In our increasingly digitized world, few business processes remain untouched by digital transformation. As disruptions to commerce become more common following events such as the COVID-19 pandemic, we can expect more of these business processes to make the transition to the digital age. The digitization of one process in particular — the supply chain — has recently been catapulted to the forefront of business conversations.
Supply chains are the networks that bind a company and the suppliers it relies on to produce and distribute a specific product or service. Once confined to the manufacturing sector, concepts such as supply chain risk, optimization, visibility and resilience are becoming more relevant to businesses across industries and more important for decision-making about future investments into supply chain risk management.
After the onset of the pandemic, supply chains became a hot topic for many mainstream media outlets. Retailers were suddenly out of critical supplies, and people around the world began to realize just how important the global supply chain is to our day-to-day lives.
The COVID-19 pandemic emphasized just how vulnerable traditional supply chains are to these types of disruptions. Recent data shows that organizations which had already invested in efforts to strengthen their supply chains were better off when the pandemic hit. Most notably, these businesses had invested in supply chain risk management: the technologies that support digital supply chains and the processes that enable them.
So what is a digital supply chain? What are the advantages and disadvantages to having one? In this article we’ll explore digital supply chain management, as well as the benefits and risks that come with it. Then we’ll provide steps you can take to create a digital supply chain that’s secure and successful for your business.
What is a Digital Supply Chain?
To better understand digital supply chains, it will be helpful to first examine traditional supply chains. In a traditional supply chain, items travel linearly. Each link in the supply chain is dependent on the success of the functions completed in the previous link.
While this linear model seems simple enough, its success is ultimately determined by how well each step in this process is performed. Most of the time, when an error does occur at one stage in the chain, discovering that mistake can take days or weeks. In this model, a single error could result in missed deadlines and unhappy customers.
A digital supply chain is a set of processes that use advanced digital technologies so that businesses can make better decisions about supplies they need, the demand for their products, and all of the relationships in between.
Where traditional supply chains function in a linear fashion, digital supply chains function more like networks. And unlike traditional supply chains, digital supply chains can provide real-time visibility into the performance of each step along the chain. This visibility into supplier performance and customer needs allows a business to develop more relationships with more suppliers, and better protects the company against disruptions when they occur.
Digital supply chains work by integrating internal systems and data with external information, both structured and unstructured. Using new technologies to collect, monitor, and analyze data, a digital supply chain can help you make predictions and recommend actions in real-time.
Integrating your legacy supply chain management technologies can be a complicated task. It will involve mining data from business processes, as well as retooling your equipment using sensors and monitors so that you can audit manufacturing or logistics processes.
Configuring your equipment is just one aspect of digitizing your supply chain. Once you have the sensors and monitors in place (typically using Internet of Things (IoT) technology, you’ll need advanced analytics to consume all that data you produce and to use it to make predictions about outcomes. The complexity of this data will only grow as the number of suppliers, parts, distributors, and customers that you have grows.
This is where “digital twin” technology can help. A digital twin is a virtual model of a physical product or process. It allows a business to make a digital copy of its supply chain and use that copy to model potential scenarios. With machine learning algorithms, this technology uses predictive modeling and makes recommendations on how businesses should respond to changing conditions.
Digitizing your supply chain will transform your business into a more responsive organization, one that allows you to predict and prescribe actions to take before disruptions occur. Now, let’s take a closer look at some of the other benefits you can expect from a digital supply chain.
Why Are Digital Supply Chains Important?
Unlike a traditional supply chain, a digital supply chain is one that functions in real-time, is dynamic, and can adapt to changing circumstances. Digital supply chains integrate information from information technology (IT) systems and operational technology (OT) systems to optimize profit and service levels. They also allow companies to anticipate issues and then respond without much preplanning.
Here are some of the other advantages to a digital supply chain model:
Digital Supply Chains Are Faster
New approaches to product distribution in the digital supply chain can reduce the delivery time for many products to just a few hours. Using advanced forecasting approaches such as predictive analysis, digital supply chains provide much more precise forecasts of customer demand. As opposed to monthly forecasting, digital supply chains carry out weekly and sometimes daily forecasting for fast-moving products.
One example of this advantage is Amazon’s “predictive shipping” model, which will ship products before a customer even places an order. After the order is placed, it will be matched with a shipment that is already in transit, which is then rerouted to the exact customer destination.
Digital Supply Chains Are More Flexible
Real-time supply chain planning means that businesses can react more flexibly to changing demands or supply situations. By minimizing planning cycles, digital supply chains enable the planning process to become more continuous and more responsive to changing requirements or constraints.
Digital Supply Chains Are More Granular
As the demand for more individualized products rise, there is a strong push toward micro-segmentation and mass customization. Digital supply chains allow businesses to manage customers in much more granular clusters, and also allow customers to select offerings that fit their needs exactly. For example, consider drone delivery, and the potential for individualizing the customer experience at all stages of the supply chain.
Digital Supply Chains Are More Accurate
Digital supply chains provide real-time, end-to-end transparency throughout the supply chain. The information produced ranges from top-level KPIs to granular process data, and this range provides a joining information basis for all levels of seniority and stakeholders along each function in the supply chain.
Digital Supply Chains Are More Efficient
Automating both physical tasks and planning means a boost in efficiency along the supply chain. For example, in a digital supply chain, robots handle the material along the warehouse process, from receiving and unloading, to putting away materials, to picking, packing, and shipping.
