Supply Chain 4.0: Managing a digital transformation

As digitizing supply chains becomes easier than ever, managing them is becoming harder. To deal with this complexity, organizations should understand not only where and how to digitize, but also who will lead them—balancing the steady wisdom of experienced supply chain professionals with the drive and ambition of new digital talent.

As with all journeys, sometimes the first step is the most difficult: as you begin incorporating digital to your supply chain, deciding where to focus your efforts can seem overwhelming. Get it right, however, and you can see real impact across your organization: my previous post, Opportunities to use your supply chain for differentiation, showed how a typical $10bn organization can expect to see a $70m earnings before tax (EBT) improvement, and a potential $85m cost reduction.

A few early movers are already capturing results like these. A large consumer packaged goods company, for example, used big data and advanced-analytics techniques to dramatically increase its end-to-end supply chain visibility and decision making. By developing and deploying a performance-management engine that tracks supply chain performance—and supports better exception management and root-cause problem solving—the company was able to identify and deliver a 20 percent inventory-reduction opportunity.

A question of balance

To be successful in a digital transformation, though, it’s important that your supply chains retain traditional strengths (reliability, predictability, quality) while also allowing for innovation (greater use of automation, quicker responses to changing needs, more transparency across supply chain). That calls for a two-speed approach to your supply chain: being brilliant at the fundamentals of supply chain management, and at the same time being quick to test and fail with new digital offerings. The combination lets you introduce Supply chain 4.0 to your organization in a smooth and measured way.

It also means considering how to identify the best mix of people and machines. For instance, robotic process automation (RPA) is a valuable tool in your supply chain digitization process, especially for tasks that are highly repetitive, prone to human error, seasonal, time-critical, and rules-based. The operational benefits include lower labor costs and higher customer satisfaction. But RPA can’t—in quite the same way a human can—negotiate a contract with a vendor or interpret weather data to prompt an increase in the supply of ice cream or umbrellas.

So businesses must use RPA thoughtfully. Until relatively recently, a global technology company was still receiving customer orders via email—in a variety of formats—which then had to be input manually into the company’s sales and resource planning system. By automating this order-input process, RPA reduced the time required for order confirmation by more than 75 percent, while also reducing order-processing errors and labor costs. And, at the other end of the supply chain process, a global manufacturer in foods and personal care built more than 30 use cases for RPA across its entire supply chain, from pre-planning and user-profile development through to shipment execution and monitoring and reporting. The effort saved over 1,500 employee hours each month and cut service requests by more than half.

Ninja and samurai

Then there’s the people side to consider. When you begin the transformation to a digital supply chain, it can be easy to become enamored with the new, high-energy digital “ninjas”—so called because they’re quick, agile, and use a wide range of new tools. They have their finger tips on huge quantities of data, and an innovative approach that can tell us everything about customers, the manufacturing process, and suppliers. But to create a sustainable digital supply chain, it’s also important to remember the input of your guiding supply chain professionals, the “samurai” known for their deep expertise and loyalty to an existing order.

By placing equal value on both groups of people, you’ll be able to create an environment in which the samurais learn the digital skills of the ninjas, while the ninjas absorb some of the samurais’ experience in more traditional methods of supply chain management—an environment of circular mentoring. Developing the samurais’ ability to analyze data in a meaningful way will be the key to unlocking the valuable insights from the data produced by the ninjas. Conversely, ninjas who understand the existing order in more detail are better able to identify new targets for their digital weapons.

Managing risks at two speeds

Even as the samurais and ninjas start working together to transform your supply chain into digital, though, it’s important to keep risk factors front and center of your consideration. Early on, a structured assessment of risks—both known (transportation availability and costs, raw material costs, competitor activity) and unknown (extreme weather events, unexpected trade tariffs, significant quality issues)—can help to mitigate supply chain interruptions, whatever the cause.

But probably the most important risks to mitigate are those that can arise from the transformation itself, especially when a transformation loses sync with the technology needed to support it. At one extreme is “pilot purgatory,” in which perfectionism and inflexible processes keep promising ideas from ever reaching scale. At the other, the transformation can end up promising much more than existing technology and practices can deliver.

A two-speed approach, which plays on distinct ninja and samurai strengths, provides protection. The idea is to build a startup culture based on rapid piloting, with rollouts using agile methodologies—even while the organization and IT landscape are being established. How to manage all of this at once? The solution is an “incubator” providing a high degree of organizational freedom and flexibility as well as state-of-the-art technologies that are independent of existing legacy systems. This structure enables short cycles of development, testing, and implementation of solutions for integrating into the current IT later, emphasizing minimum viable products that avoid the temptation to add technologies regardless of their value.

The incubator is the natural home of the ninja. Its ability to iterate pilots quickly is essential not only for practical reasons of gathering business feedback on proposed innovations’ suitability and impact, but also to create excitement and generate trust in the innovation process. The incubator is therefore the seed of Supply Chain 4.0 in the organization: fast, flexible, and efficient.

The samurais, meanwhile, play an equally critical role at integration—the second speed of the two-speed process. Their adoption and use of new solutions, at scale, across the enterprise is what will enable it to avoid pilot purgatory.

A good example of this rapid realization of pilots comes from a large logistics company, which —with very limited change effort for existing IT systems— achieved operational readiness and impact within two months following the rapid roll-out of a new, integrated dashboard that provided end-to-end transparency across the whole supply chain.

By ensuring your supply chains retain their traditional strengths, while valuing your samurais and ninjas equally in an agile, two-speed approach to digitization, you’ll be able to move through the transformation much more quickly and easily, building impact that’s both significant and sustainable. But to be able to make the most of the transformation, you should act now to get your talent strategies right—particularly at a time when digital skills gaps are becoming apparent—and build the right risk-management processes to allow for effective supply chain innovation.

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