Digital transformation is redefining supply chains in almost every industry. These new-age supply chains are characterized by internet connectivity, digital communications, and cutting-edge technologies such as artificial intelligence (AI), the Internet of things (IoT), cloud computing, predictive analytics, and more.
These next-generation networks leverage the power of data to shorten planning cycles, accelerate time-to-market, increase productivity, and improve decision-making. Digital supply chains are resilient and adapt quickly to changing circumstances – a huge benefit in the post-pandemic era plagued with global supply chain disruptions.
Nonetheless, digital supply chains are still subject to challenges and risks that affect their resilience, sustainability, and value-creation ability. For these reasons, practical and ongoing digital supply chain management is critical.
What Is a Digital Supply Chain?
A digital supply chain refers to the digital aspects of a physical supply chain. It encompasses the network of technologies and technology providers involved in delivering products and services; and is created by applying advanced digital technologies to the supply chain ecosystem and processes.
Drawbacks of a Traditional Supply Chain
Limited visibility is a big drawback of a traditional supply chain, according to 84 percent of respondents in one IBM study. This lack of visibility creates inefficiencies and leads to waste. Moreover, an error in any one step may not be discovered for days or weeks, resulting in delays, errors, and slower time-to-market.
Equally important, the traditional supply chain isn’t very agile. It’s less responsive to changing market conditions or disruptions, such as Covid-19. These issues can damage customer experiences, weaken business models, and ultimately harm the profitability of many companies in the supply chain.
Why Is the Digital Supply Chain Important?
A digital supply chain addresses the issues of a traditional supply chain. It leverages multiple technologies that help an organization to make predictions, prescribe actions, and integrate many systems and processes. That integration generates powerful synergies that increase the chain’s agility and minimize the impact of disruptions.
These technologies also eliminate manual transactions, paper-based processes, and siloed functions. They make real-time, actionable data available to stakeholders and supply chain leaders, which improves the supply chain’s performance, productivity, and efficiency. Big data helps to illuminate current trends, make predictions about future trends (or disruptions), and improve decision-making to boost profitability and competitiveness.
In the digital supply chain, automation and digital technologies also:
- Increase production speed and accelerate time-to-market;
- Improve collaboration between various entities throughout the supply chain;
- Reduce costs, rework, and wastage;
- Help with process optimization, forecasting, demand planning, and resource planning.
The digital supply chain empowers organizations to focus on long-term innovation rather than short-term firefighting. They can also increase their visibility into the risk landscape and take steps to protect themselves from many sources of disruptions.
Finally, digitization helps businesses to excel at demand fulfillment since they can now focus on satisfying customer needs for speed, personalization, choice, and experiences. They also improve customer satisfaction by increasing on-time delivery.
To achieve and maintain all these benefits, it’s crucial to streamline the digital supply chain, address its risks, and optimize the performance of its functions. This is where digital supply chain management comes in.
What Technologies Are Used for Digital Supply Chain Management
According to Gartner, by 2023 at least half of large global organizations will use digital initiatives such as AI, advanced analytics, and IoT in supply chain operations. Here are some specific examples of advanced technologies helping to realize digital supply chain transformation:
- Robotics and robotic process automation (RPA);
- Software as a service (SaaS);
- Natural language processing (NLP);
- Big data;
- Virtual reality (VR), augmented reality (AR), mixed reality (MR);
- Voice-activated technology;
- 3-D printing.
Technology #1: AI and ML
Artificial intelligence and machine learning in digital supply chains help drive enterprise-wide visibility across the supply chain, with granular insights that humans cannot generate. AI also helps:
- Improve supply chain planning, particularly capacity and resource planning;
- Streamline inventory management;
- Forecast seasonal demand and discover new trends in customer demand;
- Improve warehousing management to avoid damage, create better working conditions, and enhance worker safety.
Technology #2: IoT
IoT is also transforming digital supply chain operations. First, IoT devices and sensors provide an effective way to track products and shipments using technologies like GPS. IoT devices can also monitor storage conditions of raw materials, inventory, and finished goods to improve quality management throughout the supply chain.
Some other ways IoT creates new opportunities for supply chain improvements:
- Authenticate the location of goods moving along the supply chain;
- Predict how goods move through the supply chain and when they will arrive at an intended destination;
- Route planning and contingency planning for alternative routes.
Technology #3: Blockchain
Most people are familiar with blockchain as an enabler of cryptocurrencies. The technology also holds great promise in digital supply chains since it can:
- Improve collaboration and coordination among supply chain partners;
- Enhance the traceability of products;
- Provide end-to-end data transparency throughout the supply chain and along the entire product lifecycle;
- Support real-time product tracking to reduce the cost of moving items in the digital supply chain;
- Establish trust among participants to minimize conflict and ensure smooth operations.
In addition to the three technologies explored here, a digital supply chain may also incorporate other technologies such as:
- Robotics to speed up assembly and palletization;
- Predictive analytics to forecast demand;
- Virtual reality to improve process visualization and product design;
- Cloud computing to enhance visibility, track products and shipments, and support scalable operations.
The Role of Data in the Digital Supply Chain
A traditional supply chain is all about planning and reacting. While planning is also vital in digital supply chains, these ecosystems also support predictions, analyses, and response plans to a degree far beyond anything a traditional supply chain would allow. This is because of data.
