Digital Transformation in the Supply Chain: Trends, Themes, and Challenges

In this article, we’ll take a close look at digital transformation in the supply chain.

As with any other industry, the supply chain is undergoing significant digital disruption.

Below, we will look at a few of the top trends, themes, and challenges around digitally-driven transformation in this industry.

Specifically, we will see:

• What digital transformation looks like in the supply chain ecosystem
• Major digital transformation trends
• Which technologies are being invested in

To start, let’s find out what digital transformation means in the context of the supply chain.

Digital Transformation in the Supply Chain: A Quick Snapshot

According to McKinsey, the average supply chain has digitization levels of 43%. 

This is the lowest level of any sector examined in their survey.

Of course, these results do not suggest that supply chains are not undergoing digital transformations.

Automation is occurring at links all along the chain:

• Factories are automating production
• Warehouses are making use of robotics to automate transportation of goods
• Supply chains can use predictive modeling to predict customer demand
• Customers can monitor and track the status of their deliveries

Some of these emerging technologies are already being applied by more digitally mature companies.

Amazon, for example, is well-known as a pioneer in warehouse automation and delivery tracking.

They are also paving the way for further automation, through, for instance, drones and automated vehicles.

Change invites uncertainty – so it is only reasonable to weigh the benefits of “smart” logistics against past models.

Here are a few benefits of “Supply Chain 4.0,” according to McKinsey:

• Predictive analytics and forecasting can speed up fulfillment. Advanced digital platforms, for instance, can fill the supply pipeline before customers even place orders, based on predicted demand.
• Fully digitized supply chains will also be more flexible. New capabilities allow businesses to be more agile and flexible. Functions can include the ability for customers to reroute orders that are already en route. Or businesses can purchase supply chain services on demand.
• Supply chains will become more granular and individualized. Microsegmentation, mass customization, and other personalization techniques will greatly improve the customer experience.

On top of this, McKinsey claims, digitally mature supply chains will be more efficient and more accurate.

Current Trends in the Digital Supply Chain

We have seen some of the biggest advantages of a digital, automated supply chain.

A quick look at the benefits above make it clear that a digital supply chain offers significant, unfair advantages over non-digital supply chains.

Here are some current trends in supply chain management, according to Jabil:

• Customer expectations are changing rapidly. Today’s digitally savvy end user expects faster delivery times and the ability to personalize their orders.
• Products are becoming more complex. The Internet of Things (IoT) is helping to integrate physical products with the supply chain (think Amazon’s experimental dash buttons).
• Product life cycles are shortening. In an increasingly competitive environment, companies are shrinking their product renewal cycles. This also pushes companies to pre-plan their supply chain and logistics functions.
• Outsourced manufacturing is becoming more common. However, this can also add complexity, which drives many companies to adopt ERP and MRP systems.
• The globalizing supply chain is opening new frontiers. Companies can tap into labor and suppliers from anywhere in the world.
• Executives are gaining a deeper understanding of the supply chain’s value. Given some of the benefits mentioned earlier, it is no surprise that businesses are starting to see the competitive value of digitized supply chain management.

These sweeping trends are pushing many organizations to adopt new digital technology … the tools that enable transformation.

Digital Adoption in the Supply Chain

In Jabil’s 2018 Supply Chain Technology Trends report, 93% of respondents claimed to be investing in new technology that impacts their business in some way.

Technologies being adopted by supply chain and logistics companies include:

• Reporting (40%)
• Integration with supplier customer systems (38%)
• Logistics (33%)
• Automated or semi-automated workflow (32%)
• Cloud applications or infrastructure (28%)

To name just a few.

Future technology investments include many of the areas mentioned by McKinsey:

• Manufacturing automation
• Robotics
• Big data analytics
• IoT
• Machine learning and AI

Like McKinsey, Jabil felt that AI would have a significant, revolutionary impact on the supply chain.

However, they also identified massive potential in up-and-coming technologies, such as 3D printing. 

Not all digital technologies generate the same returns, of course. Different technologies generate different returns for businesses of different sizes. 

Takeaways

Supply chain management and logistics may be slightly lagging in terms of digitization. 

But digital transformation and adoption are inevitable – and they will reshape the entire supply chain from end to end.

Automated, digital supply chains will:

• Improve customer experiences
• Change the way businesses collaborate
• Become more automated, more efficient, and more effective

Ultimately, tomorrow’s supply chain will look very different from the supply chain of yesterday.

However, organizations should remember that the benefits of a digital supply chain far outweigh the costs of transformation.

More importantly, digital transformation is necessary for survival in the coming digital age.