Supply Chain In The Digital Era

Supply Chain Management has evolved rapidly since the 1990 s with the dawn of the internet. Small as well as large suppliers dispersed across the globe leveraged the internet through trading platforms to reach out to organization's looking for competitiveness in their supply base. At the downstream end of the supply chain i.e the end consumers starting using the internet extensively for product comparisons and shopping. Organizations who adapted their supply chains to cater to such dynamics generated increasing revenues and healthier margins. Yet again the organizations in a relatively short span of 20 odd years are facing another challenge i.e. how to adapt their supply chains to excel in the Digital Era. In order to explore answer to such a question one first needs to define the characteristics of the Digital Era that are relevant from the point of view of supply chains.

Digital Era is essentially built on the foundations of the increasing reach and penetration of the internet combined with the increase in the computing power of the microchip, reduction in cost of data storage and emergence of machine learning.

Each of the driver of the Digital Era are influencing the supply chains in different ways. Widespread internet connectivity combined with the emergence of the social media has made the task of forecasting and shaping consumer demand extremely hard. Demand driven supply chain is based on fundamental fact that the underlying customer segments are well defined and supply chains could be configured differently for different customer segments. In the Digital Era, each consumer is a segment in himself/herself because the buying behavior is very unique to the person in question. The supply chain cost-to-serve increases exponentially as the size of the customer segment reduces hence it is virtually impossible to create supply chains that could cater to each and every nano-segment. At the same time, a dissatisfied consumer today can cause real and visible impact on a company’s topline and even reputation by spreading his/her dissatisfaction far and wide using the power of social media in a highly networked World. So, how to configure effective and efficient supply chains in the Digital Era? The interesting thing is that some of the technological advancements that have helped usher in the Digital Era itself could provide the much needed answer.

The data storage costs have reduced dramatically. This has vital impact on supply chains operating in the  Digital Era. Before we delve into more detail on this particular aspect, it will be better to comprehend the context of technological advancements that have helped shape modern supply chains. Starting in the Mid 80 s, the emergence of Enterprise Resource Planning Applications operating on robust databases transformed the way supply chains operated by breaking down functional boundaries within the organization and replacing them with business process oriented way of working and thinking. In the early 90 s with the emergence of internet and communication protocols like EDI made extended and virtual supply chains possible. With the evolution of middleware technologies and services oriented architecture, the supply chains became virtual networks with each entity in the supply chain operating in a synchronized fashion trying to fulfill the supply chain objectives. It is imperative to note, that none of this technology driven evolution of supply chains would have been possible without the evolution of underlying databases. What this evolution of database together with the reduction in the cost of storage has done is that today’s virtual supply chains have become gold mines of business critical data. And this has significant impact on building and improving supply chains. 

In the Digital Era, the best-in-class supply chain strategy would depend increasingly on collecting data from multiple points in the end-to-end supply chain, mining the customer and vendor data, deriving insights on customer purchasing behavior and vendor performance as linked to responsiveness and agility in the supply chain, understanding why the customers migrated to competition and where the supply chain could not fulfill its ultimate objective of delivering the right product in time to the right customer in the right condition and as per customer’s expectations and so on could immensely help configuring multiple effect supply chains. Simulations on the data could be done to derive connection between profitability of the multiple supply chains and their performance relative to competition in the market. With the emergence of AI based predictive algorithms and their application which is based on the fact that the computing power of today’s microchips has increased exponentially, the data becomes a living entity changing and evolving over time. The predictive nature of data analysis could help merging and de-merging of multiple supply chains based on strategic business objectives that vary over time in response to industry cycle and competitive landscape. For example, an apparel fashion company that serves its customers differently on store specific buying behavior patterns incurring high customer satisfaction but lower profitability in face of increasing price pressure from competition could offer standard designs at low price throughout the year and bring innovative designs periodically. Now, the supply chains in both the cases are different with different objectives. If there is a national supply chain for bringing standard design at low price through the wholesale channel then the portion of the above retail supply chain needs to merge with this to derive economies of scale whereas the portion of the supply chain that caters to introducing periodic innovative designs could exist independently. Similarly, there could be various permutations and combinations of supply chains. This takes the notion of flexibility in the supply chain to a whole new level. Hence, the Digital Era supply chains will be fluidic merging and de-merging, disappearing and re-appearing and in this way organizations will be able to survive and thrive in the hypercompetitive marketplace.

Extending the evolution of technology of AI further to intelligent machines, the nature of production oriented supply chains is changing dramatically. I think it will be quite possible to achieve the holy grail in supply chain i.e. achieving a batch size of one throughout the supply chain and that too profitably. If the machines could start and stop production automatically based on supply, demand and bottleneck parameters then it would be like living in the machine era at least on the shop floor looking at the unfolding magic in front of our eyes. The production value chain cannot work in isolation of the upstream and downstream supply chains. It is not hard to imagine that the last production operation on the production line could automatically signal a driverless truck to come to the bay as soon as the truck capacity is achieved thereby eliminating a lot of process steps and paperwork required to move, store, pick/pack and ship stuff in the traditional sense. Extending this analogy to the upstream supply chain, the first operating machine in the production value chain could place orders to vendors automatically and that too multiple small orders in a day for raw materials and components based on again supply, demand and bottleneck parameters.

Overall, the Digital Era will usher in new developments in the field of Supply Chain Management both theoretical research based literature, thinking and teaching as well as myriad practical applications to convert the next gen theory into practice. For the next couple of decades, real exciting times lie ahead for Supply Chain theoreticians and practitioners alike!