Overview and Background
The drivers for transforming to digital-based business models remain compelling, but with increasing supply chain process complexity and business uncertainties, prioritizing these initiatives to the most compelling line of business and functional needs remains challenging for some supply chain management teams. New evidence in a recent supply chain planning digitization study sheds light on the drivers, expectations and state of planning transformation in North America.
In our Ferrari Consulting and Research Group’s 2019 Predictions for Industry and Global Supply Chains, which was published at the start of this year, we stated our Prediction Five, which indicated: Supply Chain Management Digital Transformation Strategies Will Require Strategic Roadmaps and Specific Tactical Business Case Support. Specifically stated:
“We predict that many broad-based supply chain management teams will require and seek more definite transformation roadmaps related to overall digital business transformation. Overall advanced process and technology investment efforts need to be guided by short- and longer-term line-of-business alignment needs.”
Essentially our belief was that in 2019, the emphasis would turn tops-down, with senior management orchestrating overarching goals and frameworks, and bottom-up with articulation of the people, process and advanced technology capabilities necessary to sustain such a transformation.
A study conducted by supply chain services company Spinnaker, with collaboration with supply chain planning software provider ToolsGroup titled: Digital Transformation in Supply Chain Planning: On Pace or at Risk?, was released in late September. This study concluded among other key findings, that only 7 percent of companies are reaping the benefits of the digital transformation of supply chain planning.
In this blog commentary, we wanted to dwell on some the key findings that Supply Chain Matters found insightful as well as share our ongoing insights on overcoming roadblocks in digital transformation efforts.
The ToolsGroup study verifies that external business pressures, namely volatile product demand and unpredictable customers are at least a moderate supply chain planning challenge, requiring companies to adopt new business models and technologies to enhance supply chain resiliency. Data as to whom in the organization is leading such efforts reinforces CEO, Line of Business (LOB) and Board level efforts are driving supply chain planning digital transformation. That should be applauded.
The notions that 58 percent of respondents are still in an exploration stage brings forward the challenges in developing and articulating a roadmap, as well as addressing significant change management issues.
Factors to Consider
One of the most important takeaways from the ToolsGroup survey is the statement: “Smart insiders hire digital expertise into their teams and lead them to success based on an understanding of how to use digital to serve the business.”
Further noted from this and other surveys are clear indicators that more than one LOB and functional voices are required for driving successful broad-based transformation.
From our perspective, the two most prevalent forms of digital transformation that are emerging among multi-industry supply chain landscapes are either planning and materials management, or logistics and customer fulfillment focused digital transformation. Each represents a fundamental leg of business process and decision-making, digital process characteristics, as well as important change management considerations. They further represent two fundamental aspects of business performance, one related to overall business, manufacturing and supply chain operations, the other being service and responsiveness to particular customer needs. Both have strong dependencies and implications to one another and must be interrelated. Hence the need for tops-down transformation and change management leadership. This can often be a trip point.
The digital transformation roadmap has to umbrella both short and longer-term business outcome and process transformation needs in both of these areas while addressing action planning to augment organizational talent, data and process alignment requirements.
Digital Transformation of Supply Chain Planning
One of the unique challenges of supply chain and material management planning that was reinforced in this study were the notions of volatile or unpredictable customer and product demand. Customer expectations continue to become more demanding across multiple industry sectors. More demanding customers often leads to product stock keeping unit (SKU) proliferation which becomes a significant inventory cost problem. Hence the increased importance for deeper capabilities in planning and decision-making capabilities that hone-in on service level driven planning coupled with product postponement strategies within the time fence of customer fulfillment.
Today, digitization of planning increasingly involves the application of high-speed data management, artificial intelligence and machine-learning capabilities to automate the mundane transactional aspects of supply chain planning. Other ongoing research and survey data indicates that the role of planners changes significantly with digital technologies, moving from a predominant facility or business focused tactical planning role to that of a network-wide planner or termed value-chain strategist where she or he focuses on exceptions, risk avoidance and scenario-based decision-making processes.
The trap that some organizations fall into is advocating digital supply chain planning transformation as solely a cost reduction benefit vs. a re-skilling and enhanced capabilities initiative that supports digital transformation of business wide processes.
The skill impacts are obviously real, and the recruiting of either internal or external consulting based digital natives helps to specifically define the scope of digital based supply chain planning along with overarching process and skill development needs.
Our ongoing commentaries and client interactions continue to emphasize that digital transformation can and does provide new business opportunities as well as significant benefits. Like any other wide-scope business change effort, the end state requires broad and bold vision coupled to multi-phase manageable phases that can each separately establish meaningful business, service focused and financial value, while mapping toward the end-state capabilities.
Supply chain planning digital transformation has high dependencies on broader processes, hence the critical importance of both tops-down and bottom-up joint efforts. It is about solving problems and making the best-informed decisions that have value to measured customer and LOB outcomes. Transformation is manifested in the democratization of data, in deeper analytics, as well as proactive and predictive based decision-making.
Indeed, as noted in the Executive Summary of the ToolsGroup report: “Digital transformation marks a radical rethinking of how an organization uses technology, people and processes to improve business performance.”
Such a transition is not a singular milestone that occurs in mere months but rather a series of milestones over a manageable time horizon, each phase of which provides incremental benefits. Special attention needs to be placed on overall supply chain planning since this process represents the overall control system of planning, production, fulfillment and overall agility in required decision-making.
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