find an off-the-shelf application that will specifically help address this problem. But how will the solution scale? Just because it works with your enterprise and supply chain environment today doesn’t mean that it will work with what your digital supply chain environment will become in one or five or 10 years. Implement six such solutions that fix six different problems but won’t scale up or work with other systems, and you’re setting yourself up for a bad situation. Alternatively, if you shopped for a solution with the awareness that you needed that solution to be interoperable with your future supply chain environment, you’re making everyone’s life easier. You can solve wiring harness sourcing, and then add automatic wiring harness PO processing, quality control, tracking which harnesses go into which cars, etc.—without necessarily spending any more money on the original solution.
Are supply chains back to “normal” now after the pandemic? And will supply chains really be more resilient going forward?
When the general public thinks about supply chain, they’re usually thinking specifically about sourcing. “Can I find the things I want at a store?” is usually at the forefront. As of this writing, not every market or geography is back to what many would consider normal. For both businesses and everyday consumers, shortages of goods requiring microprocessors are still bottlenecked. There’s a run on plastics right now, and rubber. Even actual shipping containers. Of course, those whose business involves supply chain optimization understand that supply chains are a complex discipline and infinitely interconnected. Supply chain issues tend to compound in a way that can be slow to heal at times. But the impact of 2020 did shock many organizations into sustained improvement initiatives, exploring ways not just to leverage supply chain technologies for cost savings but for other factors such as overall resilience. So I think for at least the next decade we’ll see much more of a focus on supply chain durability. Experts have been saying this was necessary for years, but I guess it took a lack of toilet paper to effectively drive the point home.