Digitizing the Supply Chain is the goal of modern organizations. Yet 84% of digital transformations fail. What are we doing wrong? What are the key success factors?
It’s easy to write Supply Chain digitization into an organization’s strategy. However, carrying out the transformation is already a major challenge. Most often, the project remains in the hands of the CIO or CSCO and does not involve the other functions of the company.
Meanwhile, creating a digital twin of the Supply Chain involves the entire organization. It is not about implementing yet another IT system, but about changing the approach to the way we do business and finding new ways to deliver value to the customer.
What supply chain digitization means?
Digital twins are emerging from the combination of many technologies. Starting with systems for demand and supply planning, global methods for tracking the origin and location of goods, and ending with new manufacturing methods and automated distribution centers.
By strategically approaching the digitization of its Supply Chain, an organization can create an effective ecosystem that connects all participants in the market exchange – suppliers, manufacturers, retailers and Consumers.
A variety of opportunities are emerging in every industry. Retail chains are testing point-of-sale food printing. Pharmaceutical companies are installing sensors inside product packaging to meet increasingly stringent regulations and track the movement of their goods. Global FMCG/CPG companies are embarking on direct sales and expanding into omnichannel.
Logistics operators are investing in the robotization of distribution centers and the application of artificial intelligence. However, there are more examples of failed implementations than actually successful projects.
Not all organizations are able to realize the potential of emerging technologies. What are the key success factors in any company’s digital supply chain transformation?
Digitization success factors
A survey of Supply Chain executives conducted by Korn Ferry reveals that the lack of a complete strategy in the organization and the difficulty of finding and retaining digital talent within the company are considered the biggest barriers to bringing digital twins to life. Other research highlights the issues of a data-driven work culture.
Supply Chain digitization projects also require significant financial investment. As a result, return on investment can typically be expected within 3 to 5 years. Interestingly, however, for the organizations surveyed, it is not the lack of investment funds that poses a challenge in carrying out the digital transformation.
Leaders of the largest companies recognize that even on the technical side, it is the people and their expectations and emotions that influence the commitment to the digital revolution. Such key success factors in change management have already been scientifically understood. They can also be managed.
So how should strategy, talent management, and creating a work culture be approached in the context of Supply Chain?
Complete supply chain strategy
The first step of the transformation must be to establish a common digital strategy for the company. Without breaking down organizational divisions and determining what the customer experience should look like, it is not possible to define the role of the Supply Chain. Not to mention specific technologies or investment needs.
Understanding CEO priorities is fundamental at this point. Gartner conducted a survey of 460 presidents and CEOs from around the world. The results indicate that from the perspective of managing the entire organization, the most important issue remains the level of turnover. However, the search for new operating models is becoming increasingly important.
Digitization of the Supply Chain should therefore be part of this trend. When working to define an organization’s strategy, it is important to look for new business opportunities and not just technologies that increase the efficiency of current logistics processes.
Another important issue in defining the strategy is to revise assumptions about the cooperation between IT and other functions in the organization. In most companies, IT’s role is still to provide cost-optimal infrastructure and maintain the operational efficiency of the systems in use.
This is not conducive to openness to change. In contrast, many modern supply chain planning tools are based on technology that must be implemented outside of the current ERP system. As a result, openness of architecture is required, as well as flexibility in matters of integra
Digital talents
Technology alone never creates business value. Despite the undeniable technological advances we have seen in recent years, people remain the backbone of any organization and any Supply Chain. This is because technology does not replace people.
Technology supports people to achieve results that would not otherwise be possible. However, it is simultaneously changing the requirements they face. This is why Supply Chain leaders talk about the difficulty of finding suitably talented employees.
The perceived lack of a large enough pool of these „digital talents” is holding many organizations back from taking the first step toward Supply Chain transformation. This represents a mistake, however, because the revolution we are talking about does not require a universal understanding of every aspect of the technology being used.
Today’s cloud-based and browser-accessible systems are designed to be used by anyone who can use a personal computer. They can also be tested without investing in their own infrastructure.
That’s why, in each industry, the companies that are most successful in digitizing the Supply Chain are creating so-called competence centers. The role of a digital competence center is to experiment and see which technologies bring the desired results.
There is no single model for such a center. General Electric has created an incubator in Silicon Valley. Kellog invests in small logistics companies and buys out a select few that meet the expectations placed on them. Competitions for the best digital start-ups have begun to appear on the Polish market.
So the organizational form is not important. What is important is the approach that in case of failure allows to minimize losses, and in case of success allows to convince the rest of the company.
As a result, even a small group of people who are not afraid to make mistakes can form the nucleus of a Supply Chain transformation.
The culture of data
The final factor required for Supply Chain transformation is to implement a data-driven work culture throughout the organization. The search for and testing of a digital model tailored to a given enterprise can itself be done by a small team. However, the use of the model already depends on everyone.
Therefore, to maximize the potential of digital twins, companies must both change the way employees and executives collect and use data.
On the one hand, it is crucial to understand that while the volume of data may grow exponentially not all information is of equal value. Data collection should therefore be selective and automated.
Otherwise, the complexity of the data sets created by the digital Supply Chain will exceed the analysis capabilities of the organization’s members. Storing unused information will place a burden on employees which will limit support for the implementation of new technologies.
On the other hand, in order to take full advantage of the opportunities provided by digital twins, it is important to be oriented towards decision-making based on the conclusions of the analytical tools used. Building a new Supply Chain model and making decisions still based on legacy heuristics or solely on the opinions of internal experts does not make sense.
The example of faith in the results of digital tools must come from the board level. If the CEO or CSCO promotes Supply Chain transformations while mostly making arbitrary decisions then one cannot expect the rest of the organization to adopt a different operating model.
Of course, digitization should not lead to blind trust in the results of the system. However, it should involve all functions in the organization using an iterative approach to make decisions based on a common source of information.
This represents a change in mindset that needs to be constantly promoted and celebrated so that it becomes part of the work culture of the entire enterprise.
Next digital steps
Digital transformation is not a remedy for all Logistics problems. As a result of creating a digital twin of the Supply Chain, business processes can be improved but it is naive to think that the organization’s fundamental problems will be solved at the same time.
The implementation of new technologies should therefore be preceded by the preparation of a team consisting of both senior management, who drive the vision and strategic changes, and functional experts responsible for implementation.
Even a well-prepared team, however, may need additional outside expertise and assistance. Many times, an external advisor plays an important role in the digitization of the Supply Chain. It provides knowledge of the solutions available on the market, a fresh perspective, and most importantly, the necessary arbitration between the different departments of the company.
The road towards digitization can be a long one. So consistency, a long-term view, and taking the first step as soon as possible are essential.
