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Digitization in Isolation Won’t Serve the Supply Chain

Navigating the modern supply chain and all the new tech required to outfit it can be likened to a game of dodgeball, where the company is the target facing a flurry of novel concepts coming at them all at once.

That’s the scenario many in the industry find before them, and it’s been to blame for putting companies at a loss for what to do first. The trouble, however, is that the consumer isn’t slowing down for the company to figure out how to get itself up to speed.

“Most of our lives have already become digital. We live in a virtualization world where we cannot live without our cell phones, we cannot live without access to the internet on a daily basis…and that needs to be mimicked in the supply chain,” AlixPartners managing director Murali Gokki said speaking on a panel at the Sourcing Journal Summit in Hong Kong last month. “There needs to be a stronger integration of the physical and virtual world, and we believe that companies who fail to do that are already on the track to the end.”

Though most companies aren’t willing to meet their demise and some will drag it out to the bitter end, some aren’t willing to pony up the funds to futurize their processes either.

“It requires some significant investment, which is not necessarily what we’ve seen over the last 10 to 20 years,” McKinsey & Company senior partner Dr. Achim Berg, said.

For a long time, investment favored the front end over the back end, and despite forward movement, most companies aren’t far removed—if removed at all—from fax machines and Excel spreadsheets. Now, companies need to move from analog to integrated systems in order to digitize their supply chain processes.

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“That will require quite some OPEX [operating expense] and CAPEX [capital expenditure] investments,” Berg said. And those that don’t spend will suffer. “That will lead to some shakeout because that’s not only about slower and faster, it’s also about big and small because some of the smaller [players] won’t be able to make those investments.”

While buzzwords like blockchain and artificial intelligence and 3-D design fly around, companies are turning to consultants to help them demystify all the tech talk and fuel faster, more efficient supply chains. Some are starting solely with the thing they can understand, like 3-D design, implementing that, and expecting wide-reaching evolution.

“It’s really digitalization from end-to-end. It’s the whole chain. It’s not about those smaller pieces of it—3-D design on its own won’t change the whole thing,” Berg said. “If you use 3-D design in an early stage, if you do virtual samples and if you do sell-in as a wholesale company with those virtual samples, if you even use it in the end with e-commerce partners for testing your product, that’s when it becomes meaningful.”

The idea, he continued, is to have access to the whole data flow along the end-to-end supply chain process. That’s the first step in digitization.

For many companies, product lifecycle management (PLM) systems have been the first step in digitization as they use the tech to get one department talking to the next about what’s going on in the supply chain. But as PwC Strategy& Principal Dr. Axel Nitschke, added, few have really leveraged the opportunities those suites have provided.

“It’s becoming a little bit of a game,” Nitschke said, nodding to the glut of PLM offerings out there. “It’s not a question of getting the greatest piece of technology, the technology that’s most out there. It’s taking those great solutions along the whole supply chain for order transmission, PLM, design, development, quality and implementing them now.”

It will mean a more connected supply chain of the future, according to Nitschke, but the necessary connectivity won’t only come from tech.

“I would say it’s connected across departments who are involved. It’s supported by digitization, it’s sustainable, and last but not least, it’s entrepreneurial,” Nitschke said, stressing that the entrepreneurial part will be key to the shift away from the old ways or working, where the retailers took the risk and the wholesaler took the pre-order.

It was a nice way of working until it wasn’t working.

“Now we have to manage insecurity with our partners across the whole supply chain, and to do so, you really have to be entrepreneurial,” Nitschke said. “The core of being the winner in the future is being able to make decisions in the right way and in a fast way.”

Whether it takes a PLM system, an order management system or a 3-D virtualization system to get there, Gokki said many companies are keen to build a beautiful system to adopt one day down the line and hopefully see value out of it “someday,” before they stop to assess the real value the system will deliver for the company.

“You should be dead focused on value from day one,” Gokki said. That focusing on delivering value should align with the way the company is adopting technology if there’s to be hope of an enterprise-wide implementation that won’t be investments made in vain.

Taking that thought beyond the organization and to the consumer, Berg stressed that a company’s technology adoptions will only be as valuable as their relevant contribution to the end consumer.

“It doesn’t really make sense to move to six weeks from 12 weeks if your consumer doesn’t appreciate that. In the end, it’s very dependent on the consumer, the category you’re operating in, and your overall business model,” Berg said. “Find the right speed for your company, your consumer. Find the right technology for that and don’t run after the latest buzzword…I think that’s where a lot of companies fail because they’re not close enough to their consumer.”