Why Digitizing Supply Chain Management Will Lead to Greater Efficiency in the New Normal
Companies are facing an array of challenges including persistent national labor shortage, physical space constraints and last-mile logistics challenges, among others when it comes to supply chain and distribution operations. Digitization of supply chain management operations can solve these problems and ensure efficient delivery service. Readwrite lists the benefits of digitizing SCM.
Going by Deloitte’s report on the performance of SMBs in a digital world, the majority of SMBs have not digitized their supply chain management. Since much of the world has gone digital, this means that several SMBs remain backward and struggle with inefficiency in supply management.
The digitization of supply chain operations helps companies to cut costs and save time, leading to overall increased efficiency.
While many supply chain operations would have been hampered by the effects of the COVID-19 pandemic, as businesses reopen, a digital transformation, tailored to each company’s needs and circumstances, is necessary. Digital tools and technologies that would boost supply chain management include automation, IoT, cloud computing, and analytics.
Benefits of Digitizing SCM
1. Real-Time Visibility
According to a survey, 84% of Chief Information Security Officers admitted to the lack of visibility being their biggest challenge. Lack of visibility creates blind spots and lets vulnerability fester until operations break down significantly, and revenue and profit reduce. This begs a reimagination of supply chain management, with the focus being delivering end-to-end visibility in real-time.
Apparently, businesses need to have 70–90% visibility on supply chain operations to address key volatility points efficiently. Only digitization makes this possible.
2. Data Integration
Digitizing supply chain management fosters interoperability and eliminates lags that the chain would have experienced otherwise. It also helps to maintain integrity and trust among partners.
In digital supply chain management, the information does not flow linearly, but rather simultaneously, whereby each point’s details are available to every other point.
This results in smoother decision-making and collaboration from planning to execution. The ultimate benefit is the ability to meet customers’ demands responsively. According to E2open, “Collaborating earlier in the product lifecycle reduces development and turnaround time, with a marked increase in fill rates averaging 10% to 15%.”
3. Predictive Maintenance
The advantage of real-time visibility is not just repairing structural deficiencies as soon as they appear, but more in addressing them before they become obvious. Artificial intelligence and analytics particularly come into play here, significantly increasing the accuracy of predictions. In short, a digital supply chain is a predictive supply chain.
Producing too much is often as bad as producing too little. But with advanced technologies, supply chain managers can gain detailed insights into operations and make smart decisions to forestall disruptions.
4. Cash Flow Improvement
Digitization does not only affect supply chain operations but finance as well. On the one hand, it optimizes operations, which directly helps to preserve and boost cash flow. Research shows that digitizing the supply chain can lower operational costs by up to 50% and increase revenue by 10%.
SCM Digitization Technologies
- Internet of Things
RFID has been used to track the exact location of logistics goods and materials, rendering barcode scanners and other similar means obsolete. Radio data transfer also eases communication across channels on the chain, such that broader details, including the condition of the assets, can be shared with colleagues.
Bluetooth, NFC tags, and GPS perform similar functions on different scales. And on a higher level, there are autonomous robots. These technologies are transforming inventory monitoring and warehouse management as a whole.
IoT technology in supply chain management is useful for determining the exact location of items in real-time, tracking movement, and monitoring the items’ storage conditions. These ensure safer and smoother delivery and reduce the operational back-and-forth that characterized traditional models of authenticating items.
- Advanced Analytics
Supply Chain Analytics is an emerging aspect of SCM that uses quantitative data to extrapolate insight and optimize decision-making about the supply chain. Supply chains are complicated, and it is necessary to have an advanced system that helps managers make sense of all the data and information being gathered.
SCA is divided into:
- Descriptive analytics: ensuring visibility
- Predictive analytics: projecting future trends
- Prescriptive analytics: solving problems
- Cognitive analytics: answering questions by mimicking human reasoning
Take, for example, predictive analytics, which monitors data patterns to determine probable future trends. Predictive analytics helps managers to intelligently forecast future demand by analyzing several variables and how they affect demand. This helps them adjust operations as necessary and ultimately eliminate unnecessary costs associated with over- or under-supplying. And of course, there is the benefit of predictive maintenance.
The use of predictive analytics by supply chain managers increased to 30% in 2019 from 17% in 2017, while 57% of non-users plan to adopt it within the next five years, according to the 2020 MHI Annual Industry Report.
- Cloud Computing
Accenture describes cloud computing as “the engine that makes supply chains talk to each other.”
Cloud computing allows you to integrate multiple platforms and data sources for seamless operations and flexibility. Rather than hoarding information in silos, thereby hindering collaboration, the cloud uses a network model that makes resources and data available on demand. This heightened responsiveness and agility boost the speed and efficiency of operations.
Also, cloud computing features a usage-based approach that makes them highly scalable. You can quickly meet new demands by ‘plugging in’ more resources and tools. And you can likewise scale down to focus on a particular niche or market segment.
In any case, it is understandable that the bleak state of cloud cybersecurity has made many companies reluctant to move their operations, including SCM, to the cloud. But frankly, this is up to your cloud provider and overall security consciousness. Measures to protect your system from hacking and data loss abound.
Based on a survey of professionals, warehouse automation receives more investment (57%) than any other supply chain technology, including predictive analytics (47%) and IoT (41%).
The adoption of automation in supply chain operations has been on a steady rise in recent years. A Mckinsey report identifies the following three factors as responsible: a growing shortage of labor, an explosion in demand from online retailers, and some intriguing technological advances.
Automating automatable tasks frees up labor for tasks that require strictly human input. But it is one thing to recognize that automation drives efficiency; it is another actually to adopt it. And in reality, most companies still lean towards manual rather than automated operations. This is due to specific challenges, such as fluctuating customer demands. This particularly puts the biggest companies at an unequal advantage.
However, there are many options available when it comes to automation. A business only needs to understand its market to make the right choices concerning automating their work.
Despite the abounding benefits and potentials of digitizing supply chain management, it is not without its obstacles. For instance, in some cases, government regulations are behind in innovation, mandating manual approaches even when there are better, digitized options.
Also, the process of digitizing the supply chain is not a small undertaking and is one that must be carried out in bits. With a sudden overhaul, you risk upsetting your entire business model.
Digitizing supply chain management leads to efficiency, and the biggest companies acknowledge this and act appropriately. According to Gartner, “by 2023, at least 50% of large global companies will be using AI, advanced analytics, and IoT in supply chain operations.” It is the SMBs that must strive to catch up and optimize its supply chain with digital tools.