Digital supply chains are one of the hottest topics for supply chain executives right now, and with good reason. According to a recent McKinsey report on apparel sourcing, “more than two-thirds of sourcing executives expect to have digital portals up and running to foster transparency and collaboration both with external suppliers and internal colleagues.” The report notes that companies expect digitization to help them reduce lead times by two to eight weeks, with a cost reduction of at least 2.5%.
But how do you turn the promise of digital supply chains into reality? To realize the benefits touted above, companies must be able to continually rebalance supply and demand to react with speed and agility to constantly changing demand signals. They must also improve supply chain execution in order to optimize sales, profit and inventory positions.
Barriers to supply chain digitization
There are barriers to getting there with today’s analog supply chains. The critical stages of the supply chain–planning, product development, sourcing, assortment, production, distribution and replenishment–all too often act as separate business units. Information is disconnected, siloed, and slow-moving; it typically stays within the department and doesn’t readily flow over to other areas of the business. There are significant time lags as information is handed off, and the amount of data is overwhelming and ever-changing, which limits a company’s ability to make critical, timely decisions.
As a result, companies struggle to keep supply and demand in alignment. The results include overstocks, which lead to bloated inventory and profit-eating markdowns, and out-of-stocks, which result in missed sales and customer attrition.
There is a better way, however, and that’s where the concept of supply chain synchronization comes in.
Synchronization is the key
To deliver on the benefits of digital supply chains, companies must synchronize every aspect of supply chain optimization, planning and execution throughout their supply chain network–bringing together previously disparate disciplines, departments, vendors and technologies into a single ecosystem that ties everyone and everything together. Information and departments that were previously siloed and disconnected become part of a synchronized digital supply chain, where all activities are orchestrated, information flows freely, and companies can easily adjust to changing demand signals.
A synchronized supply chain has four distinct capabilities that can help drive increased sales and profits.
The ultimate goal of a synchronized, digital supply chain, for one, is to quickly get product to consumers who want to buy it, and it’s something that siloed, disconnected supply chains can’t accomplish.
Secondly, for a synchronized supply chain to work, companies have to position materials, capacity and finished goods to react to demand. To get there, it will take product development, where teams not only build the product to meet the line plan, but also over-develop in certain categories that are doing well, so they can quickly put new products into production when demand is strong. Vendors can then be evaluated based not only on price and quality, but also lead time and capacity. Companies may also choose to handle replenishment production closer to home to minimize delivery time, while using overseas vendors for basic goods and initial floor sets.
With a synchronized supply chain, companies will closely forecast their raw material requirements, place commitments with multiple suppliers, and draw down the commitments as POs are issued and the materials are consumed. This reduces the risk of holding too much or too little inventory to meet demand.
The other element of successful supply chain synchronization is to identify and execute the best supply/demand adjustment. As demand changes, companies must consider what they can do to quickly optimize their assortments. If sell-through on a new style is stronger than anticipated in New York, which means stores will be out of stock in three weeks, what are your best options to optimize profit? Do you ship by air freight, boat, or transfer goods from the warehouse, or from one store to another?
With the current state of supply chains, it’s difficult to sift through massive amounts of data to quickly determine the fastest, most profitable way to get the goods where they need to be. Synchronizing and digitizing the flow of information in a connected ecosystem is the only way to understand and react to changing demand signals.
The fourth key to this better connected supply chain is the ability to predict future demand. As planning systems continue to advance, they are beginning to calculate demand based not only on historical sales, but also current POS data, external events, social sentiment, changing weather patterns, and other factors, each of which impacts demand.
These capabilities provide a snapshot of what companies are hoping to accomplish by synchronizing and digitizing their supply chains. Machine learning and AI are increasingly being incorporated into the supply chain networks, since the massive amounts of data and various options for each opportunity are too vast for humans to quickly and accurately analyze.
Companies are making great strides in supply chain synchronization as digital supply chains quickly move to maturity. Given the current rate of digital transformation, the lofty goals of the McKinsey survey seem well within reach.
Mark Burstein is president of NGC Software, where he is responsible for product strategy and also leads the company’s sales, marketing and research and development operations. He has extensive industry experience in global sourcing and supply chain management and actively works with retailers and fashion brands on enterprise initiatives including lead time optimization, operational efficiency and digital supply chain strategies.