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The Supply Chain Management Blog covers the latest in SCM strategy, technology, and innovation.

What is The Right Way to Digitally Transform Your Supply Chain?

Guest Author

Rahul Asthana, Product Marketing Strategy & Execution

Some of the most important advances in human history have occurred when a new technology appears that radically improves on an age old problem.  Take the challenge of getting from point A to B and the difference made in our lives as humans went from walking, to horseback riding, to driving, to flying. Or take the art of communicating, and the new possibilities that have occurred because letters have been replaced by e-mail and instant messaging.

Digital Transformation is a set of new technologies bringing radical change to age old supply chain problems.  In the process, Digital Transformation is not just rewriting the rules for coordination and efficiency in supply chain management, but also creating new possibilities for customer engagement in ways that were unimaginable before.  Take, as an example, an automobile manufacturer.  The traditional approach to doing business is to forecast demand for their cars based on historical data, build to this forecast and place the cars at dealerships for sale.  This was a process fraught with inaccuracy and lead to either excess inventories or lost opportunities for revenue.  Imagine, now, how things change with Digital Transformation and the ability to use IoT to connect to each car and to each customer.  With connected cars, automobile manufacturers can collect usage data (e.g. miles driven, times driven) and contextualize this data with product, demographic and income information to make individual predictions on which exact customers will buy a new car in the coming year.  This is very different from traditional approaches.  With Digital Transformation, aggregate statistical forecasts become individualized predictions.  Importantly, these individualized predictions are actionable.  If a car manufacturer sees a particular customer using their car consistently during rush hour, they can offer a program to move that customer to an electric car that allows them to travel in the carpool lane (at least in California).  This is a real sea change from the way demand management is done today.  It can create new avenues for growth.

With all of its potential to create new avenues for growth, though, a question remains. If a company does want to digitally transform their supply chain, how should they go about doing so? What is the right approach?

To answer this question, it’s useful to understand all the elements required in digital transformation, and then to see the best way to acquire and implement them.

The Elements of Digital Supply Chain Transformation

Digital transformation, at its core, is about closing information gaps in supply chain management.  Digital supply chain transformation achieves this through three mechanisms. The first is to collect more and better data from all possible and relevant sources.  The second is to contextualize this data with business information from enterprise business applications.  The third is to analyze data (in context) in order to derive new insights.  Once insights are obtained, any transformations required must be executed.  This requires applications that are “digitally threaded,” or designed to manage digital information throughout complete supply chain processes.  Executing transformations also requires an underlying infrastructure that is agile and flexible.  In other words, digital transformation must be built on a cloud infrastructure.  These requirements lead to six elements to properly enable digital supply chain transformation.

Data Fabric.  Creating a “data fabric” to collect data from both internal and external sources is an essential part of any digital supply chain transformation.  To collect internal process information, many companies already rely on technologies such as digital scanners.  With Digital Transformation, new technologies such as IoT and Blockchain have become available to collect information from beyond the four walls of the enterprise.  With IoT companies can collect information from distributed assets.  With Blockchain, it has now become possible to securely collect information from trading partners throughout the value chain.

Contextual Data.  Supply chains are, by definition, cross functional.  Managing supply chains touches the finance function, the procurement organization, warehousing, human resources, and customer relationships, among others.  Any digital supply chain transformation must account for information in all these different functions.  This makes it very important to incorporate contextual data from ERP, CRM, HR and SCM systems when digitally transforming supply chains.

Data Management.  If there is one defining characteristic of digital supply chain transformation, it is that it runs on a lot of data.  This is data collected from the “data fabric” as well as contextual data from enterprise systems.  If digital supply chain transformation is to succeed, this data must be securely and well managed in enterprise grade databases.

Data Analytics.  The sea change possible with digital transformation is achieved in large part through the application of Machine Learning and Artificial Intelligence to data.  These advanced analytic technologies provide new insights and predictions that are the basis for closing information gaps in supply chain management through digital transformation.

