Companies, across industries, are starting to transform their supply chains by leveraging new digital technologies that can improve performance and reduce costs in their supply chains. A new report makes the case for a major transformation in the digital supply chain by focusing on the customer.
The benefits can be significant. Procurement and supply chain costs can be cut by 20 percent and 50 percent, respectively, by improving enterprise digital supply chains (DSC). These improvements also can boost revenue by 10 percent. These findings are true across industries, according to the Center for Global Enterprise (CGE).
The most important transformation for companies over the next five years may be tied to enterprise supply chains, according to CGE.
The report was released by the Digital Supply Chain initiative (DSCi), a new project of CGE in partnership with CREATe.org. The DSCi was launched to address the gaps in management knowledge around what is a digital supply chain and how to operate a digital supply chain.
“Companies around the world are re-thinking and transforming their supply chains as they see new digital technologies and organizational models coming to the forefront of business,” said George Bailey, CGE’s DSCi project leader, in a statement. “Successful companies will take advantage of new management practices, a continuously expanding data reservoir and new technologies relevant to DSCs if they are to have future competitive advantage and delighted customers.”
The white paper, Digital Supply Chains: A Frontside Flip, provides practical steps to prepare for the digital supply chain of the future. This includes a digital supply chain execution framework and roadmap to help businesses transform their supply chains by “focusing on the customer and maximizing demand.”
Part of the transformation includes understanding technologies that affect all enterprise supply chains and the key differences between traditional supply chains and digital supply chains.
At the heart of the transformation is a new approach to enterprise supply chains. The initiative describes it as flipping the focus to the customer-facing side, or the frontside, of the business, which enables closer relationships with customers. However, the shift to the frontside will be difficult for supply chain organizations that have focused solely on procurement, manufacturing, shipping and logistics, said CGE.
The biggest factor enabling this change is the “enormous influx of new data.”
“Business leaders must think about how, when and where their companies will draw upon this data to make decisions. These leaders can also leverage data and the Digital Supply Chain to help determine who should be making what decision at what level in the company. Supply chain decision rights are important, but so is collaboration. And effective collaboration within the company, and with external stakeholders such as suppliers and customers, will be the differentiator of a company’s success. Within the organization, functions such as product development, supply chain, marketing, IT, legal/compliance, HR and finance will all have a role in executing the frontside flip. Overcoming the natural boundaries between internal company units, and between suppliers and customers, will require companies to implement new management thinking and approaches.
“Scholars and supply chain consultants are struggling with the topic and frequently revert to yesterday’s supply chain principles. Yet it is clear that new approaches to business, such as platform business models, are having a profound impact on global commerce. And even if these new models are not yet fully understood by business leaders and others, their impact on traditional supply chains is already being felt.”
The potential of platform business models include accelerating growth and market share as well as significantly cutting costs, according to CGE. However, companies will have to leverage new management practices, big data & analytics, automation, and social media in order to stay competitive and take advantage of these benefits.
In addition to revenue growth and cost reductions, companies also can make gains in customer satisfaction, enterprise agility, visibility, productivity and real-time awareness.
The new digital supply chain also enhances a company’s ability to see and address risk, and delivers greater visibility around requirements such as compliance. But at the same time, it will increase risks related to cybersecurity and protecting intellectual property (IP). CGE believes it will require a proactive approach to manage risks, including cybersecurity, data mining, IP theft, and compliance requirements.
The digital supply chain is expected to have a significant impact on the two fundamental areas of supply chain risk – business performance and compliance/regulatory risk. The initiative, which surveyed leading companies, including Acer, Fujitsu, and Western Digital and their supply chain leaders, asked them to select their top five risks today. The biggest risks cited included supplier performance (90%), effective integration (76%), and matching supply with demand (76%).
A digital supply chain will change the dynamics between these business performance risks and compliance risks, said CGE. One example cited in the report is the significant drop in supply/demand risk by using real-time data.
Supply chain leaders also were asked to rank key performance indicators (KPIs) that they use to measure their supply chains. The survey found that product quality and cost were two of the most important KPIs, followed by on-time delivery.
The survey also revealed that 53 percent of respondents expect “moderate-to-extreme change” to their supply chain KPIs over the next five years. Only two percent expect no change.
While CGE expects these leading KPIs – product quality and cost – to remain, they will be joined by other metrics including product design, demand simulation, and real-time customization.
“Supply chain leaders have done a good job of optimizing results by managing suppliers, moving manufacturing to low-cost locations and increasing the efficiency of logistics. But these steps are insufficient in the world that is being reshaped by big data and analytics, new technology, new people skills and an increasingly risky operating environment,” according to the report.
Companies that are successful in this move to new digital supply chains will collaborate with their “suppliers in a new way” and let customer collaboration “drive innovative products and services,” said CGE.