Change is not transformation. Supply chains, by necessity, have undergone constant change since before the industrial revolution, and the tempo of innovation has only accelerated within the last few decades. Advances such as mechanization, for example, as well as computerized inventory, routing and record keeping have all made supply chains more efficient. More recently, sophisticated enterprise resource planning (ERP) software has enabled supply chains to adapt to the global economy.
Yet, despite these improvements, traditional supply chains have stolidly retained their fundamental reliance on localized processes and documentation, and the delivery of palletized goods to mass market resellers.
The digital era, however, is necessitating something more than operational tweaks to today’s supply chains. Consumer-driven digital platforms like e-commerce, mobile networks and social media are all empowering customers to research and shop for what they want, tailor it to their specifications, purchase it at virtually any hour or location and expect delivery within days, if not hours. The palletized approach to manufacturing and commerce is slowly giving way to a global-scale market driven by personalized delivery of single-unit products.
Fortunately, these same consumer-driven digital technologies – combined with the Cloud, Big Data and the Industrial Internet of Things (IIoT) – are also helping traditional supply chain structures transform into intelligent digital models that enable end-to-end visibility, broader collaboration, more actionable insights and accelerated response times.
The proliferation of digital technologies is only one of many drivers fueling the transformation of the supply chain. There are actually several megatrends converging from both the market and manufacturing side to necessitate and enable the digital supply chain.
Changing generational expectations: Millennials and Gen-Z consumers have radically higher expectations than their parents when they go to market. The first generation to grow up with the Internet and cellular technology, these tech-savvy customers make full use of mobile and social media platforms to research, buy and critique the products they purchase. These new generations also expect greater control to personalize the goods and services they order, and to see those products delivered within diminishing time frames.
Product complexity: Like the consumers who buy them, products themselves are becoming increasingly sophisticated and complex. This trend no longer applies only to personal electronics. The proliferation of inexpensive microsensor technology and wireless connectivity is now turning basic goods like clothing, appliances and even vending machines into intelligent systems that are much more complicated to build than their predecessors of just a decade ago.
Collapsing product lifecycles: The competition for market advantage is getting steadily fiercer. Many companies – particularly those in consumer electronics, software and other technology markets – are seeking to gain advantage by shortening product renewal cycles. This is placing greater demand for more proactive forecasting and planning in the supply chain by applying prescriptive and predictive analytics that increase accuracy amidst this rapid change.
Outsourced manufacturing: The outsourcing of manufacturing services, according to a research report is expected to grow at around 5 percent CAGR between 2016 and 2024. However, coordinating logistics with such partners can compound the complexity and challenge of supply chain management. To do this effectively, companies are turning to enterprise resource planning (ERP) and material requirements planning (MRP) systems to allow them to remotely manage day-to-day operations.
Globalization: As products are increasingly developed for and sold into global markets, their component parts are sourced more and more from global suppliers. Fortunately, thanks to ever improving transportation, communications and IT systems, businesses today can often leverage suppliers and lower-cost labor pools located anywhere in the world. These far-flung resources can raise risks, however, in the form of supply chain interruptions from political unrest, natural disasters and even military operations. Predicting and planning for these issues requires local insights enabled by global data and communications networks.
Supply chain savvy in the C-Suite: There is growing recognition in today’s organizations that the supply chain is more than another tactical function of the business. This trend is evident in the morphing of chief procurement officers into chief supply chain officers, demonstrating the expanded scope and importance of their responsibilities. In addition, supply chain awareness and management is increasingly becoming integral to sales, revenue and operational targets.
The digital transformation of the supply chain will, in essence, integrate an enterprise’s traditionally siloed purchasing, planning and logistics processes into a centralized platform to allow a more uniform, automated, exception-based process that operates on cutting-edge technological tools. Under a conventional supply chain model, for example, a part supplier might need to create a shortage list, file it by email to a buyer and wait for a response. Contrast this to a digital structure that could push the list automatically to a buyer with no interaction with any other humans or other tools. This would speed up the process of actionable activities for the buyer.
On a broader scale, the digital supply chain will allow businesses to quickly assess and align new products to preferred supply chain strategies, pinpoint and mitigate risks earlier in the product lifecycle and identify end-of-life components to ensure a more stable and reliable supply pipeline. Most importantly, it will make businesses more competitive by allowing them to quickly and accurately respond to broad and changing customer demands.