All that said, because a digital supply chain leverages new technologies and connects systems that were never meant to be connected to the Internet, it can also introduce new risk to your business.
The Risks of Digital Supply Chains
When determining the potential risks associated with digital supply chains, one immediate concern are the potential security issues associated with the Internet of Things (IoT). In general, supply chain security is something that should be at the forefront of your supply chain risk management program.
IoT sensors can monitor factors such as the temperature of a machine, its physical location, or its energy consumption. An increase in any of these factors could lead to a malfunction or failure, and accurate monitoring lets maintenance teams fix any potential issues before they become critical.
The increased connectivity necessitated by this level of monitoring means that risk can propagate throughout the supply chain network all the way through to (or from) your customers. A digital supply chain gives malicious actors more opportunities to corrupt or disrupt machine processes along each step of the supply chain.
At the same time, upgrading your supply chain will inevitably expose your business to a degree of financial risk, as it will require a hefty capital investment. Deciding whether the benefits of a digital supply chain are worth the financial risk will be up to you. Ultimately, for most organizations, the benefits will outweigh the risks.
Creating a Digital Supply Chain
When it’s time for your business to make the transition to a digital supply chain, always remember this question: how can we use the data we generate to solve problems?
Before you begin creating your own digital supply chain, there are some factors you’ll want to consider:
- Business drivers. Before you begin to digitize your supply chain, recognize the drivers behind this decision. What are your main goals that you would like to accomplish, and how can a digital supply chain help you reach those goals?
- Fear of technology. Traditional supply chains typically employ an “if it ain’t broke, don’t fix it” mindset. Digitizing your supply chain will inevitably introduce new digital technology to your day-to-day business operations, which might make some decision-makers wary. The alternative, however, is to be left behind by your competitors, who are likely already investigating how to take their own supply chain online.
- Metrics for success. Determine what tangible goals you’d like to achieve. For instance, maybe you’d like to cut time-to-market cycles, or add the ability to continually monitor suppliers for incidents that could increase risk.
- Team members. Appoint team members who will be responsible for digitizing your supply chain based on their strengths. You’ll need to include employees or consultants with experience in IoT, big data, blockchain, automation, security, and integration. You should also find an executive sponsor and a develop cross-departmental group so that you have insight into every link in your supply chain to guide your technology specialists.
Now let’s take a look at the steps you should take when creating a digital supply chain that’s secure, and successful, for your business.
Start with the Basics
First, identify existing problems with your current supply chain setup. It’s important that you figure out whether you need to make any process improvements before you add new technology.
Think about what links in your supply chain will be the easiest to digitize, and start there. Remember, your existing supply chain will still need to function while you’re transitioning to a digital model, so it’s important that you create a plan that assures you can continue business operations during the shift.
Assimilate Disparate Functions
Rather than viewing discrete functions such as procurement and manufacturing as disparate elements, focus on how you will achieve desired business outcomes with various stakeholders. During this step, you might want to consider deploying a survey to collect information about needs and assess awareness.
A more holistic approach to digitizing your supply chain will assure that there are no weak links. Think about how you can bring everything together to accomplish the business goals that you’ll set out in the next step.
Define Business Objectives
Try to think beyond operational efficiency here. Consider all the goals you want your business to meet, and think about how your digital supply chain can help you reach those goals. Make sure you keep track of these goals so that you can use the data your digital supply chain produces to confirm whether or not you’re meeting them.
Make It Inclusive
After you appoint a team in charge of upgrading your supply chain, you’ll also need to get everyone else on board. This will involve developing a supply chain message and assuring that it reaches everyone in your organization. You can also use this opportunity to explore technology that will bring together cross-functional teams.
Inventory Your Data
Examine the supply chain information your company is already collecting and decide how that data can be enhanced to better serve your business objectives.
Think about what information your suppliers can share with you in an automated fashion using IoT and APIs, as well as what information you can share with them.
Start with easy goals. That could be using predictive analytics for demand planning, more reliable order processing, smarter logistics planning, warehouse automation or better end-to-end transparency and real-time response to disruptions.
Choose Tools to Help
The right tool can help you automate the transition to a digital supply chain so you can focus on the bigger picture. Supply chain risk management tools exist to help you track and control your supply chain, and these tools can make order intake, shipping, ordering supplies, and taking inventory much more efficient.
Supply chain risk management software can have incredible benefits for your company beyond its intended purpose, and the artificial intelligence and advanced analytics in many of these programs will allow you to create more accurate predictions.
Manage Supply Chain Risks with Reciprocity ZenRisk
One of the most efficient ways to make risk identification and mitigation easier for your business is to employ tools that are designed to help.
Reciprocity ZenRisk is an integrated cybersecurity risk management solution, designed to provide you with actionable insights to gain the visibility you need to stay ahead of threats and communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats and controls for you, so you can spend less time setting up the application and more time using it.
A single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way that’s framed around their priorities, keeping your risk posture in sync with the direction your business is moving.
Reciprocity ZenRisk will even notify you automatically of any changes or required actions, so you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.
Plus, Reciprocity ZenRisk is seamlessly integrated with Reciprocity ZenComply so you can leverage your compliance activities to improve your risk posture with the use of AI. Built on the Reciprocity ROAR Platform, the Reciprocity product suite gives you the ability to see, understand and take action on your IT and cyber risks.
Now, through a more proactive approach, you can give time back to your team with Reciprocity ZenRisk. Talk to an expert today to learn more about how the Reciprocity Product Suite can help your organization mitigate cybersecurity risk and stay ahead of threats.