Data provides the visibility into the supply chain necessary to identify gaps, streamline processes, and increase efficiencies. This visibility allows stakeholders to collaborate to address risks and disruptions early and to improve decision-making for better overall outcomes.
These advantages are not possible in traditional supply chains; many functions and processes work in silos, which means they rarely share data or leverage synergies. As a result, it’s difficult to spot problems and predict the likely effects. In digital supply chains, such bottlenecks can be eliminated.
In traditional supply chains, most decision-making is done by humans based on machine inputs. These decisions are influenced by human biases and perspectives, which can lead to errors. In digital supply chains, machines drive decisions with the help of data and human oversight, which invariably creates better outcomes for the entire supply chain.
Finally, a digital supply chain incorporates technologies such as big data and predictive analytics. These advanced technologies collect, monitor, and analyze data from internal processes and external sources, to make predictions and recommend actions in real-time. This data can be shared with multiple stakeholders along the supply chain.
All that said, increased connectivity in the digital supply chain also exposes systems to cybersecurity threats. Attackers can corrupt or steal data, break into digital systems, and manipulate them to work incorrectly. Since data plays such a vital role in the digital supply chain, detecting supply chain threats is crucial. So is protecting data from these threats and bad actors.
What Are the Key Challenges of the Digital Supply Chain?
As explained above, digital supply chains leverage many advanced technologies. These supply chain solutions deliver benefits that are not available in traditional supply chains.
These same technologies also create some risks, particularly cybersecurity risks. Since a digital supply chain is interconnected and complex, it offers a broad attack surface, making every entity vulnerable to supply chain attacks.
For example, IoT sensors and devices are closely connected to each other. This increased connectivity means that a threat at one device can quickly propagate across the entire network. Similarly, data could get corrupted at any part of the supply chain, degrading the chain’s overall performance and leading to delays or errors.
Another drawback is that upgrading a supply chain requires some capital expenditure. Maximum benefits are realized when the entire supply chain is optimized digitally, but not every company in the ecosystem may be able to afford these capital investments.
The Benefits of Digital Supply Chain Management
Despite the risks and challenges of the digital supply chain, there is no question that the benefits outweigh the potential costs. Digital supply chain management can help companies to avoid disruptions, manage risks, and improve productivity, efficiency, and profitability. With the right solutions, organizations can also:
- Run fast and efficient procurement processes;
- Use supply chain visibility to improve performance and address gaps;
- Streamline production with minimal waste;
- Improve asset performance and reliability;
- Create connections among systems, people, and processes to improve collaboration and accelerate innovation.
How to Create a Digital Supply Chain Strategy
Moving away from a traditional supply chain and adapting to the digital era can be a challenge for some companies. By following proven practices, organizations can minimize complexity and ensure a smooth transition to digitization.
To start, you must understand your current supply chain and analyze all possible complications and risks of a digital supply chain implementation. There will be growing pains, and your organization must have resources in place to work through them.
Assess the digital maturity and readiness of suppliers and other third parties. Specifically, identify what risks each supplier brings into the system. Early and ongoing risk assessment and supplier management strategies are imperative to set up a risk prevention and mitigation program.
Set Goals and Metrics
As with any initiative, you must set actionable goals and business objectives. Verify that the digital technologies you are investing in will meet your identified goals and expectations.
Determine and prepare metrics to measure success and opportunities for improvement. Corrective actions and contingencies should be planned in advance in case you don’t meet expected targets, to assure business continuity during the digital transformation. Design specific responses for each identified problem.
Involve all stakeholders in discussions about digital technologies in the supply chain. You must communicate the expected benefits of digitization to all stakeholders to secure their support and adoption. These conversations build trust among supply chain partners and assure that the digital components deliver the anticipated benefits.
It’s crucial to address fear of new technology and resistance to change. Your digital transformation initiatives will not be successful without complete adoption from employees and third-party partners. Change management and comprehensive training on your digital technologies will improve acceptance and build excitement.
You will never be “done” with your digital transformation. There will always be more opportunities to optimize processes as new technologies advance. Regularly review performance to support continuous improvement and take advantage of advanced analytics and automation.
Security and overall risk management are also vital components of ongoing monitoring. Cybersecurity, supplier analyses, due diligence, and ongoing third-party risk management must be firmly established in your digital supply chain management program.
Successful supply chain management requires a long-term, forward-thinking, active approach. This helps to assure system stability over time and prepares the supply chain for various future risks and disruptions.
Digital Supply Chain Management Made Easy with Reciprocity ROAR
In the coming years, digital supply chains will help drive greater profits for every stakeholder, including customers. But increased digitization also increases the risk of cyberattacks and supply chain disruptions. Reduce such risks with enhanced visibility into your digital supply chain. Try Reciprocity ROAR from Reciprocity.
Reciprocity ROAR is an automated, integration-ready solution to manage risk, compliance, governance, policy, and audits. It’s a single source of truth to store policies and procedures, track workflows, and manage supply chain risks.
Insightful reporting and dashboards provide visibility to gaps and high-risk areas. By better understanding your risk landscape, you can take action to protect your business from cyberattacks, avoid costly data breaches, and monitor the security posture of your vendors.
Schedule a demo to see how Reciprocity ROAR can bring more value into your digital supply chain.