Fortunately, many of the enabling technologies are already familiar fixtures to manufacturers seeking to implement digital manufacturing models based on the growing Industrial Internet of Things (IIoT). RFID, GPS and wirelessly networked embedded sensors can now collectively generate supply-side data from every corner of the globe, and stream it in real-time via the Cloud to every stakeholder in the process, from design to production and beyond.
While this unstructured sensor data offers massive volumes of real-time information, the challenge is filtering only the most relevant, actionable details. At any given time, for example, Jabil may work with as many as 17,000 suppliers providing 700,000 different parts to 100 factories for 250 global customers. Such complexity, by definition, cannot be simplified. It can, however, be managed more efficiently through technology and analytics.
The first step toward managing complex volumes of supply chain data is to channel it through a centralized control tower. This simplifies the task of applying powerful analytics to identify priorities, assign resources, flag emerging supply issues and establish corrective action plans. In short, it centralizes all tactical and logistical functions for the company’s complex global supply chain ecosystem.
Next, by applying complex event processing and cognitive analytics, the technology can improve the tempo and accuracy of decision-making, and foster new opportunities for collaborative innovation with all parties within its supply chain ecosystem. Consider the potential benefit to logistics, for example, if algorithms and heuristics could proactively identify emerging trends from the rivers of data streaming in from suppliers, manufacturers, retailers and other partners.
Analytics can further be automated to help proactively protect against supply chain disruption. Similar to the mindset behind development of the driverless car, analytics seek to enable a driverless piloted supply chain that automates all analysis. Achieving this would free managers to focus on making critical decisions and implementing improvements.
If the operational goal of the digital supply chain is to keep pace with a dynamic digital economy, its functional goal is to bring real-time, end-to-end actionable visibility across inventory, logistics and suppliers. Combined with actionable analytics, this permits better, data-driven decision making, improved accountability and more sophisticated means for embracing complexity.
Creating seamless visibility between functional silos offers other benefits as well. In the past, businesses relied solely on research and development to drive innovation. But by integrating insights from all players on a centralized platform, the digital supply chain can tap input and ideas from upstream suppliers, internal and external design and manufacturing resources and downstream customers and social media networks. This introduces a potent new resource for improving service and generating new ideas.
Practical solutions may include web-based social and mobile platforms that provide round-the-clock access and automated notifications about real-time metrics and supplier performance data. The ubiquitous connectivity of such platforms further offers a dynamic alternative to the traditional linear supply chain structure. It helps reduce or even eliminate latency for supply-side players, and facilitates faster demand-side planning and fulfillment. Lastly, it fosters new opportunities for cross-functional collaboration on material constraints, target service levels or ways to innovate new value at every level of the supply chain.
Visibility also introduces broader risk management options. While the digital supply chain cannot eliminate risk, it can help businesses reduce costs by identifying or even predicting capacity constraints due to blockages in the pipeline or potential end-of-life components. This capability extends beyond simply flagging risks, however, to also provide insight into what is driving them.
The intelligent digital supply chain is only part of a larger evolutionary trend toward the enterprise of the future, which shares the same aim of optimizing existing resources and capabilities to achieve higher levels of business performance. It is important to emphasize these trends require more than simply leveraging a handful of digital technologies. Rather the goal is to align tools such as the IIoT, mobile and social platforms and cognitive computing to bring the entire supply chain into view on an intuitive and actionable platform.
The digital revolution is only warming up, and new tools will introduce new possibilities. For example: blockchain technology – which underpins the bitcoin digital currency – can be used to record sequential transactions to track the progression of assets through the supply chains or electronically initiate and enforce contracts.
Another example is 3D printing, which will push the point of manufacture further from the factory and closer to customers. Early advantages of this trend may be faster service from aftermarket vendors and reduction in warehouse costs. But some envision a future in which 3D printers become a household fixture, allowing customers new opportunities for immediate delivery and customization of products they purchase.
After decades of incremental advances, today’s supply chains are poised for transformative redefinition of their structure and capabilities. Traditional manufacturers who successfully implement it will be transformed as well.