Competing Via the Digital Supply Chain

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Competing Via the Digital Supply Chain

Since the first wave of business process reengineering in the early ‘90s, companies have used digital supply chain technologies to improve service levels and reduce costs. However, constraints—including the inability to connect disparate systems, provide end-to-end visibility into the supply chain, and crunch massive amounts of data—prevented most companies from achieving the full potential of their supply chains.

Now, as we near the end of the Transition Phase and approach the Deployment Phase of the Digital Techno-Economic Revolution, the wide availability and adoption of more powerful digital technologies (mobile networks, sensors, advanced analytics, and cloud-based solutions) are enabling companies to generate dramatically better returns on their investments.

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A recent study by The Boston Consulting Group (BCG) shows that “the leaders in digital supply chain management are enjoying competitive advantages over digital supply chain laggards.1 These include:

  • Increases in product availability of up to 10 percentage points.
  • More than 25 percent faster response times to changes in market demand.
  • 30 percent better realization of working-capital reductions, on average.
  • 40 percent to 110 percent higher operating margins.
  • 17 percent to 64 percent fewer cash conversion days.

With the help of three key strategies, these agile companies are quickly leaving behind their less nimble competitors.

What are these strategies?2

First, they fix performance gaps. Digital supply chain leaders apply digital technologies to the supply chain problems that are too cumbersome to address with conventional approaches. For example, advanced analytics help managers calculate optimal inventory allocations and forecast demand more accurately; these two areas have always been difficult with traditional processes that depend on a static, monolithic enterprise resource planning (ERP) system.

Often, the newer digital technologies “ride on top of the legacy systems,” making them more flexible and easier to operate. By using the new to enhance the proven, these companies avoid the work-arounds that often plague new technology rollouts. Ultimately, these companies create a single, trustworthy model of the entire supply chain; this improves decision making and customer service, as well as asset and working-capital utilization.

This “trustworthy model” provides transparency in the supply chain. Real-time visibility into which goods are in the warehouse, which trucks are on the road, and which machines are running is difficult to achieve with traditional ERP systems...

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