Supply Chain Digitalization: Shaking Hands with a New Business Partner

Recently in my speaking, I have enjoyed the discussions with audiences on the possibilities of process redefinition and value delivery from the confluence of new technologies in today's supply chains. The process implications of the confluence of technologies in Figure 1 are endless. The discussions are fun!

Figure 1. Confluence of New Technologies Driving Supply Chain Process Advancement

In the conversations, terms like digital and digitization are bandied about like popcorn hopping from a kettle on a hot summer day. As the words fill the air, they lack clarity. They are not actionable. So, when I ask, "What is the digital supply chain?", the face of the audience will show both shock and relief. It is shock because I asked, and relief because no one is sure of the definition. Why? There is no common definition in the industry. I find that few will raise their hand and ask a speaker for a definition. We are navigating a sea change in the market. Here I share what I think this means and how to shake hands to become a partner with the digital supply chain:

1. Digitization is not Digitalization. Let's start by recognizing that digitization is not digitalization. What is the difference? When we digitize a process we translate a state into a digital signal. Digitalization takes this signal as a process input and translates the myriad of inputs into a digital output. This takes many forms. The process of mapping signals is important, but it is not the end state. Let's take an example. EDI document transmits and digitizes data, but the current EDI processes do not enable the digital supply chain. Why? The signals are not bi-directional or processed at the speed of business. Another example is sensor data in manufacturing. Most manufacturing plants have multiple Programmable Logic Controllers (PLCs) and Sensors. These technologies transmit outputs, but our current processes do not use these outputs to drive a digital manufacturing transformation. In redefining manufacturing to a digital manufacturing strategy, companies use the digital signals to redefine maintenance down times, sense shifts in speed to alert based on prescriptive analytics(or bots) for quality, and transmit the signals to robotics and wearables for hands-free operations. (The list of how the signals can be used in manufacturing is endless. These are a short list of examples.) In short, in today's supply chains, we have many signals. Our challenge is translating these signals into digital process outputs.
2. The Digital Supply Chain Makes Much of What we Know Today Obsolete. The movement to the digital supply chain makes much of our traditional thinking obsolete. This transition is very uncomfortable for supply chain teams. An example is the building of outside-in processes which makes inside-out thinking obsolete. Today’s processes are very focused on orders and shipments. For example, does the digital supply chain require an order? If a drone uses pattern recognition to monitor real-time inventory, how does this change warehouse management? If cognitive engines replace and redefine supply chain planning, what is the role of collaborative forecasting? If machine learning can read master data, do we need to hard-code data? What is the role of ERP in the digital supply chain as we transition from transactional-based process flows based on ERP-based SCM platform thinking to systems thinking using open source based cognitive computing? The list is endless, but the challenge is reinventing the possible to drive new value.
3. Accelerates Value Networks. While companies talk value networks, the focus of automation within companies today is enterprise-centric. As a result, companies are driving marginal improvement. We are treading the same ground over and over again. The transition from EDI to blockchain enables banking disintermediation and the sharing of data between trading partners securely real-time. The use of these technologies requires the definition of multi-tier process capabilities. For example, how should companies share demand data? What are the possibilities for supply chain finance? In this transition, what is the role of banking? How do we collaborate in new ways and build trust? I firmly believe that the human element will be the toughest obstacle.
4. Disintermediation of 3PLs and Redefinition of BPO Relationships. Machine learning and rule automation will eliminate the need for a Business Process Outsourcing Relationship and redefine third-party logistics. New business models will evolve. Smart 3PLS will lead the transformation. We will have to learn to touch things--paper, excel spreadsheets, and keyboards-- less often.
5. Evolution of the Learning Organizations. In today's organization, the gulf between IT organizations and line-of-business leaders is large. The role of IT has been more focused on "keeping the lights on", and as a result, there is little funding for innovation. In parallel, line-of-business leaders are struggling to keep up with the pace of innovation. The companies that will move the fastest will recognize that this shift requires a redesign of organizational thinking to embrace technology. This includes partnering with best-of-breed technologists, building small cross-functional teams to test new technologies and structured/active learning focused on process innovation. Companies need to invest and fund process innovation. Today, most only fund product innovation. There has been an assumption that software brings "best practices" and the focus is on implementation. In the building of the digital supply chain, this is not longer the case.

So, as you build your strategies for the new year, I hope that you have time to reflect on how you shake hands with your new business partner--the digital supply chain transformation--to drive new levels of value. As you reach out your hand, be prepared to learn from the past to unlearn to embrace the future. The toughest journey is the "unlearning."

I welcome your thoughts.