Why is a Digital Supply Chain So Important?

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Much like any other process in production companies in the current global business climate, supply chains are becoming more and more digitalised as time marches on. However, despite this growing trend, there are still those that stick to more traditional supply chain management methods, even though the data shows digitalisation is profitable. So why is a digital supply chain so important to adopt and what are some of the reasons it fails? Read on to find out.

The vitality of the digital supply chain

Historically, it perhaps worked to simply order products from a known supplier by physically making contact with them. Then, they would send you an order and an invoice to pay, tracking numbers to follow your shipment (or you would pick it up), following which, the products are receipted into the store and used in the manufacturing process or sold on. Then, the store clerks or managers are required to check the products for when they are running low and subsequently re-order them; and the entire cycle repeats.

This works fine for a boutique or small outfit where the number of transactions and suppliers are not too numerous and everything can be kept in order. If this model were implemented in a large manufacturing company with several hundred outlets in different countries and several hundred suppliers to boot, it would fall over on its face relatively quickly.

This is where digital supply chains emerge as the true heroes. They promote effortless and accurate ordering that analyses stock as it is bought at checkout, sending notifications to the warehouse or even straight to an online ordering system with the supplier.

This type of ordering model is efficient, seamless and creates a situation where virtually as soon as any product is used or sold, it is replaced. As this has been adopted and rolled out in several organisations, it has created an expectation among consumers that products are always available whenever they require them. With an expectation like this, and competition that fulfils and perpetuates it, companies really have no choice but to jump on the bandwagon to stay competitive.

If you need more convincing, let us consider the numbers. A 2017 McKinsey study found that supply chains had the lowest level of digitalisation out of five key business areas, with a value of only 43%. However, when they analysed companies that made supply chain digitalisation a key focus, they found there was an annual boost in growth (before tax) of 3.2%. This is largest growth attributable to digitalising any business area.

Reasons for slow adoption or failure of digital supply chains

When digitalising the supply chain, it is important to not only consider gains in terms of ease of use, improved accuracy or better fulfilment but rather to also consider the transformation of the entire supply chain.

It was found that some businesses who adopted digitalisation willingly and saw some improvements in their supply chain did not experience transformation for one simple reason. Operational change needs to occur hand in hand with digitalisation for the best results. This means that management choices and ground-floor operations need to change to collaborate with and bring out the best in technological advances. Likewise, if a company is eager to change operational processes but lacks the technological support, the results will be slow to improve.

So how should a supply chain be digitalised?

The basic transformation approach should be adopted in conjunction with leading supply chain technologies. This dictates that a vision for the future supply chain should be established, the current state of the supply chain should be analysed and then a transformation roadmap should be composed to get the company from where they are to where they want to be. The analysis of the company’s current supply chain should involve how technology and operations can be integrated and whether or not the company’s organisational structure and talent pool support operational change.

These can be some hard questions to ask and changes to make, however, the results of a digital supply chain are better customer experiences, enhanced company performance and a possible annual revenue growth of 2.3% according to one study. It is certainly worth the effort!

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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