Digitally threaded Processes: All supply chains run on processes that define the coordination required to match supply to demand.  These include, for example, the Procure-to-Pay process that coordinates the purchase of raw materials required for production, or the Order-to-Cash process that defines how finished goods are managed in inventory and distributed for fulfillment to customers.  For digital transformation to work, it must be enabled by these supply chain processes.  This requires, in turn, that the supply chain applications supporting these processes are “digitally threaded.”  That is, the applications are able to inter-connectedly execute the insights provided by the digital transformation technologies.

Cloud Infrastructure.  Digital transformation requires change in the way business is run. It can require frequent change as new data informs new ways businesses should operate.  If digital supply chain transformation is to succeed, it must be enabled by a flexible cloud infrastructure foundation.

These six elements create the “Digital Supply Chain Transformation” stack, as illustrated by Figure 1.  If an enterprise wishes to unlock the benefits of digitally transforming their supply chains, they will need to take advantage of the full stack.  This leads to the important question:  What is the best approach for enterprises to adopt this digital transformation stack?

Figure 1:  The Digital Supply Chain Transformation Stack

Enabling the Digital Supply Chain Transformation Stack

There are three approaches available to enterprises to digitally transform their supply chains.  The first option is to leverage platform services to build their own digital transformation applications.  The second option is to use a best-of-breed point supply chain application.  The third is to enable the full Digital Supply Chain Transformation stack using integrated technologies from a single provider.  Given these three options, the challenge for enterprises is to understand which offers the best path to realizing the benefits of digital supply chain transformation.

Platform:  This option is provided by platform services such as Amazon Web Services, Google Cloud, Microsoft Azure and Salesforce.  These platforms provide tool kits for the technologies in Digital Transformation, including IoT, Blockchain, and Machine Learning.  Leveraging these technologies, enterprises can build small, niche applications. The challenge, though, is since they cannot natively access contextual enterprise data, nor leverage integrated enterprise grade database and data management capabilities, nor ensure any platform applications are embedded into digitally threaded supply chain management applications, the digital supply chain transformation is incomplete.  This is illustrated in Figure 2, where the use of Platform services leads to a “Digital Transformation Void”

Figure 2:  The “Digital Transformation Void” Created by Platform Services

Point Applications:  The second option available to enterprises is to attempt to digitally transform their supply chains using point solutions from best-of-breed vendors.  The challenges this creates are many.  Point application vendors, even if they have the depth of research and development to leverage digital transformation technologies, do not natively contextualize data using ERP, CRM and SCM data.  Additionally, as point solutions, they cannot create a digital thread to manage complete supply chain processes.  Often times, point solutions vendors do not build their applications on flexible cloud foundations, but instead rely on hosted cloud models that are highly inflexible.  This end result is that enterprises opting for this approach really do have a “Digital Transformation Chasm” (as shown in Figure 3) that prevents them from realizing the benefits of digital transformation.

Figure 3:  The “Digital Transformation Chasm” created by point supply chain applications

Integrated Digital Transformation Stack:  The third option is to leverage a fully integrated digital transformation stack.  This approach is available only if a single provider can support the set of business applications spanning ERP, HR, CRM and SCM so they can provide contextual data.  It is also only available if the provider has experience managing enterprise grade databases that can manage high volumes of data.  The provider must also be able to provide the data fabric through expertise in IoT, and Blockchain as well as derive insights from this data fabric using advanced analytics.  The provider must offer a solution that can execute digital transformation recommendations through digitally threaded supply chain management applications.  Importantly, the stack must be built on a true cloud infrastructure to enable change.

 

Summary

The sea change importance of digital supply chain transformation in creating business value is increasingly being recognized.  McKinsey, the consultancy, for example, has calculated digital transformation can raise revenues by over 2%, reduce supply chain transportation costs by more than 15% while cutting inventory costs by more than 35%.  With these results, the unanswered question still remains that the best path for adopting technologies to maximize the value of digital transformation has not been defined.  Of the choices customers have, the best approach is to use a full digital transformation stack from a single provider.  Interestingly, it turns out there is only one provider that has the full set of database, application, and analytics smarts to deliver this stack.  That provider is Oracle.

 

      

 

 

 

 

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